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30 Cards in this Set
- Front
- Back
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Calculate the present value of an 800 discount bond with 4 YTM if the YTM is 3% 800/(1+.03)^4 |
710.79 |
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An increase in the time to the promised future payment ______ the present value of the payment A. is irrelevant to B. decreases C. increases D. has no effect on |
decreases |
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What is the YTM on a simple loan for $1,500 that requires a repayment of $6,000 in five yeas' time? $6,000/$1,500 4^(1/5) |
31.95% = 32% |
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Which of the following are true of fixed payment loans? A. The borrower repays bth the principal and interest at the maturity date B. The borrower pays interest periodically and the principal at the maturity date C.Installment loans and mortgages are frequently of the fixed payment type |
Installment loans and mortgages are frequently of the fixed payment type. |
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Examples of discount bonds include A. U.S. Treasury bills B. U.S. Treasury notes C. Corporate bonds D. Municipal bonds |
U.S. Treasury Bills |
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If a $5,000 coupon bond has a coupon rate of 13%, then the coupon payment every year is A. $650 B. $1300 C.$130 D. $13 |
$650 |
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If a perpetuity has a price of $500 and annual interest payment of$25, the interest rate is A. 2.5% B. 5% C. 7.5% D. 10% |
5% |
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Which of the following are true for discount bonds? A. A discount bond is higher at par B. The purchaser receives the par value at maturity plus any capital gains C. The purchaser receives the Face Value of the bond at the maturity date D. U.S. Treasury bonds and notes are examples of discount bonds |
The purchaser receives the Face Value of the bond at the maturity date |
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If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest is. A. 5% B. 10% C. 22% D. 25% |
5% |
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A $1,000 face value coupon bond with a $60 coupon payment every year has a coupon rate of A. 5% B. 10% C. .6% D. 6% |
6% |
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If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then it YTM is |
100% |
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the present value of an expected future payment _______ as the interest rate increases A. is constant B. is unaffected C. rises D. falls |
falls |
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You have just wond $20,000 in the state lottery, which promises to pay you $1,000 (tax free) every year for the next 20 years. The interest rate is 5% In reality, you receive the first payment of $1,000 today, which is worth _____ today. The value of the second $1,000 payment is worth _____ today. Your total lottery are actually worth (more or less) than $20,000 to you today. |
$1,000 $952.38 less than |
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The ______ is below the coupon rate when the bond price is ______ its par value A. discount rate; above B. YTM; above C. discount rate; below D. YTM; below |
YTM; above |
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The interest rate on a consol equals the A. Price times the coupon payment B. coupon payment plus the price C. price divided by the coupon rate D. coupon payment divided by the price |
coupon payment divided by the price |
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The YTM is _____ than the _____ rate when the bond price is _____ its face value A. greater, coupon; below B. less, perpetuity; below C. greater, perpetuity; above D. greater, coupon; above |
greater, coupon; below |
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A _____ is bought at a price below its fave value, and the _____ value is repaid at the maturity date. A. discount bond; fave B. coupon bond; discount C. coupon bond; face D. discount bond; discount |
discount bond; face |
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A consol paying $20 annually when the interest rate is 5% has a price of A. $100 B. $200 C. $400 D. $800 |
$400 |
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In which of the three decades (1970-79, 1980-89, 1990-99) is the inflation rate most stable The inflation rate is most stable during 1990's, 1980's, 1970's In which of the three decades does the economy experience disinflation? 1990's, 1980's, 1970's On average, the real interest rate is higher during the 1980's, 1990's, 1970's |
1990's 1980's 1980's |
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How much would you pay for a perpetual bond that pays an annual coupon of $200 per year and Yields on competing instruments are 5% You would pay _____. If competing yields are expected to change to 15%, what is the current yield on this same bond assuming that you paid $4,000? The current yield is ____ If you sell this bond in exactly one year, having paid $4,000, and received exactly one coupon payment, what is your total return if competing yields are 15%? Your total return is ____% |
$4,000 5% -61.67% |
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Prices and returns for ____ bonds are more volatile than those for ____ bonds, everything else held constant. A. long-term; long-term B. short-term; long-term C. short-term; short-term D. long-term; short-term |
Long-term; short-term |
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Retired persons often have much of their wealth placed in savings accounts and other interest-bearing investments, and complain whenever interest rates are low. Which is a valid complaint A. Expected inflatins is falling at the same rate as nominal interest rates B. expected inflation is falling at a slower rate than nominal interest rates C. there has not been significant growth of nominal interest rates for the last 5 years |
Expected inflation is falling at a slower rate than nominal interest rates |
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If you expect the inflation rate to be 12% next year and a one-year bond has a YTM of 7%, then the real interest rate on this bond is A. -5% B. -2% C. 2% D. 12% |
-5% |
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If the nominal rate interest is 2%, and the expected inflation rate is -10%, the real rate of interest is A. 2% B. 8% C. 10% D. 12% |
12% (Nominal - Expected) |
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If you expect the inflation rate to be 4% next year and a one year bond has a YTM of 7%, then the real interest rate on this bond is A. -3% B. -2% C. 3% D. 7% |
3% (YTM - Inflation Rate) |
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Calculate the YTM for a one-year bond with a purchase price of $8,000, a face value $10,000, and a current yield of 10% The YTM is The YTm on the bond given above is (greater or less than) the YTM of a similar $10,000 20-year bond with a current yield of 20% selling for $8,000 |
35% YTM Greater than |
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The return on a 5% coupon bond that initially sells for $1,000 and sells for $950 next year is. A. 0% B. 5% C. -10% D. -5% |
0% |
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Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Protected Security and the yield a nonindexed Treasury security proveds insight into A.the nominal interest rate B the real interest rate C. the expected inflation rate |
the expected inflation rate |
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Assume you just deposited $1,200 into a bank account. The current real interest rate 2% and inflation is expected to be 7% over the next year. What nominal rate would you require from the bank over the next year? The required nominal rate would be __ . How much money will you have at the end of one year? If you are saving to buy a fancy bicycle that currently sells for 1,250 will you have enough to buy it? A. No. B. Yes. C. Uncertain |
9% $1,308 Uncertain |
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A discount bond will have a negative nominal interest rate when the: A. Current bond yield is smaller than its YTM B. Bond is sold long before its maturity date C. Current bond price is greater than its Face Value |
Current bond price is greater than its face value |
