Question 1

With respect to U.S.Treasury bills,

Accepted Answer

A)   the bid price is always greater than the asked price.
B)   the asked price is always greater than the bid price.
C)   the bid price is only greater than the asked price if investors expect interest rates to decline in the future.
D)   the asked price is only greater than the bid price if investors expect interest rates to decline in the future.E) B) and D)
F) All of the above

Question 2

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Accepted Answer

A)   6%
B)   6.38%
C)   5.3%
D)   Not enough information has been provided to determine the answer.E) A) and D)
F) None of the above

Question 3

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

Accepted Answer

A)   7.50%.
B)   8.33%.
C)   its yield to maturity.
D)   Not enough information has been provided to calculate the current yield for this bond.E) C) and D)
F) All of the above

Question 4

The key to present value calculations is that they

Accepted Answer

A)   are appropriate only for funds in the same time period.
B)   provide a common unit for measuring funds at different times.
C)   provide accurate answers only in a low-inflation environment.
D)   provide accurate answers only in a high-inflation environment.E) B) and C)
F) None of the above

Question 5

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

Accepted Answer

A)   Treasury bond
B)   TIPS
C)   corporate bond
D)   municipal bondE) All of the above
F) B) and C)

Question 6

An speculator who buys a fifty-year corporate bond

Accepted Answer

A)   must be expecting to still be alive in fifty years.
B)   is subject to substantial reinvestment risk.
C)   is probably expecting market interest rates to increase in the future.
D)   is probably expecting market interest rates to decrease in the future.E) None of the above
F) B) and D)

Question 7

If the current price of a bond is greater than its face value

Accepted Answer

A)   an investor will receive a capital gain by holding the bond until maturity.
B)   the yield to maturity must be less than the coupon rate.
C)   the coupon rate must be less than the current yield.
D)   the coupon rate must be equal to the current yield.E) A) and C)
F) A) and B)

Question 8

The most common type of simple loan is a(an)

Accepted Answer

A)   automobile loan from a bank.
B)   mortgage loan from a bank.
C)   commercial loan from a bank.
D)   corporate bond.E) A) and D)
F) A) and C)

Question 9

Which of the following statements about the total rate of return is NOT correct?

Accepted Answer

A)   The total rate of return may be greater or less than the current yield.
B)   The total rate of return may be greater or less than the rate of capital gain.
C)   The total rate of return may never be negative.
D)   The total rate of return is greater than the coupon, holding everything else constant.E) None of the above
F) A) and B)

Question 10

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

Accepted Answer

A)   5.00%.
B)   5.26%.
C)   2.50%.
D)   9.75%.E) A) and C)
F) B) and C)

Question 11

Which of the following is NOT true of a fixed payment loan?

Accepted Answer

A)   The borrower is required to make regular periodic payments to the lender.
B)   The payments made by the borrower include both interest and principal.
C)   The borrower is left with a substantial unpaid principal at the maturity of the loan.
D)   A home mortgage is an example of fixed payment loan.E) A) and C)
F) A) and B)

Question 12

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

Accepted Answer

A)   $863
B)   $1,667
C)   $1,159
D)   $850E) A) and C)
F) B) and C)

Question 13

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Accepted Answer

A)   the coupon payments on your bond will fall.
B)   the market price of your bond will rise.
C)   the market price of your bond will fall.
D)   the par value of your bond will rise.E) B) and D)
F) C) and D)

Question 14

The coupon rate is the

Accepted Answer

A)   annual coupon payment divided by the face value of the bond.
B)   annual coupon payment divided by the market value of the bond.
C)   difference between the face value of the bond and its par value.
D)   coupon paid every 6 months divided by par value.E) B) and D)
F) A) and B)

Question 15

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Accepted Answer

The yield to maturit...

Question 16

Treasury STRIPS are

Accepted Answer

A)   tax-exempt bonds.
B)   simple loans.
C)   discount bonds.
D)   fixed payment loans.E) A) and B)
F) B) and C)

Exam 3: Interest Rates and Rates of Return

Which of the following is NOT true of a fixed payment loan?

Correct Answer
verified

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Correct Answer
verified

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Correct Answer
verified
The yield to maturit...
View Answer

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

Correct Answer
verified

Which of the following statements about the total rate of return is NOT correct?

Correct Answer
verified

With respect to U.S.Treasury bills,

Correct Answer
verified

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

Correct Answer
verified

The most common type of simple loan is a(an)

Correct Answer
verified

The key to present value calculations is that they

Correct Answer
verified

The coupon rate is the

Correct Answer
verified

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

Correct Answer
verified

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

Correct Answer
verified

An speculator who buys a fifty-year corporate bond

Correct Answer
verified

If the current price of a bond is greater than its face value

Correct Answer
verified

Treasury STRIPS are

Correct Answer
verified

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Correct Answer
verified

Exam 3: Interest Rates and Rates of Return

Which of the following is NOT true of a fixed payment loan?

Correct AnswerverifiedShow Answer

If,while you are holding a coupon bond,the interest rates on other similar bonds fall,you can be sure that

Correct AnswerverifiedShow Answer

A one-year discount bond has a face value of $1000 and price of $880.What is the yield to maturity on the bond? Report using percentages with two decimal places.

Correct AnswerverifiedThe yield to maturit...View AnswerShow Answer

Which type of bond would you purchase if you expected higher rates of inflation during the life of the bond?

Correct AnswerverifiedShow Answer

Which of the following statements about the total rate of return is NOT correct?

Correct AnswerverifiedShow Answer

With respect to U.S.Treasury bills,

Correct AnswerverifiedShow Answer

At an interest rate of 3%,what is the present value of $1000 to be received five years from now?

Correct AnswerverifiedShow Answer

The most common type of simple loan is a(an)

Correct AnswerverifiedShow Answer

The key to present value calculations is that they

Correct AnswerverifiedShow Answer

The coupon rate is the

Correct AnswerverifiedShow Answer

A one-year discount bond with a par value of $5000 sold today,at issuance,for $4750 has a yield to maturity of

Correct AnswerverifiedShow Answer

A coupon bond has an annual coupon of $75,a par value of $1000,and a market price of $900.Its current yield equals

Correct AnswerverifiedShow Answer

An speculator who buys a fifty-year corporate bond

Correct AnswerverifiedShow Answer

If the current price of a bond is greater than its face value

Correct AnswerverifiedShow Answer

Treasury STRIPS are

Correct AnswerverifiedShow Answer

What is the yield to maturity on a simple loan that requires payment of $500 plus $30 in interest one year from now?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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Correct Answer
verified
The yield to maturit...
View Answer

Correct Answer
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