Money & Banking Quiz 4

A credit market instrument that pays the owner a fixed coupon payment every year until the maturity date and then repays the face value is called a

coupon bond.

The interest rate on Treasury Inflation Protected Securities is a direct measure of

the real interest rate.

Economists consider the ________ to be the most accurate measure of interest rates.

yield to maturity

What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

$453.51

The ________ interest rate more accurately reflects the true cost of borrowing.

real

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a

simple loan.

If the nominal rate of interest is 2 percent, and the expected inflation rate is -10 percent, the real rate of interest is

12 percent.

An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of

5 percent.

A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of

6 percent.

Which of the following bonds would you prefer to be buying?

A $10,000 face-value security with a 10 percent coupon selling for $9,000

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation.

Fisher equation

In which of the following situations would you prefer to be the lender?

The interest rate is 4 percent and the expected inflation rate is 1 percent.

All of the following are examples of coupon bonds except

U.S. Treasury bills.

Examples of discount bonds include

U.S. Treasury bills.

An increase in the time to the promised future payment ________ the present value of the payment.

decreases

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

discount bond.

The ________ is the final amount that will be paid to the holder of a coupon bond.

face value

Interest-rate risk is the riskiness of an asset's returns due to

interest-rate changes.

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

negatively; rises; falls

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

present value