Quiz 3, Chapter 4

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Western Michigan University *

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3200

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Finance

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Feb 20, 2024

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Question 1 (1 point) Saved Which of the following are generally true of all bonds? (’) 1) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. () 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. (/\ 3) Prices and returns for long term bonds are more volatile than those for shorter term bonds. (@) (®)4) Al of the above are true. O 5) Only (a) and (b) of the above are true.

Question 2 (1 point) Saved If a $10,000 face-value discount bond maturing in one year is selling for $6,000 then its yield to maturity is O /1) 30 percent. i ‘\) 2) 33 percent. e -/ 3) 60 percent. ~ (@) 4) 66 percent. Question 3 (1 point) Saved jing are true for a coupe O 1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. P L 2) The price of a coupon bond and the yield to maturity are negatively related. O 3) The yield to maturity is greater than the coupon rate when the bond price is above the par value. ) /) 4) All of the above are true. (@ 5) Only (a) and (b) of the above are true.

Question 4 (1 point) Saved Which of the following $1,000 face-value securities has the highest yield to maturity? 1) As percent coupon bond selling for $1,000 ) 2 aA10 percent coupon bond selling for $1,000 O LJ3)Aa15 percent coupon bond selling for $1,000 (o) ®)4) A15 percent coupon bond selling for $900 Question 5 (1 point) Saved Which of the following $1,000 face-value securities has the lowest yield to maturity? 2 1) a1s percent coupon bond with a price of $600. ~ ) N ) A15 percent coupon bond with a price of $800. ) 3) A15 percent coupon bond with a price of $1,000. (\) 4) A15 percent coupon bond with a price of $1,200. @ 5 A15 percent coupon bond with a price 0f$1,500.

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Question 6 (1 point) Saved Which of the following $1,000 face-value securities has the highest yield to maturity? VY 1) As percent coupon bond selling for $1,000 O -/ 2) A 10 percent coupon bond selling for $1,000 (@) @ 3) a12 percent coupon bond selling for $1,000 (~—) 4) A 12 percent coupon bond selling for $1,100 Question 7 (1 point) Saved True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer's return for holding the bond for 10 years will be 2.125%. () 1) True (®)2) False

Question 8 (1 point) Saved Which of the following $1,000 face-value securities has the highest yield to maturity? @ 1) A5 percent coupon bond with a price of $600 O 2 a5 percent coupon bond with a price of $800. ®) 3 A5 percent coupon bond with a price of $1,000. — ./ 4) A5 percent coupon bond with a price of $1,200. — ./ 5) A5 percent coupon bond with a price of $1,500. Question 9 (1 point) Saved True or False? The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. () 1) True (®)2) False Question 10 (1 point) Saved True or False? The current interest rate on a 10-year treasury note (with face value = $100 and annual coupon rate = 2.625%) is 3.37%. The market price of this bond must be greater than $100.

Question 11 (1 point) Saved True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer of the bond will have a return of 1.96% if she sells the bond next year. () 1) True (®)2) False Question 12 (1 point) Saved Which of the following are true of fixed payment loans? A\ 1) The borrower repays both the principal and interest at the maturity date. O L/ 2) Installment loans and mortgages are frequently of the fixed payment type. N\ L 3) The borrower repays the loan by making the same payment every month. () 4) Both (a) and (b) of the above. (@) @) 5) Both (b) and (c) of the above. Question 13 (1 point) Saved True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its interest rate rises above 1.96%. () 1) True (®) 2) False

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C/\ 1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. M ) 2) The price of a coupon bond and the yield to maturity are negatively related. O -/ 3) The yield to maturity is greater than the coupon rate when the bond price is below the par value. @ 4) All of the above are true. ) 5) Only (a) and (b) of the above are true. Question 15 (1 point) Saved True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer of the bond will have a return of 2.125% if she sells the bond next year. () 1) True (®)2) False Question 16 (1 point) Saving.. & True or False? The current interest rate on a 10-year coupon bond (with face value = $1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the bond is traded on the market for more than $1,000.

