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| 1 | |
Consider a 2-year risk-free zero coupon bond with a face value of $1,000. If the market interest rate is 5%. The current price of this bond will be: |
| | A) | $1,102.50. |
| | B) | $1,050.00. |
| | C) | $952.38. |
| | D) | $907.03. |
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| 2 | |
Suppose that a risk-free 6-month zero coupon bond has a face value of $1,000. If the market interest rate is 4%, the current price of this bond will be: |
| | A) | $1,000.00. |
| | B) | $960.10. |
| | C) | $980.58. |
| | D) | $1,020.00. |
| | E) | $1,046.00. |
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| 3 | |
Suppose that a 2-year risk-free coupon bond has a face value of $1,000 and an annual coupon payment of $50 when the market interest rate is 7%. The current price of this bond will be: |
| | A) | $1,000.00. |
| | B) | $963.84. |
| | C) | $1,142.34. |
| | D) | $1,014.00. |
| | E) | $1,100.00. |
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| 4 | |
Economic theory predicts that, as the market interest rate rises, bond prices: |
| | A) | also rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in a manner that cannot be predicted, even when everything else is held constant. |
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| 5 | |
A decrease in the market interest rate will cause the value of a bank's portfolio of fixed-payment loans to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in a manner that cannot be predicted, even when everything else is held constant. |
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| 6 | |
A risk-free consol provides an annual payment of $50. If the market interest rate is 5%, the price of this consol will be: |
| | A) | $55. |
| | B) | $500. |
| | C) | $1,000. |
| | D) | $1,050. |
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| 7 | |
The yield to maturity of a coupon bond will exceed the current yield if the current price of the bond: |
| | A) | exceeds the face value. |
| | B) | is less than the face value. |
| | C) | equals the face value. |
| | D) | is greater than the price that you originally paid for the bond. |
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| 8 | |
The current yield will equal the coupon rate and the yield to maturity if the bond price: |
| | A) | rises over time. |
| | B) | exceeds the face value of the bond. |
| | C) | is less than the face value of the bond. |
| | D) | equals the face value of the bond. |
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| 9 | |
A coupon bond with a face value of $1,000 and a coupon rate of 5% sells for $1,024. What is the current yield on this bond? |
| | A) | 4.88% |
| | B) | 5.00% |
| | C) | 9.88% |
| | D) | None of the above is correct. |
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| 10 | |
A one-year zero coupon bond with a face value of $1,000 sells for $960 today. The yield to maturity on this bond equals: |
| | A) | 4.00%. |
| | B) | 40.0%. |
| | C) | 4.17%. |
| | D) | 1,004%. |
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| 11 | |
Bond holders receive capital losses when: |
| | A) | bond prices increase. |
| | B) | interest rates decline. |
| | C) | interest rates rise. |
| | D) | inflation declines. |
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| 12 | |
The one-year holding period return on a bond equals the: |
| | A) | coupon rate + capital gain. |
| | B) | current yield + capital gain. |
| | C) | coupon rate – capital gain. |
| | D) | current yield – capital gain. |
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| 13 | |
Suppose that a long-term coupon bond with a coupon rate of 5% is purchased at its face value of $1,000 and resold a year later for a price of $950. The holding period return for this bond is equal to: |
| | A) | 0%. |
| | B) | 2%. |
| | C) | 3%. |
| | D) | 5%. |
| | E) | 7%. |
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| 14 | |
The supply of bonds increases when: |
| | A) | government borrowing rises. |
| | B) | the economy grows more rapidly. |
| | C) | expected inflation rises. |
| | D) | All of the above are correct. |
| | E) | None of the above is correct. |
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| 15 | |
An increase in wealth is expected to cause the equilibrium price of bonds to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 16 | |
An increase in the liquidity of bonds relative to other assets is expected to cause the equilibrium price of bonds to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 17 | |
An increase in the expected inflation rate is expected to cause the demand for bonds to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 18 | |
An increase in the risk of bonds relative to other assets is expected to cause the equilibrium price of bonds to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 19 | |
An increase in the risk of bonds relative to other assets is expected to cause the equilibrium interest rate on bonds to: |
| | A) | rise. |
| | B) | fall. |
| | C) | remain unchanged. |
| | D) | change in an unpredictable manner. |
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| 20 | |
Interest-rate risk is larger for: |
| | A) | short-term bonds. |
| | B) | long-term bonds. |
| | C) | government bonds. |
| | D) | None of the above is correct. |
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