PS_CH4_ANS - Chapter 4 Problem Set ECO 21000 Money and Banking 11 September 2015 1 Which of the following are true of xed payment loans A The borrower

# PS_CH4_ANS - Chapter 4 Problem Set ECO 21000 Money and...

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Chapter 4 Problem Set ECO 21000: Money and Banking 11 September 2015 1. 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.Answer:B 2. A discount bond 3. Which of the following are true for a coupon bond?

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Unformatted text preview: D) The yield is less than the coupon rate when the bond price is below the par value. Answer: A 4. 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. 1 D) 33.3 percent. Answer: D 5. In your own words, describe what we mean by “present value”. 6. What happens to the present value of an expected future payment as the interest rate increases? Why? 7. The is the Fnal amount that will be paid to the holder of a coupon bond. 8. Say you get Fxed payment loan. You receive \$10 today and make payments of \$6 in one year and \$6 in two years. How would you Fnd the yield to maturity (you don’t have to calculate it? 9. The interest rate is below the coupon rate. Is the price for this coupon bond greater than, less than, or equal to the face value? 10. What is the coupon rate of a \$16,000 coupon bond with a \$800 coupon payment every year? 2...
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• Fall '15
• eric
• \$15,000, \$10, \$20,000, \$16,000

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