Understanding interest rates Essay

2089 Words Dec 1st, 2013 9 Pages
Understanding Interest Rates

4.1 Measuring Interest Rates

1) 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
Answer: A

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

3) 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
Answer: A

4) With an interest rate of 6 percent, the present value of $100 next year is approximately
A) $106.
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B) 5 percent.
C) 6 percent.
D) 10 percent.
Answer: C

22) 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.
Answer: B

23) 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.
Answer: D

24) 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
Answer: D

25) 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.
Answer: B

26) Examples of discount bonds include
A) U.S. Treasury bills.
B) corporate bonds.
C) U.S. Treasury notes.
D) municipal bonds.
Answer: A

27) 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

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