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1、1 Financial Markets and Institutions,6e(Mishkin/Eakins)Chapter 3 What Do Interest Rates Mean and What Is Their Role in Valuation?3.1 Multiple Choice 1)A loan that requires the borrower to make the same payment every period until the maturity date is called a A)simple loan.B)fixed-payment loan.C)disc
2、ount loan.D)same-payment loan.E)none of the above.Answer:B Question Status:Previous Edition 2)A coupon bond pays the owner of the bond A)the same amount every month until maturity date.B)a fixed interest payment every period and repays the face value at the maturity date.C)the face value of the bond
3、 plus an interest payment once the maturity date has been reached.D)the face value at the maturity date.E)none of the above.Answer:B Question Status:Previous Edition 3)A bonds future payments are called its A)cash flows.B)maturity values.C)discounted present values.D)yields to maturity.Answer:A Ques
4、tion Status:Previous Edition 4)A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a A)simple loan.B)fixed-payment loan.C)coupon bond.D)discount bond.Answer:D Question Status:Previous Edition 2 5)(I)A simple loan requ
5、ires the borrower to repay the principal at the maturity date along with an interest payment.(II)A discount bond is bought at a price below its face value,and the face value is repaid at the maturity date.A)(I)is true,(II)false.B)(I)is false,(II)true.C)Both are true.D)Both are false.Answer:C Questio
6、n Status:Previous Edition 6)Which of the following are true of coupon bonds?A)The owner of a coupon bond receives a fixed interest payment every year until the maturity date,when the face or par value is repaid.B)U.S.Treasury bonds and notes are examples of coupon bonds.C)Corporate bonds are example
7、s of coupon bonds.D)All of the above.E)Only A and B of the above.Answer:D Question Status:Previous Edition 7)Which of the following are generally true of all bonds?A)The longer a bonds maturity,the lower is the rate of return that occurs as a result of the increase in an interest rate.B)Even though
8、a bond has a substantial initial interest rate,its return can turn out to be negative if interest rates rise.C)Prices and returns for long-term bonds are more volatile than those for shorter-term bonds.D)All of the above are true.E)Only A and B of the above are true.Answer:D Question Status:Previous
9、 Edition 8)(I)A discount bond requires the borrower to repay the principal at the maturity date plus an interest payment.(II)A coupon bond pays the lender a fixed interest payment every year until the maturity date,when a specified final amount(face or par value)is repaid.A)(I)is true,(II)false.B)(I
10、)is false,(II)true.C)Both are true.D)Both are false.Answer:B Question Status:Previous Edition 3 9)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.E)None of the above.Answer:A Question Status:Previous Edition 10)An$8,000 coupon
11、 bond with a$400 annual coupon payment has a coupon rate of A)5 percent.B)8 percent.C)10 percent.D)40 percent.Answer:A Question Status:Previous Edition 11)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)presen
12、t value B)future value C)interest D)deflation Answer:A Question Status:Previous Edition 12)Dollars received in the future are worth _ than dollars received today.The process of calculating what dollars received in the future are worth today is called _ A)more;discounting.B)less;discounting.C)more;in
13、flating.D)less;inflating.Answer:B Question Status:Previous Edition 13)The process of calculating what dollars received in the future are worth today is called A)calculating the yield to maturity.B)discounting the future.C)compounding the future.D)compounding the present.Answer:B Question Status:Prev
14、ious Edition 4 14)With an interest rate of 5 percent,the present value of$100 received one year from now is approximately A)$100.B)$105.C)$95.D)$90.Answer:C Question Status:Previous Edition 15)With an interest rate of 10 percent,the present value of a security that pays$1,100 next year and$1,460 fou
15、r years from now is approximately A)$1,000.B)$2,000.C)$2,560.D)$3,000.Answer:B Question Status:Previous Edition 16)With an interest rate of 8 percent,the present value of$100 received one year from now is approximately A)$93.B)$96.C)$100.D)$108.Answer:A Question Status:Previous Edition 17)With an in
16、terest rate of 6 percent,the present value of$100 received one year from now is approximately A)$106.B)$100.C)$94.D)$92.Answer:C Question Status:Previous Edition 18)The interest rate that equates the present value of the cash flow received from a debt instrument with its market price today is the A)