Question 17 (1 point) Saved Which of the following are generally true of all bonds? (’\) 1) The longer a bond's maturity, the lower is the rate of return that occurs as a ( result of the increase in the interest rate. O 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. () ) Prices and returns for short term bonds are more volatile than those for longer term bonds. w OF) All of the above are true. O 5) Only (a) and (b) of the above are true. Question 18 (1 point) Saved Which of the following are true for discount bonds? () A discount bond is bought at a price below its face value. ()2) The purchaser receives the face value of the bond at the maturity date. (3) U.S. Treasury bonds and notes are examples of discount bonds. (J 4) Al of the Above. ~ (®)'5) Only (a) and (b) of the above.

Question 19 (1 point) Saved Which of the following $1,000 face-value securities has the lowest yield to maturity? @ 1) A5 percent coupon bond selling for $1,000 O2 ) A10 percent coupon bond selling for $1,000 O /3 A15 percent coupon bond selling for $1,000 O L 4) a15 percent coupon bond selling for $900 Question 20 (1 point) Saved With an interest rate of 10 percent, the present value of a security that pays $1,100 next year and $1,464.10 four years from now is: O $1,000. \)2) $2,560. e\ 1/ 3) $3,000. ® 4 $2,000.

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Question 21 (1 point) Saved Which of the following are true for discount bonds? e /1) Adiscount bond is bought at a price below its face value. M\ -/ 2) The purchaser receives the face value of the bond at the maturity date. (\) 3) U.S. Treasury bills, U.S. savings bonds, and so-called zero-coupon bonds are examples of discount bonds. (@) (8 4) All of the above. J)s) Only (a) and (b) of the above. Question 22 (1 point) Saved If a security pays $105 next year and $110 the year after that, what is its yield to maturity if it sells for $200? Oy 4 percent @ 2) 5 percent L—) 36 percent O a 10 percent

Question 23 (1 point) Saved If a security pays $110 next year and $121 the year after that what is its yield to maturity if it sells for $200? ‘/'\ )9 percent @ 2) 10 percent O 3) ~ 11 percent O 4 ) 4) 12 percent Question 24 (1 point) Saving.. & If a $10,000 face-value discount bond maturing in one year is selling for $9,000, then its yield to maturity is ~ /1) 9 percent. O -/ 2) 10 percent. @ 3) 11 percent. (a4 12 percent.

Question 25 (1 point) Saved Which of the following are generally true of all bonds? @ 1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. ‘C) 2) Arise in interest rates is associated with a fall in bond prices, resulting in ) capital losses on bonds whose term to maturities are longer than the holding period. () 3) The longer a bond's maturity, the greater is the size of the price change associated with an interest rate change. N O 4) All of the above are true. \> 5) Only (a) and (b) of the above are true. Question 26 (1 point) Saving.. & Which of the following are generally true of all bonds? O 1) The longer a bond's maturity, the greater is the rate of return that occurs as ( a result of the increase in the interest rate. O 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. O 3) Prices and returns for short term bonds are more volatile than those for longer term bonds. @ 4) All of the above are true. \—) 5) Only (a) and (b) of the above are true.

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Question 27 (1 point) Saved What is the return on a 5 percent coupon bond that initially sells at par for $1,000 and sells for $1,200 next year? \—> 15 percent O 2 10 percent \—> 3) 5 percent ‘o) (@) 4) 25 percent () None of the above Question 28 (1 point) Saved True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its interest rate drops below 1.96%. (0)1) True () 2) False Question 29 (1 point) Saved True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then the interest rate you are earning from this bond is lower. () 1) True (®)2) False

Question 30 (1 point) Saving... $ The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $950 next year is 1) 10 percent. Y ) 2) .5 percent. "\) 3)o percent. @ 4) 5 percent. Question 31 (1 point) Saved Which of the following are true for a coupon bond? @ 1) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. J ~ N ) The price of a coupon bond and the yield to maturity are positively related. O 3) The yield to maturity is greater than the coupon rate when the bond price is above the par value. ) ) 4) All of the above are true. © 5) Only (a) and (b) of the above are true.

