(answers- color version)

(answers- color version) - part I 1. Which of the following...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
part I 1. Which of the following are true concerning the distinction between interest 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 time t and time t + 1. (d) All of the above are true. (e) Only (a) and (b) of the above are true. Answer: E 2. 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 Answer: C 3. If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? (a) A bond with one year to maturity (b) A bond with five years to maturity (c) A bond with ten years to maturity (d) A bond with twenty years to maturity Answer: A 4. 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 5. When the price of a bond is above the equilibrium price, there is excess _________ in the bond market and the price will _________.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
(a) demand; rise (b) demand; fall (c) supply; fall (d) supply; rise Answer: C 6. When people begin to expect a large stock market decline, the demand curve for bonds shifts to the _________ and the interest rate _________. (a) right; falls (b) right; rises (c) left; falls (d) left; rises
Background image of page 2
Answer: A 7. When the expected inflation rate increases, the demand for bonds _________, the supply of bonds _________, and the interest rate _________. (a) increases; increases; rises (b) decreases; decreases; falls (c) increases; decreases; falls (d) decreases; increases; rises Answer: D Figure 4.1 8. In Figure 4.1, the most likely cause of the increase in the equilibrium interest rate from i 1 to i 2 is a(n) _________ in the _________. (a) increase; expected inflation rate (b) decrease; expected inflation rate. (c) increase; government budget deficit (d) decrease; government budget deficit Answer: A 9. The risk structure of interest rates is (a) the structure of how interest rates move over time. (b) the relationship among interest rates of different bonds with the same maturity. (c) the relationship among the terms to maturity of different bonds. (d) the relationship among interest rates on bonds with different maturities.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Answer: B 10. (I) If a corporation suffers big losses, the demand for its bonds will rise because of the higher interest rates the firm must pay. (II) The spread between the interest rates on bonds with default risk and default-free bonds is called the risk premium. (a) (I) is true, (II) false.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 12

(answers- color version) - part I 1. Which of the following...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online