17、simple interest rate.B)discount rate.C)yield to maturity.D)real interest rate.Answer:C Question Status:Previous Edition 5 19)The interest rate that financial economists consider to be the most accurate measure is the A)current yield.B)yield to maturity.C)yield on a discount basis.D)coupon rate.Answe
18、r:B Question Status:Previous Edition 20)Financial economists consider the _ to be the most accurate measure of interest rates.A)simple interest rate B)discount rate C)yield to maturity D)real interest rate Answer:C Question Status:Previous Edition 21)For a simple loan,the simple interest rate equals
19、 the A)real interest rate.B)nominal interest rate.C)current yield.D)yield to maturity.Answer:D Question Status:Previous Edition 22)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 Answer:C Question Status:Previous Edition
20、23)The yield to maturity of a one-year,simple loan of$500 that requires an interest payment of$40 is A)5 percent.B)8 percent.C)12 percent.D)12.5 percent.Answer:B Question Status:Previous Edition 24)The yield to maturity of a one-year,simple loan of$400 that requires an interest payment of$50 is A)5
21、percent.B)8 percent.C)12 percent.D)12.5 percent.Answer:D Question Status:Previous Edition 6 25)A$10,000,8 percent coupon bond that sells for$10,000 has a yield to maturity of A)8 percent.B)10 percent.C)12 percent.D)14 percent.Answer:A Question Status:Previous Edition 26)Which of the following$1,000
22、face value securities has the highest 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 12 percent coupon bond selling for$1,000 D)A 12 percent coupon bond selling for$1,100 Answer:C Question Status:Previous Edition 27)Which of the followi
23、ng$1,000 face value securities has the highest 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 Answer:D Question Status:Previous Edition 28)Which of the
24、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 negatively related.C)The yield to maturity is greater than the coupon rate when the bond price is below the
25、par value.D)All of the above are true.E)Only A and B of the above are true.Answer:D Question Status:Previous Edition 29)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 t
26、he yield to maturity are negatively related.C)The yield to maturity is greater than the coupon rate when the bond price is above the par value.D)All of the above are true.E)Only A and B of the above are true.Answer:E Question Status:Previous Edition 7 30)Which of the following are true for a coupon
27、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)All of the above are
28、 true.E)Only A and B of the above are true.Answer:A Question Status:Previous Edition 31)A consol bond is a bond that A)pays interest annually and its face value at maturity.B)pays interest in perpetuity and never matures.C)pays no interest but pays face value at maturity.D)rises in value as its yiel
29、d to maturity rises.Answer:B Question Status:Previous Edition 32)The yield to maturity on a consol bond that pays$100 yearly and sells for$500 is A)5 percent.B)10 percent.C)12.5 percent.D)20 percent.E)25 percent.Answer:D Question Status:Previous Edition 33)The yield to maturity on a consol bond that
30、 pays$200 yearly and sells for$1000 is A)5 percent.B)10 percent.C)20 percent.D)25 percent.Answer:C Question Status:Previous Edition 34)A frequently used approximation for the yield to maturity on a long-term bond is the A)coupon rate.B)current yield.C)cash flow interest rate.D)real interest rate.Ans
31、wer:B Question Status:Previous Edition 35)The current yield on a coupon bond is the bonds _ divided by its _.A)annual coupon payment;price B)annual coupon payment;face value C)annual return;price D)annual return;face value Answer:A Question Status:Previous Edition 8 36)When a bonds price falls,its y
32、ield to maturity _ and its current yield _.A)falls;falls B)rises;rises C)falls;rises D)rises;falls Answer:B Question Status:Previous Edition 37)The yield to maturity for a one-year discount bond equals A)the increase in price over the year,divided by the initial price.B)the increase in price over th
33、e year,divided by the face value.C)the increase in price over the year,divided by the interest rate.D)none of the above.Answer:A Question Status:Previous Edition 38)If a$10,000 face value discount bond maturing in one year is selling for$8,000,then its yield to maturity is A)10 percent.B)20 percent.
