1. When expected inflation increases, for any given nominal interest rate the:

A. cost of borrowing increases and the desire to borrow decreases.

B. real interest rate increases.

C. bond supply curve shifts to the left.

D. cost of borrowing decreases and the desire to borrow increases.

2. Consider a zero-coupon bond with a $1,100 payment in one year. Suppose the interest rate decreases from 10% to 8%. The price of this bond:

A.increases from $1,000 to $1,018.

B. increases from $1,000 to $1,375.

C. decreases from $110 to $88.

D. decreases from $1,210 to $1,188.

3. When the price of a bond is below the face value, the yield to maturity:

A. is below the coupon rate.

B. will be above the coupon rate.

C. will equal the current yield.

D. will equal the coupon rate.

answer

watching

727

views

For unlimited access to Homework Help, a Homework+ subscription is required.

You have 0 free answers left.
Get unlimited access to 3.8 million step-by-step answers.

Get unlimited access

Already have an account? Log in

Lelia LubowitzLv2

29 Sep 2019

Unlock all answers

Get 1 free homework help answer.

Already have an account? Log in

Related questions

Money, Banking, and Financial Markets, 3/e- quiz, Stephen G.Cecchetti, Kermit L. Schoenholtz
Question Details
Pls solve the quiz and EXPLAIN YOUR ANSWERS, I NEED TO LEARN THECALCULATIONS. Thank you.

Multiple Choice Quiz
1
If the annual interest rate is 5% (.05), the price of a one yearTreasury bill would be:
(Hint: T-Bills have $100 face value)
A) $95.00
B) $97.50
C) $95.24
D) $96.10
2
If the annual interest rate is 5%, the price of a three-monthTreasury bill would be:
(Hint: T-Bills have $100 face value)
A) $98.79
B) $95.00
C) $98.75
D) $97.59
3
If a consol is offering an annual coupon of $50 and the annualinterest rate is 6%, the price of the consol is:
A) $47.17
B) $813.00
C) $833.33
D) None of the above
4
A $1000 face value bond purchased for $965.00, with an annualcoupon of $60, and 20 years to maturity has:
A) A current yield equal to 6.22%.
B) A current yield equal to 6.00%.
C) A coupon rate equal to 6.22%.
D) A yield to maturity and current yield equal to 6.00%.
E) A yield to maturity and coupon rate equal to 6.00%.
5
A $1000 face value bond, with an annual coupon of $40, one year tomaturity and a purchase price of $980:
A) Has a current yield that equals 4.00%.
B) Has a coupon rate that equals 4.80%.
C) Has a current yield that equals 4.08% and a yield to maturitythat equals 6.12%.
D) Has a current yield that equals 4.08% and a yield to maturitythat equals 4.0%.
6
If a one year bond has a face value of $100 and is purchased for$94, and is held to maturity:
A) The holding period return will equal the yield tomaturity.
B) The yield to maturity will exceed the holding periodreturn.
C) The yield to maturity will be 6.38%.
D) a and c.
7
A 30-year Treasury bond as a face value of $1,000, price of $1,200with a $50 coupon payment. Assume the price of this bond decreasesto $1,100 over the next year. The one-year holding period return isequal to:
A) -9.17%
B) -8.33%
C) -4.17%
D) -3.79%

8
If a one-year zero-coupon bond has a face value of $100, ispurchased for $94, and is held to maturity:
A) The holding period return will exceed the yield tomaturity.
B) The yield to maturity will exceed the holding periodreturn.
C) The yield to maturity will be 6.38%.
D) The holding period return will be 6.38%.

9
Consider a zero-coupon bond with a $1,100 payment in one year.Suppose the interest rate decreases from 10% to 8%. The price ofthis bond:
A) Increases from $1,000 to $1,018.
B) Increases from $1,000 to $1,375.
C) Decreases from $110 to $88.
D) Decreases from $1,210 to $1,188.
10
Consider a $1,000 face value bond with a $55 coupon payment and 1year to maturity. Calculate the current yield, coupon rate and theyield to maturity if the bond is purchased for $940.
A) Current yield = 5.50%, coupon rate = 5.50%, yield to maturity =12.23%.
B) Current yield = 5.85%, coupon rate = 5.50%, yield to maturity =12.23%.
C) Current yield = 5.85%, coupon rate = 5.00%, yield to maturity =6.38%.
D) Current yield = 5.50%, coupon rate = 5.00%, yield to maturity =6.38%.

11
Consider a $1,000 face value bond with a $55 coupon payment and 1year to maturity. Calculate the current yield, coupon rate and theyield to maturity if the bond is purchased for $1,130.
A) Current yield = 5.50%, coupon rate = 4.87%, yield to maturity =5.00%.
B) Current yield = 5.50%, coupon rate = 5.50%, yield to maturity =-6.64%.
C) Current yield = 4.87%, coupon rate = 5.50%, yield to maturity =-6.64%.
D) Current yield = 4.87%, coupon rate = 5.00%, yield to maturity =-5.00%.

12
If the U.S. government's borrowing needs increase, all otherfactors constant:
A) The demand for bonds will decrease.
B) The price of bonds will increase.
C) The supply of bonds will increase.
D) The yields on bonds will decrease.
13
Consider a two-year, 4.5% coupon bond with a $500 face value thatis originally purchased for $475. Calculate the holding periodreturn of this bond if it is sold after one year at a price of$485.
A) 6.84%
B) 6.50%
C) 11.58%
D) 3.05%
14
Consider a two-year, 8% coupon bond with a $1,500 face value thatis originally purchased for $1,490. Calculate the holding periodreturn of this bond if it is sold after one year at a price of$1,505.
A) 8.67%
B) 9.06%
C) 1.54%
D) 6.38%
15
If the risk on foreign government bonds increases relative to U.S.government bonds, the price of U.S. government bonds should:
A) Not change since U.S. government bonds are free of defaultrisk.
B) Decrease since people will bail out of all governmentbonds.
C) Increase as the demand for these bonds increases.
D) Not be affected because the two types of bonds are traded indifferent markets.

The yield to maturity on a bond is __________________ .

	a.	below the coupon rate when the bond sells at a discount, and above the coupon rate when the bond sells at a premium.
	b.	the discount rate that will set the present value of the future cash payments of interest and principal equal to the bond price.
	c.	based on the assumption that any payments received are reinvested at the coupon rate.
	d.	none of the above.