Econ 102 Section 1
Homework #5
Due July 7, Tuesday in class
Multiple Choice Questions (1-10: 10x1=10 points; 11-55: 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:
A) amount originally lent.
B) regular payment of interest to a bondholder.
C) interest rate promised when a bond is issued.
D) maximum interest rate that can be paid on a bond.
E)
the growth rate of interest payments on a bond.
Answer: C
Learning Objective: Coupon rate
Level of Learning: Knowledge
Type: Word
Problem
Source: Unique
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 _____.
A) $12,000
B)
$40,000
C)
$80,000
D)
$120,000
E)
$200,000
Answer: D
Learning Objective: Coupon payment
Level of Learning: Application
Type: Word
Problem
Source: Unique
4..James pays $10,000 for a newly issued two-year 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 one-year interest rate on government bonds is 7 percent, then the price he receives is:
A) $10,000.
B) $700.
C) greater than
$10,000.
D) less than $10,000.
E)
either greater or less than $10,000, but not equal to $10,000.
Answer: D
Learning Objective: Bond prices and interest rates
Level of Learning:
Comprehension
Type: Word Problem
Source: New
5.A three-year 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:
A) rose to 6.0%.
B)
remained at 5%.
C)
fell to 3%.
D)
fell to 2%.
E)
fell to 1%.
Answer: C
Learning Objective: Bonds
Level of Learning: Application
Type: Word Problem
Source: Unique