34、C)25 percent.D)40 percent.Answer:C Question Status:Previous Edition 39)If a$10,000 face value discount bond maturing in one year is selling for$9,000,then its yield to maturity is A)9 percent.B)10 percent.C)11 percent.D)12 percent.Answer:C Question Status:Previous Edition 40)If a$10,000 face value d
35、iscount 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.Answer:D Question Status:Previous Edition 41)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 percen
36、t.B)5 percent.C)10 percent.D)20 percent.Answer:A Question Status:Previous Edition 9 42)The Fisher equation states that A)the nominal interest rate equals the real interest rate plus the expected rate of inflation.B)the real interest rate equals the nominal interest rate less the expected rate of inf
37、lation.C)the nominal interest rate equals the real interest rate less the expected rate of inflation.D)both A and B of the above are true.E)both A and C of the above are true.Answer:D Question Status:Previous Edition 43)If you expect the inflation rate to be 15 percent next year and a one-year bond
38、has a yield to maturity of 7 percent,then the real interest rate on this bond is A)7 percent.B)22 percent.C)-15 percent.D)-8 percent.E)none of the above.Answer:D Question Status:Previous Edition 44)If you expect the inflation rate to be 5 percent next year and a one-year bond has a yield to maturity
39、 of 7 percent,then the real interest rate on this bond is A)-12 percent.B)-2 percent.C)2 percent.D)12 percent.Answer:C Question Status:Previous Edition 45)The nominal interest rate minus the expected rate of inflation A)defines the real interest rate.B)is a better measure of the incentives to borrow
40、 and lend than is the nominal interest rate.C)is a more accurate indicator of the tightness of credit market conditions than is the nominal interest rate.D)all of the above.E)only A and B of the above.Answer:D Question Status:Previous Edition 46)The nominal interest rate minus the expected rate of i
41、nflation A)defines the real interest rate.B)is a less accurate measure of the incentives to borrow and lend than is the nominal interest rate.C)is a less accurate indicator of the tightness of credit market conditions than is the nominal interest rate.D)defines the discount rate.Answer:A Question St
42、atus:Previous Edition 10 47)In which of the following situations would you prefer to be making a loan?A)The interest rate is 9 percent and the expected inflation rate is 7 percent.B)The interest rate is 4 percent and the expected inflation rate is 1 percent.C)The interest rate is 13 percent and the
43、expected inflation rate is 15 percent.D)The interest rate is 25 percent and the expected inflation rate is 50 percent.Answer:B Question Status:Previous Edition 48)In which of the following situations would you prefer to be borrowing?A)The interest rate is 9 percent and the expected inflation rate is
44、 7 percent.B)The interest rate is 4 percent and the expected inflation rate is 1 percent.C)The interest rate is 13 percent and the expected inflation rate is 15 percent.D)The interest rate is 25 percent and the expected inflation rate is 50 percent.Answer:D Question Status:Previous Edition 49)What i
45、s the return on a 5 percent coupon bond that initially sells for$1,000 and sells for$1,200 one year later?A)5 percent B)10 percent C)-5 percent D)25 percent E)None of the above Answer:D Question Status:Previous Edition 50)What is the return on a 5 percent coupon bond that initially sells for$1,000 a
46、nd sells for$900 one year later?A)5 percent B)10 percent C)-5 percent D)-10 percent E)None of the above Answer:C Question Status:Previous Edition 51)The return on a 5 percent coupon bond that initially sells for$1,000 and sells for$1,100 one year later is A)5 percent.B)10 percent.C)14 percent.D)15 p
47、ercent.Answer:D Question Status:Previous Edition 11 52)The return on a 10 percent coupon bond that initially sells for$1,000 and sells for$900 one year later is A)-10 percent.B)-5 percent.C)0 percent.D)5 percent.Answer:C Question Status:Previous Edition 53)Which of the following are generally true o
48、f all bonds?A)The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period.B)A rise in interest rates is associated with a fall in bond prices,resulting in capital losses on bonds whose term to maturities are longer than the holding
49、period.C)The longer a bonds maturity,the greater is the price change associated with a given interest rate change.D)All of the above are true.E)Only A and B of the above are true.Answer:D Question Status:Previous Edition 54)Which of the following are true concerning the distinction between interest
50、rates and return?A)The rate of return on a bond will not necessarily equal the interest rate on that bond.B)The return can be expressed as the sum of the current yield and the rate of capital gains.C)The rate of return will be greater than the interest rate when the price of the bond falls between t