Question 32 (1 point) Saving.. & The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $1,200 next year is /2 1) 15 percent. Oz ) 25 percent. @ 3) 30 percent. K—> 4) 33 percent. Question 33 (1 point) Saved In which of the following situations would you prefer to be borrowing? e ™ /1) The interest rate is 9 percent and the expected inflation rate is 7 percent. e L/ 2) The interest rate is 4 percent and the expected inflation rate is 1 percent. (\’/\ 3) The interest rate is 13 percent and the expected inflation rate is 15 ) percent. O 4) The interest rate is 25 percent and the expected inflation rate is 50 percent.

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Question 34 (1 point) Saving... & If a $20,000 coupon bond has a coupon rate of 4 percent, then the coupon payment every year is O 1) $40. ;) 2) $80. © 3) s400. ® 4) 4g00. Question 35 (1 point) Saving.. & If a $10,000 face-value discount bond maturing in one year is selling for $8,000, then its yield to maturity is o\ ) - ) 10 percent. ~ / N ) 20 percent. ® W ) 25 percent. D) () 4) 40 percent.

Question 36 (1 point) Saving.. & True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then your return on this bond will be higher than 5% later when you hold it to the maturity date. () 1) True (e)2) False Question 37 (1 point) Saving... & With an interest rate of 8 percent, the present value of $100 next year is approximately ) 1) $108. O) - 2) $100. \(7\ -/ 3) $96. © 4) g93.

Question 38 (1 point) Saving.. & Prices and returnsfor ________ bonds are more volatile than those for bonds. O 1) long-term; long-term @ 2) long-term; short-term O ) 3) short-term; long-term O ) 4) short-term; short-term Question 39 (1 point) Saved Which of the following are generally true of all bonds? @ 1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. O 2) Arrise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period. O 3) The longer a bond's maturity, the smaller is the size of the price change i associated with an interest rate change. - ~ Y 4) All of the above are true. \—) 5) Only (a) and (b) of the above are true.

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Question 40 (1 point) Saving.. & True or False? U.S. Treasury bills, U.S. savings bonds, and so-called zero-coupon bonds are examples of discount bonds. () 2) False Question 41 (1 point) Saving... & The return on a 10 percent coupon bond that initially sells at par for $1,000 and sells for $1,100 next year is E \) 1) 17 percent. @ 2) 20 percent. (, / 3) 24 percent. P \) 4) 30 percent.

Question 42 (1 point) Saved If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year is o) '/ 5) None of the above. Question 43 (1 point) Saved Which of the following are generally true of all bonds? () 1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. O 2) Arrise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose term to maturities are longer than the holding period. O 3) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. Q4 picrirdsratm \—> 5) Only (a) and (b) of the above are true.

Question 44 (1 point) Saving... & If a $5,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is @ 1o percent. 25 percent. 7~ ) 3) 10 percent. O ) 4) 20 percent. Question 45 (1 point) Saving.. & True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its coupon rate rises above 2.125%.

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Question 46 (1 point) Saved With an interest rate of 5 percent, the present value of $100 next year is approximately O 1) $100. O 2) g10s. ®© 3) g9s. 4) $90. Question 47 (1 point) Saved True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. You will still receive the same amount of coupon payments from the issuer while you are holding the bond. (0)1) True () 2)False A Question 48 (1 point) Saved True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then you can sell your bond at today's market for a higher price than you paid. (o)1) True () 2) False \

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Question 49 (1 point) Saving... & True or False? The current interest rate on a 10-year treasury security (with face value = $100 and annual coupon rate = 2.125%) is 1.96%. If the price of this treasury note goes up, its coupon rate drops below 2.125%. () 1) True () 2) False Question 50 (1 point) Saving.. & True or False? Last year you purchased a bond with an interest rate of 5%. Now the interest rate on the bond market drops to 4%. Then the face value of your bond is lower. (®)2) False Question 51 (1 point) Saved In which of the following situations would you prefer to be making a loan? 1) The interest rate is 9 percent and the expected inflation rate is 7 percent. @ 2) The interest rate is 4 percent and the expected inflation rate is 1 percent. O 3) The interest rate is 13 percent and the expected inflation rate is 15 percent. < ) 2) The interest rate is 25 percent and the expected inflation rate is 50 percent.

