M&b Quiz 2

Front 1

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

Back 1

A) falls

Front 2

2) 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

Back 2

A) decreases

Front 3

3) What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?
A) $453.51
B) $500.00
C) $476.25
D) $550.00

Back 3

A) 453.51

Front 4

4) 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.

Back 4

B) 10 percent.

Front 5

5) 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.

Back 5

A) simple loan.

Front 6

6) 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.

Back 6

B) fixed market loan.

Front 7

7) 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.

Back 7

C) coupon bond.

Front 8

8) 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

Back 8

A) par value

Front 9

9) 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

Back 9

A)37.50.

Front 10

10) 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.

Back 10

A)$650.

Front 11

11) 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.

Back 11

B) U.S. Treasury Bills.

Front 12

12) 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.

Back 12

D) discount bond.

Front 13

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

Back 13

A) U.S. Treasury Bills.

Front 14

14) 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.

Back 14

B) The purchaser receives the face value of the bond at the maturity date.

Front 15

15) 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.

Back 15

C) 2000.

Front 16

16) 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.

Back 16

D) 13,310.

Front 17

17) 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.

Back 17

A) 5 percent.

Front 18

18) 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

Back 18

B) 10 percent.

Front 19

19) The present value of a fixed-payment loan is calculated as the ________ of the present value of all cash flow payments.
A) sum
B) difference
C) multiple
D) log

Back 19

A) sum

Front 20

20) 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

Back 20

D) negatively; rises; falls

Front 21

21) 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

Back 21

B) greater; coupon; below

Front 22

22) 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

Back 22

A) yield to maturity; above

Front 23

23) Which of the following $5,000 face-value securities has the highest yield 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

Back 23

D) a 12 percent coupon bond selling for $4,500

Front 24

24) 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

Back 24

A) a 5 percent bond with a price of $600

Front 25

25) 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

Back 25

A) a 5 percent coupon bond selling for $1,000

Front 26

26) 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.

Back 26

D) coupon payment divided by the price.

Front 27

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

Back 27

C) $400.

Front 28

28) If a perpetuity 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.

Back 28

B) 5 percent

Front 29

29) 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.

Back 29

D) 100 percent.

Front 30

30) 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.

Back 30

A) 0 percent.

Front 31

31) Of the four factors that influence asset demand, which factor will cause the demand for all assets to increase when it increases, everything else held constant?
A) wealth
B) expected returns
C) risk
D) liquidity

Back 31

A) wealth

Front 32

32) If wealth increases, the demand for stocks ________ and that of long-term bonds ________, everything else held constant.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases

Back 32

A) increases; increases

Front 33

33) Everything else held constant, if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged, then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Back 33

D) falls; falls

Front 34

34) Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Back 34

A) rises; rises

Front 35

35) If housing prices are expected to increase, then, other things equal, the demand for houses will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Back 35

B) increase; decrease

Front 36

36) If stock prices are expected to drop dramatically, then, other things equal, the demand for stocks will ________ and that of Treasury bills will ________.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

Back 36

D) decrease; increase

Front 37

37) You would be less willing to purchase U.S. Treasury bonds, other things equal, if
A) you inherit $1 million from your Uncle Harry.
B) you expect interest rates to fall.
C) gold becomes more liquid.
D) stock prices are expected to fall.

Back 37

C) gold becomes more liquid.

Front 38

38) You would be more willing to buy AT&T bonds (holding everything else constant) if
A) the brokerage commissions on bond sales become cheaper.
B) interest rates are expected to rise.
C) your wealth has decreased.
D) you expect diamonds to appreciate in value.

Back 38

A) the brokerage commissions on bond sales become cheaper.

Front 39

39) The demand for gold increases, other things equal, when
A) the market for silver becomes more liquid.
B) interest rates are expected to rise.
C) interest rates are expected to fall.
D) real estate prices are expected to increase.

Back 39

B) interest rates are expected to rise.

Front 40

40) In the bond market, the bond demanders are the ________ and the bond suppliers are the ________.
A) lenders; borrowers
B) lenders; advancers
C) borrowers; lenders
D) borrowers; advancers

Back 40

A) lenders; borrowers

Front 41

41) The demand curve for bonds has the usual downward slope, indicating that at ________ prices of the bond, everything else equal, the ________ is higher.
A) higher; demand
B) higher; quantity demanded
C) lower; demand
D) lower; quantity demanded

Back 41

D) lower; quantity demanded

Front 42

42) The bond demand curve is ________ sloping, indicating a(n) ________ relationship between the price and quantity demanded of bonds, everything else equal.
A) downward; inverse
B) downward; direct
C) upward; inverse
D) upward; direct

Back 42

A) downward; inverse

Front 43

43) The supply curve for bonds has the usual upward slope, indicating that as the price ________, ceteris paribus, the ________ increases.
A) falls; supply
B) falls; quantity supplied
C) rises; supply
D) rises; quantity supplied

Back 43

D) rises; quantity supplied

Front 44

44) When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________.
A) demand for; rise
B) demand for; fall
C) supply of; fall
D) supply of; rise

Back 44

C) supply of; fall

Front 45

45) When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise

Back 45

D) below; rise

Front 46

46) When the interest rate on a bond is above the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise

Back 46

B) demand; fall

Front 47

47) When the interest rate on a bond is ________ the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________.
A) above; demand; rise
B) above; demand; fall
C) below; supply; fall
D) above; supply; rise

Back 47

B) above; demand; fall

Front 48

48) A movement along the bond demand or supply curve occurs when ________ changes.
A) bond price
B) income
C) wealth
D) expected return

Back 48

A) bond price

Front 49

49) When the price of a bond decreases, all else equal, the bond demand curve
A) shifts right.
B) shifts left.
C) does not shift.
D) inverts.

Back 49

C) does not shift.

Front 50

50) Factors that decrease the demand for bonds include
A) an increase in the volatility of stock prices.
B) a decrease in the expected returns on stocks.
C) a decrease in the inflation rate.
D) a decrease in the riskiness of stocks.

Back 50

D) a decrease in the riskiness of stocks.