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.
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.
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
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.
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
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%.
7.A dividend is a(n):
A) interest payment made to shareholders.
B) interest payment made to bondholders.
C) regular payment made to stockholders for each share they own.
D) regular payment made to bondholders for each dollar they lent.
E)
coupon payment made on each share of stock.
8.You originally required a risk premium of 6 percent in addition to the rate of return on safe assets before
you would purchase shares of Techno Company stock.
If you and other investors increase the risk
premium you require to 8 percent, the price of Techno Company stock will:
A) increase.
B) decrease.
C)
not change.
D) equal the new risk premium plus the rate of return on safe assets.
E)
equal the old risk premium plus the new risk premium.