Chapter 4

# Chapter 4 - Chapter 4 Exercise Key terms 1 Coupon Bond 2...

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Chapter 4 Exercise: . Key terms 1. Coupon Bond 2. Current Yield 3. Discount Bond 3. Fixed-Payment Loan 4. Interest-Rate Risk 5. Nominal Interest Rate 6. Present Value 7. Real Interest Rate 8. Return 9. Yield to Maturity . Multiple choice 1. The interest rate that 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. 2. 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 3. 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. deflating the future. d. none of the above. 4. To claim that a lottery winner who is to receive \$1 million per year for twenty years has won \$20 million ignores the concept of a. amortizing a loan. b. par value. c. deflation. d. discounting the future.

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e. face value. 5. With an interest rate of 4 percent, the present value of \$100 next year is approximately a. \$104. b. \$100. c. \$96. d. \$92. 6. Which of the following are true of simple loans? a. A simple loan requires the borrower to repay the principal and interest at the maturity date. b. Commercial loans to businesses are often of this type. c. The borrower repays the loan by making the same payment every month. d. Both (a) and (b) of the above. e. Both (b) and (c) of the above. 7. 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. discount loan. d. a same-payment loan. e. none of the above. 8. 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. 9. 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 negatively related.
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Chapter 4 - Chapter 4 Exercise Key terms 1 Coupon Bond 2...

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