Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1.Which of the following is true ? a.Early forms of interest arose from the lending of seeds and animals that could reproduce in order to

1.Which of the following is true?

a.Early forms of interest arose from the lending of seeds and animals that could reproduce in order to pay off the interest.

b.Ancient Babylonians that lent silver were regulated in terms of how much interest they could charge.

c.In ancient India, temples served a banking function by issuing what we would today call a "bill of exchange."

d.In England in the 1600s, money began to take the form of tradeable promissory notes.

e.All of the above.

2.When it comes to financial matters, the views of Aristotle can be stated as:

a.usury is nature's way of helping each other.

b.the fact that money is barren makes it the ideal medium of exchange.

c.charging interest is immoral because money is not productive.

d.when you lend money, it grows more money.

e.interest is too high if it can't be paid back.

3.The highest 30 year monthly mortgage rate of interest since 1971 was in:

a.August of 2011.

b.March of 2007.

c.July of 1991.

d.October of 1981.

e.May of 1985.

4.Foss argues that if central banks continue to promote negative interest rates on member bank deposits that this could lead to:

a.more and more commercial bank depositors withdrawing their funds.

b.commercial banks raising interest rates on the loans they make.

c.the collapse of the entire banking system.

d.All of the above.

e.None of the above.

5.The best way to find out the current price of an investment that yields a future income stream is by calculating its:

a.discounted present value.

b.nominal yield.

c.yield to maturity.

d.current yield.

e.market price.

6.Which concept of interest best identifies the rate of return on a bond if, once purchased, it is held until it matures?

a.The capital gains rate of interest.

b.The coupon return.

c.The yield to maturity.

d.The nominal yield.

e.The current yield.

7.According to theory, when the Fed buys bonds, their price will _____, interest rates will _____, spending in the economy will _____ and the GDP will _____.

a.rise; fall; rise;rise

b.rise; rise; fall;fall

c.fall; rise; fall;fall

d.fall; fall; fall; fall

e.rise; rise; rise;rise

8.Who said, "The most powerful force in the universe is compound interest."?

a.George Washington.

b.Alan Greenspan.

c. Warren Buffet.

d. Albert Einstein.

e. Murray Rothbard.

9.What affects the rate of interest?

a.The time value of money.

b.Our desire for liquidity.

c.Risk.

d.All of the above.

e.None of the above.

10.The nominal yield is calculated as the:

a.(coupon return)/(current market price).

b.(coupon return)/(face amount of the bond).

c.(coupon return)/(annual interest rate).

d.(face value of the bond)/(current market price).

e.(annual interest rate)/(coupon return).

11.Who is interested in, and/or affected by, changing interest rates?

a.Savers.

b. Borrowers.

c.Policymakers.

d.Forecasters.

e.All of the above.

12.Suppose that a corporate bond is issued in an amount of $2,000 with a coupon return of $100 every year, then the nominal yield on the bond is:

a. 0.05 percent.

b. 5 percent.

c. 10 percent.

d.100 percent.

e.It cannot be determined from the information given.

13.A bond has a $2,000 face value, has a $100 annual coupon, and is now sold in the market for $1,900. From this we know that the current yield on this bond is:

a. greater than 5%.

b.equal to 5%.

c.less than 5%.

d.It cannot be determined from the information given.

14.When the interest rate is 5%, the present value of $1,000, that will be received in five years, is:

a.greater than $1000.

b.equal to $1000.

c.less than $1000.

d.It cannot be determined from the information given.

15.The interest rate at which the present value of an asset's return is equal to its price today is the:

a.principal value.

b.coupon return.

c.nominal yield.

d. yield to maturity.

e.federal funds rate minus the real rate of interest.

16.A simple loan that requires a principal payment of $2,000, plus $400 in interest, one year from now has a yield of:

a. 2 percent.

b. 20 percent.

c. 200 percent.

d. 40 percent.

e. 400 percent.

17.The price of a bond is inversely related to:

a.the face value of the bond.

b.the yield to maturity.

c.the coupon value of the bond.

d.All of the above.

e.None of the above.

18.Which of the following factors could explain difference in yields on bonds with the same time to maturity?

a.Default risk.

b.Tax considerations.

c.Liquidity.

d.All of the above.

e.None of the above.

19.Consider two bonds of equal risk with face values of $1000 and coupons of $100. Tiger Bond matures in ten years while Panda Bond matures in seven years.If the rate of interest is 5%, which bond is preferred?

a.Tiger Bond.

b.Panda Bond.

c.Both are equally preferred.

d.At this interest rate neither is preferred.

e.It cannot be determined from the information available.

20.The relationship between real and nominal interest rates is described in the:

a.inflation relation.

b.Fisher equation.

c.Friedman equation.

d.equation of exchange.

e.None of the above.

