Money & Banking Chapter 4.2, Ch 4 Econ 3311, MB Chaper 4 Quiz, chapter 4, Midterm #1 Quiz Practice, Chapter 4 Quiz, Chapter Three, Mishkin Chapter 3 What is Money?, Chapter 3, Monetary Policy Chapter Three, Money and Banking Ch 3, Econ 130 Q1, Econ 2...

What is the return on a 5 percent coupon bond that initially sells for​ $1,000 and sells for​ $900 next​ year?

-5%

The return on a 5 percent coupon bond that initially sells for​ $1,000 and sells for​ $950 next year is

0 percent

If​ $22,050 is the amount payable in two years for a​ $20,000 simple loan made​ today, the interest rate is

5 Percent

Consider a coupon bond that has a par value of ​$1,000 and a coupon rate of 8​%. The bond is currently selling for ​$1,055.78 and has 2 years to maturity. What is the​ bond's yield to maturity​ (YTM)?

5% P= 1,055.78/(1.08)....

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? A) 9 percent B) 10 percent C) 11 percent D) 12 percent

B

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is A) 5 percent. B) 10 percent. C) 12.5 percent. D) 15 percent.

B

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

real

The present value of a fixed-payment loan is calculated as the​ ________ of the present value of all cash flow payments

sum

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

Answer: A

Which of the following are generally true of bonds? A) The only bond whose return equals the initial yield to maturity is one whose 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 bonds 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.

Answer: A

The present value of an expected future payment​ ________ as the interest rate increases.

falls

You decide to purchase a new home and need a ​$80 comma 000 mortgage. You take out a loan from the bank that has an interest rate of 5​%. What is the yearly payment to the bank to pay off the loan in 10​ years? FP​ =

$10,360.37

If the interest rate is 15​%, what is the present value of a security that pays you ​$1,125 next​ year, ​$1,210 the year​ after, and ​$1,350 the year after​ that

$2,780.84 PV= 1125/(1.15) + 1210/(1.15)^2 + 1350/(1.15)^3

If the amount payable in two years is​ $2420 for a simple loan at 10 percent​ interest, the loan amount is

$2000

Find the price of a 7.50​% coupon bond with a face value of ​$4000​, a 12.00​% yield to​ maturity, and 5 years to maturity. PV​ = Price of the bond​ =

$3,351.14

A consol paying​ $20 annually when the interest rate is 5 percent has a price of

$400

What is the real interest rate if the nominal interest rate is 12​% and the expected inflation rate is 6​% over the course of a​ year?

6%

If you borrow ​$200 from a friend and in 3 years that friend wants ​$250 back from​ you, what is the yield to maturity in the​ loan? Yield to maturity​=

7.72%

A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of A) 8 percent. B) 10 percent. C) 12 percent. D) 14 percent.

A

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

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

An increase in the time to the promised future payment ________ the present value of the payment. A) decreases B) increases C) has no effect on D) is irrelevant to

A

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is A) 5 percent. B) 10 percent. C) 22 percent. D) 25 percent.

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 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. A) present value B) future value C) interest D) deflation

A

The present value of an expected future payment ________ as the interest rate increases. A) falls B) rises C) is constant D) is unaffected

A

Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond with a price of $600 B) A 5 percent coupon bond with a price of $800 C) A 5 percent coupon bond with a price of $1,000 D) A 5 percent coupon bond with a price of $1,200

A

The interest rate that describes how well a lender has done in real terms after the fact is called the

ex post real interest rate.

Which of the following $1,000 face-value securities has the lowest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 15 percent coupon bond selling for $1,000 D) A 15 percent coupon bond selling for $900

A

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 bonds would you prefer to be buying? A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

A

Which of the following​ $1,000 face-value securities has the highest yield to​ maturity?

A 12 percent coupon bond selling for​ $1,000

Which of the following​ $5,000 face-value securities has the highest yield to​ maturity?

A 12 percent coupon bond selling for​ $4,500

A) The present value of a loan in which ​$5000 is to be paid out a year from today with the interest rate equal to 2​% is B) If a loan is paid after two​ years, and the amount ​$3000 is to be paid then with a corresponding 3​% interest​ rate, the present value of the loan is ​

A) $4,901.96 B) $2,827.79

Which of the following are generally true of all bonds? A) The longer a bonds 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.

Answer: B

Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond you are holding? A) 5 percent B) 10 percent C) 15 percent D) 20 percent

Answer: C

The ________ is defined as the payments to the owner plus the change in a securitys value expressed as a fraction of the securitys purchase price. A) yield to maturity B) current yield C) rate of return D) yield rate

Answer: C

The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is A) -10 percent. B) -5 percent. C) 0 percent. D) 5 percent.

Answer: C

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900 next year? A) 5 percent B) 10 percent C) -5 percent D) -10 percent

Answer: 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.

Answer: D

The riskiness of an assets returns due to changes in interest rates is A) exchange-rate risk. B) price risk. C) asset risk. D) interest-rate risk.

Answer: D

What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year? A) 5 percent B) 10 percent C) -5 percent D) 25 percent

Answer: D

Which of the following are generally true of​ bonds?