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Question 54 (1 point) Saved If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity is @) ) 15 percent. ) U210 percent. Oy 50 percent. (@) (@) 4) 100 percent. Question 55 (1 point) Saving... & A $10,000 coupon bond with an $800 coupon payment every year has a coupon rate of O 1) 4 percent. @ 2) g percent. ) 4) 40 percent.

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Question 56 (1 point) Saving... & If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? ® 1 A bond with one year to maturity Y <J 2) Abond with five years to maturity 7\ L 3) Abond with ten years to maturity ~ / 4) Abond with twenty years to maturity Question 57 (1 point) Saved True or False? The current interest rate on a 10-year coupon bond (with face value =$1,000 and annual coupon rate = 2.125%) is 1.96%. This implies that the buyer's return for holding the bond for 10 years will be 1.96%. (8) 1) True () 2) False Question 58 (1 point) Saved True or False? A 10-year coupon bond is traded at par. This implies that the interest rate of this bond is zero. () 1) True (®)2) False

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y true of : O 1) The longer a bond's maturity, the lower is the rate of return that occurs as a ( result of the increase in the interest rate. O 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. (/\ 3) Prices and returns for long term bonds are more volatile than those for shorter term bonds. (@) (®)4) Al of the above are true. )5) Only (a) and (b) of the above are true. Question 16 (1 point) Saved Which of the following are generally true of all bonds? (/\ 1) The only bond whose return equals the initial yield to maturity is one B whose time to maturity is the same as the holding period. (’\) 2) Arrise in interest rates is associated with a fall in bond prices, resulting in capital losses on bonds whose term to maturities are longer than the holding period. O 3) The longer a bond's maturity, the smaller is the size of the price change ) associated with an interest rate change. ~ ./ 4) All of the above are true. ® &'5) Only (a) and (b) of the above are true.

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y true of : ) The longer a bond's maturity, the greater is the rate of return that occurs as /4 N [ a result of the increase in the interest rate. (j) 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. O 3) Prices and returns for short term bonds are more volatile than those for longer term bonds. O -/ 4) All of the above are true. \—) 5) Only (a) and (b) of the above are true.

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Question 43 (1 point) Saved y true of (\) 1) The longer a bond's maturity, the lower is the rate of return that occurs as a result of the increase in the interest rate. O 2) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise. O 3) Prices and returns for short term bonds are more volatile than those for i longer term bonds. y L/ 4) All of the above are true. ® 5) Only (a) and (b) of the above are true. Question 52 (1 point) Saved Which of the following are generally true of all bonds? @ 1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. \’) 2) A rise in interest rates is associated with a fall in bond prices, resulting in ) capital gains on bonds whose term to maturities are longer than the holding period. (C ) 3) The longer a bond's maturity, the smaller is the size of the price change i associated with an interest rate change. O '/ 4) All of the above are true. ~ J5) Only (a) and (b) of the above are true.

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Question 51 (1 point) Saved O 1) The only bond whose return equals the initial yield to maturity is one whose time to maturity is the same as the holding period. \\ 2) Arise in interest rates is associated with a fall in bond prices, resulting in ) capital losses on bonds whose term to maturities are longer than the holding period. O 3) The longer a bond's maturity, the greater is the size of the price change associated with an interest rate change. S C/ 4) All of the above are true. \) 5) Only (a) and (b) of the above are true. Question 53 (1 point) Saved The return on a 5 percent coupon bond that initially sells at par for $1,000 and sells for $950 next year is < '/ 1) -10 percent. 2) .5 percent. (@) ®3) o percent. K—> 4) 5 percent.

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Quiz 3, Chapter 4

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