Reference no: EM133195741

Assignment:

All questions are based on "04 Financial Markets - The Meaning of Interest Rates -

1. For a 4-year simple loan of $1,000 at 10 percent, the amount to be repaid is

A) $1,040.
B) $14,00.
C) $1,464.
D) $4,000.

2. What is the present value of $500 to be paid in two years if the interest rate is 4 percent?

A) $462
B) $481
C) $520
D) $541

3. If the interest rate is 10%, what is the present value of a security that pays you $1,100 next year, $1,331after three years, and $1,500after five years?

A) $1,100
B) $2,310
C) $2,931
D)$3,931

4. The present value of an expected future payment ________ as the interest rate decreases.

A) falls
B) rises
C) is constant
D) is unaffected

5. 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.

6. A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.

A) coupon bond; discount
B) discount bond; discount
C) coupon bond; face
D) discount bond; face

7. The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the coupon bond is called the bond's

A) coupon rate.
B) maturity rate.
C) face value rate.
D) payment rate.

8. If a $1,000 face value coupon bond has a coupon rate of 13.75 percent, then the coupon payment every year is

A) $1375.
B) $137.5.
C) $375.
D) $13.75

9. 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.

10. 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

11. The interest rate that equates the present value of payments received from a debt instrument with its value today is the

A) simple interest rate.
B) current yield.
C) yield to maturity.
D) real interest rate.

12. What is the yield to maturity on a simple loan for $1 million that requires a repayment of $1.5 million afterfouryears?

A) 5%
B) 10.67%
C) 12.24%
D) 15%

13. For simple loans, the simple interest rate is ________ the yield to maturity.

A) greater than
B) less than
C) equal to
D) not comparable to

14. Assume that you borrow $10,000 to purchase a new automobile and that you finance it with a four-year loan at an interest rate of 5.45%. If you make one payment per year for four years, what will the yearly payment be? (Hint: Use the Excel function "PMT", although you can also get the result manually with a simple calculator.)

A) $2,500
B) $2,850
C) $3,150
D) $5,450

15. To help pay for college, you have just taken out a $10,000 government loan that makes you pay $1,260 per year for 25 years. However, you don't have to start making these payments until you graduate from college two years from now. What can you say about the yield to maturity of this loan? (12% is the yield to maturity on a normal $1,0000 fixed-payment loan on which you pay $1,260 per year for 25 years.) (Hint: you don't need to calculate the yield to maturity to answer this question.)

A) low than 12%
B) equal to 12%
C) higher than 12%

16. Which of the following are TRUE for a coupon bond?

A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate.
B) The price of a coupon bond and the yield to maturity are positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par value.
D) The yield is less than the coupon rate when the bond price is below the par value.

17. Which of the following $1,000 face-value securities has the lowest yield to maturity?

A) a 10 percent coupon bond selling for $1,000
B) a 10 percent coupon bond selling for $1,100
C) a 12 percent coupon bond selling for $1,000
D) a 11 percent coupon bond selling for $950

18. 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

19. Consider a bond with a 4% coupon rate and a face value of $1,000. What's the current price of this bond if it is 2 years until maturity and the yield to maturity is 5%?

A) $964
B) $978
C) $1,005
D) $1,019

20. A coupon bond that has no maturity date and no repayment of principal is called a

A) consol.
B) cabinet.
C) Treasury bill.
D) Treasury note.

21. If a perpetuity has a price of $1000 and an annual interest payment of $25, the interest rate is

A) 2.5 percent.
B) 5 percent.
C) 7.5 percent.
D) 25 percent.

22. The ________ is a useful approximation for the yield to maturity on long-term coupon bonds.

A) star yield
B) discount yield
C) future yield
D) current yield

23. What is the yield to maturity on a twenty-year 10% coupon bond with a $1,000 face value that sells for $1,400? (Hint: Use the Excel function "IRR"; neither a simple calculator nor a financial calculator can do the job here.)

A) 1.40%
B) 6.40%
C) 6.76%
D) 10%

24. What is the current yield on a twenty-year 10% coupon bond with a $1,000 face value that sells for $1,400?

A) 7.14%
B) 7.41%
C) 10%
D) 14%

25. Suppose that a commercial bank wants to buy Treasury bills. These Treasury bills pay $5,000 in one year and are currently selling for $5,050. What is the yield to maturity of these bonds?

A) 5%
B) 0.5%
C) -0.5%
D) -1%

26. The yield to maturity for a discount bond is ________ related to the current bond price.

A) negatively
B) positively
C) not
D) directly