21.Consider two bonds of equal risk with face values of $1000 and coupons of $100. Tiger Bond matures in ten years while Panda Bond matures in seven years.If the rate of interest is 11%, which bond is preferred?

a.Tiger Bond.

b.Panda Bond.

c.Both are equally preferred.

d.At this interest rate neither is preferred.

e.It cannot be determined from the information available.

22.The present value of a bond with no coupon, one year to maturity, face value $1000 and yield to maturity of 5% is:

a.$952.38

b.$1,000.00

c.$1,005.00

d.$1,050.00

e.$555.00

23.The present value of a bond with no coupons, two years to maturity, face value of $10,000 and yield to maturity of 4% is:

a.$7,142.86

b.$9,245.56

c.$9,615.38

d. $10,400.00

e.$11,312.45

24.A deposit of $1000 is made into an account that earns 20% per year. After three years, the (future) value will be:

a.$1000.

b.$1200.

c.$1440.

d.$1728.

e.$3000.

25.Your rich uncle Albert gives you a savings bond that pays $500 four years from now. If the relevant interest rate for you is 2%, what is the present value of the bond?

a.$461.92

b.$490.19

c.$500.00

d.$510.00

e.$541.21

26.A two-year coupon bond has a face value of $1000, a coupon rate of 5% and a yield to maturity of 2%. What is the price of the bond?

a.$944.21

b.$1000

c.$1058.25

d.$1078.43

27.Eve and Cameron both buy bonds with yield to maturity of 4% and with the same coupon values, but Eve's bond has 2 years to maturity and Cameron's has 5. After one year, yields for these bonds rise to 7%. Which of the following is true?

a.Both bonds rise in value but Eve's rises more.

b.Both bonds rise in value but Cameron's rises more.

c.Both bonds fall in value but Eve's falls more.

d.Both bonds fall in value but Cameron's falls more.

e.Neither bond will change in price as their coupons are predetermined.

28.The chance that a bond issuer won't make promised payments is called:

a.default risk.

b.credit risk.

c.interest rate risk.

d.representation risk.

e.None of the above.

29.Household wealth affects the equilibrium yield on bonds due to its impact on:

a.the demand for bonds.

b.the supply of bonds.

c.both the supply and demand for bonds.

d.None of the above.

30. An inverted yield curve means:

a.short-term yields are higher than long-term yields.

b.long-term yields are higher than short-term yields.

c.the bond market is anticipating the U.S. Treasury to default on its obligations.

d.the inflation rate is expected to rise.

e.yields are characterized by a hump - they are highest for middle length maturities.

31. The discounted present value of a payment is the value ___ of the payment ___.

a.today; made yesterday

b.tomorrow; made today

c.today; made tomorrow

d.tomorrow; made yesterday

e.yesterday; made today

32.If S&P upgrades a corporate bond the _____ for the bond will shift and its risk premium will _____.

a.demand; rise.

b.demand; fall.

c.supply; rise.

d.supply; fall.

e.supply and demand; rise

33.The term structure of interest rates models the yields of bonds with:

a.the length of maturity.

b.the degree of default risk.

c.with the degree of liquidity risk.

d. All of the above.

e.Only B and C of the above.

34.The yield curve may be used by some to forecast a possible future recession if it is:

a.upward sloping.

b.flat.

c.downward sloping.

d.erratic.

e.Both B and C of the above.

35. Interest rates are determined by:

a.the time value of money.

b.the liquidity of the instrument.

c.the default risk.

d.term premiums for anticipated inflation.

e.All of the above.

36.The term structure of interest rates:

a.represents the variation in yields for similar instruments differing only in maturity.

b.reflects differing tax treatment received by different instruments.

c.always results in an upward-sloping yield curve.

d.usually results in an inverted yield curve.

e.depends upon the payment terms of the security - whether coupons are paid out every six months versus every year.

37.When the Fed wants to lower interest rates in the market, they:

a.literally just lower interest rates.

b.buy bonds which will raise bond prices.

c.sell bonds which will lower bond prices.

d.raise long term interest rates to shift the market to the short end and lower short term interest rates.

e.encourage market participants to raise their expectations of inflation.

38.The dynamic yield curve demonstrated in the lecture looked at how the value of the S&P 500 was correlated to the yield curve for:

a.U.S. government bonds.

b.state and municipal bonds.

c.U.S. agency mortgages.

d.blue chip corporate bonds.

e.All of the above.

39. When we look at the Fisher equation, we should note that the value of the nominal interest rate is the sum of ___ real rate of interest and ___ rate of inflation.

a.the actual; the actual

b.the actual; the expected

c.the expected; the actual

d. the expected; the expected

e. the past;the future

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Power And Plenty Trade, War, And The World Economy In The Second Millennium

Authors: R Findlay, Ronald Findlay

1st Edition

0691143277, 9780691143279

More Books

Students also viewed these Economics questions

Question

finding entry-level positions;

Answered: 1 week ago