Q&A Hero

Q: If the interest rate is 5%, what is the present value of a security that pays you $1, 050 next year and $1,102.50 two years from now? If this security sold for $2200, is the yield to maturity greater or less than 5%? Why?

Q: In Japan in 1998 and in the U.S. in 2008, interest rates were negative for a short period of time because investors found it convenient to hold six-month bills as a store of value because A) of the high inflation rate. B) these bills sold at a discount from face value. C) the bills were denominated in small amounts and could be stored electronically. D) the bills were denominated in large amounts and could be stored electronically.

Q: The yield to maturity for a discount bond is ________ related to the current bond price. A) negatively B) positively C) not D) directly

Q: A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of A) 3 percent. B) 20 percent. C) 25 percent. D) 33.3 percent.

Q: 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.

Q: 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.

Q: The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the A) initial price. B) face value. C) interest rate. D) coupon rate.

Q: The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the ________ when approximating the yield for a coupon bond. A) current yield B) discount yield C) future yield D) star yield

Q: 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.

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

Q: 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.

Q: The price of a consol equals the coupon payment A) times the interest rate. B) plus the interest rate. C) minus the interest rate. D) divided by the interest rate.

Q: 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.

Q: Which of the following bonds would you prefer to be buying? A) A $10,000 face-value security with a 10 percent coupon selling for $9,000 B) A $10,000 face-value security with a 7 percent coupon selling for $10,000 C) A $10,000 face-value security with a 9 percent coupon selling for $10,000 D) A $10,000 face-value security with a 10 percent coupon selling for $10,000

Q: 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

Q: 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

Q: 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

Q: Which of the following $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 12 percent coupon bond selling for $1,000 D) A 12 percent coupon bond selling for $1,100

Q: 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.

Q: 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

Q: 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

Q: 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

Q: The ________ of a coupon bond and the yield to maturity are inversely related. A) price B) par value C) maturity date D) term

Q: 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.

Q: 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

Q: 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

Q: 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.

Q: 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.

Q: 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.

Q: 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

Q: Economists consider the ________ to be the most accurate measure of interest rates. A) simple interest rate. B) current yield. C) yield to maturity. D) real interest rate.

Q: 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.

Q: 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.

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

Q: A discount bond A) pays the bondholder a fixed amount every period and the face value at maturity. B) pays the bondholder the face value at maturity. C) pays all interest and the face value at maturity. D) pays the face value at maturity plus any capital gain.

Q: 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

Q: 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.

Q: 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.

Q: A $1000 face value coupon bond with a $60 coupon payment every year has a coupon rate of A) .6 percent. B) 5 percent. C) 6 percent. D) 10 percent.

Q: An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of A) 5 percent. B) 8 percent. C) 10 percent. D) 40 percent.

Q: 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.

Q: 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

Q: The ________ is calculated by multiplying the coupon rate times the par value of the bond. A) present value B) par value C) coupon payment D) maturity payment

Q: The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's A) coupon rate. B) maturity rate. C) face value rate. D) payment rate.

Q: 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

Q: The ________ is the final amount that will be paid to the holder of a coupon bond. A) discount value B) coupon value C) face value D) present value

Q: 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

Q: 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.

Q: A fully amortized loan is another name for A) a simple loan. B) a fixed-payment loan. C) a commercial loan. D) an unsecured loan.

Q: Which of the following are true of fixed payment loans? A) The borrower repays both the principal and interest at the maturity date. B) Installment loans and mortgages are frequently of the fixed payment type. C) The borrower pays interest periodically and the principal at the maturity date. D) Commercial loans to businesses are often of this type.

Q: 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.

Q: 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.

Q: To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of A) face value. B) par value. C) deflation. D) discounting the future.

Q: 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.

Q: 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) $550.00 C) $476.25 D) $550.00

Q: With an interest rate of 6 percent, the present value of $100 next year is approximately A) $106. B) $100. C) $94. D) $92.

Q: 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

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

Q: 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) present value B) future value C) interest D) deflation

Q: 4.1 Measuring Interest Rates

Q: ________ are the time and resources spent trying to exchange goods and services. A) Bargaining costs. B) Transaction costs. C) Contracting costs. D) Barter costs.

Q: If peanuts serve as a medium of exchange, a unit of account, and a store of value, then peanuts are A) bank deposits. B) reserves. C) money. D) loanable funds.

Q: Of money's three functions, the one that distinguishes money from other assets is its function as a A) store of value. B) unit of account. C) standard of deferred payment. D) medium of exchange.

Q: Which of the following statements uses the economists' definition of money? A) I plan to earn a lot of money over the summer. B) Betsy is richshe has a lot of money. C) I hope that I have enough money to buy my lunch today. D) The job with New Company gave me the opportunity to earn more money.

Q: Which of the following is a true statement? A) Money and income are flow variables. B) Money is a flow variable. C) Income is a flow variable. D) Money and income are stock variables.

Q: The difference between money and income is that A) money is a flow and income is a stock. B) money is a stock and income is a flow. C) there is no differencemoney and income are both stocks. D) there is no differencemoney and income are both flows.

Q: When we say that money is a stock variable, we mean that A) the quantity of money is measured at a given point in time. B) we must attach a time period to the measure. C) it is sold in the equity market. D) money never loses purchasing power.

Q: An individual's annual salary is her A) money. B) income. C) wealth. D) liabilities.

Q: ________ is a flow of earnings per unit of time. A) Income B) Money C) Wealth D) Currency

Q: ________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. A) Money; income B) Wealth; income C) Income; money D) Money; wealth

Q: A person's house is part of her A) money. B) income. C) liabilities. D) wealth.

Q: The total collection of pieces of property that serve to store value is a person's A) wealth. B) income. C) money. D) credit.

Q: Even economists have no single, precise definition of money because A) money supply statistics are a state secret. B) the Federal Reserve does not employ or report different measures of the money supply. C) the "moneyness" or liquidity of an asset is a matter of degree. D) economists find disagreement interesting and refuse to agree for ideological reasons.

Q: Currency includes A) paper money and coins. B) paper money, coins, and checks. C) paper money and checks. D) paper money, coins, checks, and savings deposits.

Q: Money is A) anything that is generally accepted in payment for goods and services or in the repayment of debt. B) a flow of earnings per unit of time. C) the total collection of pieces of property that are a store of value. D) always based on a precious metal like gold or silver.

Q: To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A) wealth B) income C) money D) credit

Q: 3.1 Meaning of Money

Q: Why are most of the U.S. dollars held outside of the United States?

Q: The decade during which the growth rates of monetary aggregates diverged the most is A) the 1960s. B) the 1970s. C) the 1980s. D) the 1990s.

Q: Which of the following statements accurately describes the two measures of the money supply? A) The two measures do not move together, so they cannot be used interchangeably by policymakers. B) The two measures' movements closely parallel each other, even on a month-to-month basis. C) Short-run movements in the money supply are extremely reliable. D) M2 is the narrowest measure the Fed reports.