Econ 102 Section 1
Homework #5
Due July 7, Tuesday in class
Multiple Choice Questions (110: 10x1=10 points; 1155: 45 x 2=90 points)
1.The principal amount of a bond is the amount:
A) originally lent.
B)
of interest agreed upon when the bond was originally issued.
C)
paid to the bondholders on a regular basis.
D)
of interest the bondholder is entitled to when the bond matures.
E)
the bondholder receives even if the borrower defaults on the loan.
Answer: A
Learning Objective: Principal amount
Level of Learning: Knowledge
Type: Word
Problem
Source: Unique
2.The coupon rate is the:
3.If the principal amount of a bond is $2,000,000, the coupon rate is 6%, and the inflation rate is 4%, then
the annual coupon payment made to the holder of the bond is _____.
4..James pays $10,000 for a newly issued twoyear government bond with a $10,000 face value and a 6
percent coupon rate.
One year later, after receiving the first coupon payment, James sells the bond.
If the
current oneyear interest rate on government bonds is 7 percent, then the price he receives is:
5.A threeyear bond with a principal amount of $5,000, a 4% coupon rate paid annually, one year from
maturity will sell for what price (rounded to the nearest dollar) in the bond market if interest rates
are 5%?
A) $4,762
B)
$4,952
C)
$5,000
D)
$5,200
E)
$5,460
Answer: B
Learning Objective: Bonds
Level of Learning: Application
Type: Word Problem
Source: Unique
6.One year before maturity the price of a bond with a principal amount of $1,000 and a coupon rate of 5%
paid annually rose to $1,019. The one year interest rate:
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 Spring '07
 Joyce
 Microeconomics, Monetary Policy, Federal Reserve System, Fractionalreserve banking, Word Problem Source

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