Money and Banking Ch 4
Interest-rate risk is the riskiness of an asset's returns due to A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the asset's maturity.
A
The ________ is below the coupon rate when the bond price is ________ its par value. A) yield to maturity; above B) yield to maturity; below C) discount rate; above D) discount rate; below
A
The ________ of a coupon bond and the yield to maturity are inversely related. A) price B) par value C) maturity date D) term
A
The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's A) coupon rate. B) maturity rate. C) face value rate. D) payment rate.
A
When talking about a coupon bond, face value and ________ mean the same thing. A) par value B) coupon value C) amortized value D) discount value
A
A fully amortized loan is another name for A) a simple loan. B) a fixed-payment loan. C) a commercial loan. D) an unsecured loan.
B
All of the following are examples of coupon bonds EXCEPT A) corporate bonds. B) U.S. Treasury bills. C) U.S. Treasury notes. D) U.S. Treasury bonds.
B
The yield to maturity is ________ than the ________ rate when the bond price is ________ its face value. A) greater; coupon; above B) greater; coupon; below C) greater; perpetuity; above D) less; perpetuity; below
B
Which of the following are TRUE for discount bonds? A) A discount bond is bought at par. B) The purchaser receives the face value of the bond at the maturity date. C) U.S. Treasury bonds and notes are examples of discount bonds. D) The purchaser receives the par value at maturity plus any capital gains.
B
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 A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.
A
A discount bond is also called a ________ because the owner does not receive periodic payments. A) zero-coupon bond B) municipal bond C) corporate bond D) consol
A
All bonds that will not be held to maturity have interest rate risk which occurs because of the change in the price of the bond as a result of A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the asset's maturity date.
A
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of A) 5 percent. B) 8 percent. C) 10 percent. D) 40 percent.
A
Another name for a consol is a ________ because it is a bond with no maturity date. The owner receives fixed coupon payments forever. A) perpetuity B) discount bond C) municipality D) high-yield bond
A
If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is A) $650. B) $1,300. C) $130. D) $13.
A
The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the A) initial price. B) face value. C) interest rate. D) coupon rate.
A
There is ________ for any bond whose time to maturity matches the holding period. A) no interest-rate risk B) a large interest-rate risk C) rate-of-return risk D) yield-to-maturity risk
A
A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.
B
An equal decrease in all bond interest rates A) increases the price of a five-year bond more than the price of a ten-year bond. B) increases the price of a ten-year bond more than the price of a five-year bond. C) decreases the price of a five-year bond more than the price of a ten-year bond. D) decreases the price of a ten-year bond more than the price of a five-year bond.
B
Prices and returns for ________ bonds are more volatile than those for ________ bonds, everything else held constant. A) long-term; long-term B) long-term; short-term C) short-term; long-term D) short-term; short-term
B
Which of the following are TRUE of fixed payment loans? A) The borrower repays both the principal and interest at the maturity date. B) Installment loans and mortgages are frequently of the fixed payment type. C) The borrower pays interest periodically and the principal at the maturity date. D) Commercial loans to businesses are often of this type.
B
Which of the following are generally TRUE of all bonds? A) The longer a bond's maturity, the greater is the rate of return that occurs as a result of the increase in the interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for short-term bonds are more volatile than those for longer term bonds. D) A fall in interest rates results in capital losses for bonds whose terms to maturity are longer than the holding period.
B
For simple loans, the simple interest rate is ________ the yield to maturity. A) greater than B) less than C) equal to D) not comparable to
C
The ________ is calculated by multiplying the coupon rate times the par value of the bond. A) present value B) face value C) coupon payment D) maturity payment
C
If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 5 percent. B) 10 percent. C) 50 percent. D) 100 percent.
D
The interest rate on a consol equals the A) price times the coupon payment. B) price divided by the coupon payment. C) coupon payment plus the price. D) coupon payment divided by the price.
D
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 A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.
C
The ________ is the final amount that will be paid to the holder of a coupon bond. A) discount value B) coupon value C) face value D) present value
C
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 ________. A) positively; rises; rises B) negatively; falls; falls C) positively; rises; falls D) negatively; rises; falls
D
Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate.
C
A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date. A) coupon bond; discount B) discount bond; discount C) coupon bond; face D) discount bond; face
D
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 A) simple loan. B) fixed-payment loan. C) coupon bond. D) discount bond.
D
A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of A) 3 percent. B) 20 percent. C) 25 percent. D) 33.3 percent.
D
A coupon bond that has no maturity date and no repayment of principal is called a A) consol. B) cabinet. C) Treasury bill. D) Treasury note.
A
Examples of discount bonds include A) U.S. Treasury bills. B) corporate bonds. C) U.S. Treasury notes. D) municipal bonds.
A
If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is A) $37.50. B) $3.75. C) $375.00. D) $13.75
A
If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is A) 0 percent. B) 5 percent. C) 10 percent. D) 20 percent.
A
If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? A) a bond with one year to maturity B) a bond with five years to maturity C) a bond with ten years to maturity D) a bond with twenty years to maturity
A
The yield to maturity for a discount bond is ________ related to the current bond price. A) negatively B) positively C) not D) directly
A
The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. A) current yield B) discount yield C) future yield D) star yield
A
A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of A) .6 percent. B) 5 percent. C) 6 percent. D) 10 percent.
C
A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid. A) coupon bond; discount B) discount bond; discount C) coupon bond; face D) discount bond; face
C
The interest rate that equates the present value of payments received from a debt instrument with its value today is the A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate.
C
An equal increase in all bond interest rates A) increases the return to all bond maturities by an equal amount. B) decreases the return to all bond maturities by an equal amount. C) has no effect on the returns to bonds. D) decreases long-term bond returns more than short-term bond returns.
D
The price of a consol equals the coupon payment A) times the interest rate. B) plus the interest rate. C) minus the interest rate. D) divided by the interest rate.
D
The riskiness of an asset's returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) asset risk. D) interest-rate risk.
D
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of A) face value. B) par value. C) deflation. D) discounting the future.
D
Which of the following are TRUE for a coupon bond? A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. B) The price of a coupon bond and the yield to maturity are positively related. C) The yield to maturity is greater than the coupon rate when the bond price is above the par value. D) The yield is less than the coupon rate when the bond price is below the par value.
A
Which of the following are generally TRUE of bonds? A) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. D) Prices and returns for short-term bonds are more volatile than those for longer-term bonds.
A
A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity. B) pays the bondholder the face value at maturity. C) pays all interest and the face value at maturity. D) pays the face value at maturity plus any capital gain.
B
