ch03 - Financial Markets and Institutions, 6e...

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Unformatted text preview: Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 3 1 What Do Interest Rates Mean and What Is Their Role in Valuation? 3.1 Mul tiple Cho ice 1) 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) same- payment loan. E) none of the above. Answer: B Question Status: Previous Edition 2) A coupon bond pays the owner of the bond A) the same amount every month until maturity date. B) a fixed interest payment every period and repays the face value at the maturity date. C) the face value of the bond plus an interest payment once the maturity date has been reached. D) the face value at the maturity date. E) none of the above. Answer: B Question Status: Previous Edition 3) A bond's future payments are called its A) cash flows. B) maturity values. C) discounted present values. D) yields to maturity. Answer: A Question Status: Previous Edition 4) A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a A) simple loan. B) fixed- payment loan. C) coupon bond. D) discount bond. Answer: D Question Status: Previous Edition 5) (I) A simple loan requires the borrower to repay the principal at the maturity date along with an interest payment. (II) A discount bond is bought at a price below its face value, and the face value is repaid at the maturity date. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C Question Status: Previous Edition 6) Which of the following are true of coupon bonds? A) The owner of a coupon bond receives a fixed interest payment every year until the maturity date, when the face or par value is repaid. B) U.S. Treasury bonds and notes are examples of coupon bonds. C) Corporate bonds are examples of coupon bonds. D) All of the above. E) Only A and B of the above. Answer: D Question Status: Previous Edition 7) Which of the following are generally true of all bonds? A) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in an interest rate. B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. C) Prices and returns for long- term bonds are more volatile than those for shorter- term bonds. D) All of the above are true. E) Only A and B of the above are true. Answer: D Question Status: Previous Edition 8) (I) A...
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This note was uploaded on 10/17/2011 for the course ECON 317 taught by Professor Guidry during the Spring '11 term at Nicholls State.

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ch03 - Financial Markets and Institutions, 6e...

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