A​ bond's return equals the yield to maturity when the time to maturity is the same as the holding period.

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

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

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 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

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

A consol paying $20 annually when the interest rate is 5 percent has a price of A) $100. B) $200. C) $400. D) $800.

C

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

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

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

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is A) $1000. B) $1210. C) $2000. D) $2200.

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 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

Which of the following $1,000 face-value securities has the highest yield to maturity? A) A 5 percent coupon bond selling for $1,000 B) A 10 percent coupon bond selling for $1,000 C) A 12 percent coupon bond selling for $1,000 D) A 12 percent coupon bond selling for $1,100

C

With an interest rate of 6 percent, the present value of $100 next year is approximately A) $106. B) $100. C) $94. D) $92.

C

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

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 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

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the concept of A) face value. B) par value. C) deflation. D) discounting the future.

D

Which of the following $5,000 face-value securities has the highest to maturity? A) A 6 percent coupon bond selling for $5,000 B) A 6 percent coupon bond selling for $5,500 C) A 10 percent coupon bond selling for $5,000 D) A 12 percent coupon bond selling for $4,500

D

__________is based on the notion that a dollar paid in the future is less valuable than a dollar paid today.

Present Discounted Value

The​ ________ is defined as the payments to the owner plus the change in a​ security's value expressed as a fraction of the​ security's purchase price.

Rate of return

Which of the following are true concerning the distinction between interest rates and​ returns?

The rate of return on a bond will not necessarily equal the interest rate on that bond.

All of the following are examples of coupon bonds except

U.S. Treasury bills

An equal increase in all bond interest rates

decreases long-term bond returns more than short-term bond returns.

The​ ________ interest rate is adjusted for expected changes in the price level.

ex ante real

An equal decrease in all bond interest rates

increases the price of a ten-year bond more than the price of a five-year bond.

The riskiness of an​ asset's returns due to changes in interest rates is

interest rate risk

Calculate the yield to maturity ​(YTM) for a​ one-year coupon bond with a purchase price of ​$800​, a face value of ​$1,000​, and a current yield of 5​%. The yield to maturity on the bond given above is_____________ the YTM of a similar ​$1,000 ​20-year bond with a current yield of 10​% selling for ​$800.

30% Greater than

If a security pays​ $55 in one year and​ $133 in three​ years, its present value is​ $150 if the interest rate is

10 Percent

If the nominal rate of interest is 2​ percent, and the expected inflation rate is minus10 ​percent, the real rate of interest is

12 percent

What is the yield to maturity on a 2​-year, ​$1 comma 000 discount bond with a current price of ​$947​? Yield to maturity​ =

2.8%

If you expect the inflation rate to be 4 percent next year and a one year bond has a yield to maturity of 7​ percent, then the real interest rate on this bond is

3 percent

A coupon bond with a face value of ​$800 that pays an annual coupon of ​$300 has a coupon rate equal to What is the approximate​ (closest whole​ number) yield to maturity on a coupon bond that matures one year from​ today, has a par value of ​$990​, pays an annual coupon of ​$70​, and whose price today is ​$1004.50​

38% 6%

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

6 percent

The sum of the current yield and the rate of capital gain is called the A) rate of return. B) discount yield. C) pertuity yield. D) par value.

Answer: A

Open Question Your favorite uncle advises you to purchase long-term bonds because their interest rate is 10%. Should you follow his advice?

Answer: It depends on where you think interest rates are headed in the future. If you think interest rates will be going up, you should not follow your uncles advice because you would then have to discount your bond if you needed to sell it before the maturity date. Long-term bonds have a greater interest-rate risk.

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

Answer: A

Interest-rate risk is the riskiness of an assets returns due to A) interest-rate changes. B) changes in the coupon rate. C) default of the borrower. D) changes in the assets maturity.

Answer: A

Which of the following are true concerning the distinction between interest rates and returns? A) The rate of return on a bond will not necessarily equal the interest rate on that bond. B) The return can be expressed as the difference between the current yield and the rate of capital gains. C) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t + 1. D) The return can be expressed as the sum of the discount yield and the rate of capital gains.

Answer: A

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.

Answer: 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

Answer: 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

If a consol has a price of $500 and an annual interest payment of $25, the interest rate is A) 2.5 percent. B) 5 percent. C) 7.5 percent. D) 10 percent.

B

The interest rate on a consol equals the

Coupon payment divided by the price

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

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is A) $10,030. B) $10,300. C) $13,000. D) $13,310.

D

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

Decreases

A​ ________ is bought at a price below its face​ value, and the​ ________ value is repaid at the maturity date.

Discount, Face

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

Fisher

The yield to maturity is​ ________ than the​ ________ rate when the bond price is​ ________ its face value.

Greater; Coupon; below

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

There is​ ________ for any bond whose time to maturity matches the holding period.

No interest rate risk

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.

Examples of discount bonds include

U.S. Treasury bills

A discount bond is also called a​ ________ because the owner does not receive periodic payments.

Zero Coupon Bond