AS A BOND\'S INFLATION PREMIUM _______, ITS PRICE _______. I. RISES; RISES II. R
ID: 2621444 • Letter: A
Question
AS A BOND'S INFLATION PREMIUM _______, ITS PRICE _______.
I. RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES
II ONLY
I ONLY
I AND III
II AND IV
THE CHEAT AND STEAL BANK OFFERS A RETURN ON DEPOSITS OF 4% COMPOUNDED MONTHLY. THIS MEANS THE EFFECTIVE ANNUAL RATE OFFERED BY THE BANK IS _____
4.04%
4.09%
4.07%
4.02%
THE TERM STRUCTURE OF INTEREST RATES IS USUALLY _________.
FLAT
DOWNWARD SLOPING
UPWARD SLOPING
AS THE NUMBER OF COMPOUNDINGS PER YEAR _______ THE EFFECTIVE ANNUAL RATE ________.
I. RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES
I ONLY
II AND IV
I AND III
IV ONLY
WHICH OF THE FOLLOWING COULD REDUCE THE AMOUNT PAID IN INTEREST ON YOUR HOME MORTGAGE?
I. INCREASE YOUR DOWN PAYMENT
II. DECREASE YOUR DOWN PAYMENT
III. PAY OFF THE MORTGAGE OVER A LONGER PERIOD OF TIME
IV. PAY OFF THE MORTGAGE OVER A SHORTER PERIOD OF TIME
V. PAY MORE THAN THE MINIMUM REQUIRED PAYMENT
VI. PAY LESS THAN THE MINIMUM REQUIRED PAYMENT
II AND VI
II, III AND VI
III AND VI
I, IV AND V
IN RESPONSE TO THE RUSSIAN TAKEOVER OF CRIMEA, THERE HAS BEEN A FLIGHT OF CAPITAL TO THE SAFETY OF THE U.S. BOND MARKET. AS A RESULT, U.S. BOND PRICES HAVE INCREASED. THIS MEANS THE BOND'S YIELDS HAVE INCREASED.
True
False
A TWO-YEAR TREASURY BOND HAS A YIELD OF 4.4% AND A ONE-YEAR TREASURY BOND HAS A YIELD OF 2.2%. WHAT YIELD MUST INVESTORS BE PREDICTING FOR A ONE-YEAR BOND PURCHASED ONE YEAR FROM NOW?
4.92%
6.65%
5.02%
5.58%
THE CHEAT AND STEAL BANK OFFERS A RETURN ON DEPOSITS OF 4% COMPOUNDED CONTINUOUSLY. THIS MEANS THE EFFECTIVE ANNUAL RATE OFFERED BY THE BANK IS _____.
5.01%
4.06%
4.13%
4.08%
THE JSU CORPORATION JUST ISSUED A 20-YEAR BOND HAVING A COUPON RATE OF 6% (PAID SEMIANNUALLY) AND A FACE VALUE OF $1,000. IF THE BOND'S YIELD IS 8%, THE PRICE OF THIS BOND MUST BE _______.
$982.49
$802.07
$1,012.93
$864.10
CONSIDER THE CASH FLOWS IN THE FOLLOWING TABLE:
AT A DISCOUNT/INTEREST RATE OF 10%, THE FUTURE VALUE OF THE CASH FLOWS AT TIME 10 IS _______.
$3,999.37
$4,035.78
$6,315.38
$5,107.92
SUPPOSE YOU INVEST ONLY IN BONDS AND CASH. YOU EXPECT BOND YIELDS TO FALL. IF YOUR GOAL IS TO MAXIMIZE YOUR WEALTH YOU SHOULD ________.
PLACE ALL OF YOUR FUNDS IN CASH
INVEST IN SHORT-TERM BONDS
INVEST IN LONG-TERM BONDS
AS A BOND'S DEFAULT RISK ________ ITS CREDIT RATING _______.
I. RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES
II AND IV
III ONLY
I AND III
I ONLY
THE CHEAT AND STEAL BANK OFFERS AN INTEREST RATE ON DEPOSITS OF 4% COMPOUNDED MONTHLY. IF YOU DEPOSIT $2,000 INTO THIS BANK TODAY, HOW MUCH WILL YOU HAVE IN 10 YEARS?
$2,981.67
$4,208.32
$2,859.18
$3,001.28
CONSIDER THE MIXED-STREAM OF CASH FLOWS IN THE FOLLOWING TABLE:
AT A DISCOUNT/INTEREST RATE OF 10%, THE PRESENT VALUE (AT TIME 0) OF THE CASH FLOWS IS _______.
$3,000
$1,555.97
$1,753.29
$1,628.41
THE FUTURE VALUE IN 10 YEARS OF $500 EARNING 5% COMPOUNDED DAILY IS ________.
$628.32
$922.35
$824.33
$725.39
AS A BOND'S DATE TO MATURITY ________, THE REACTION OF ITS PRICE TO CHANGES IN ITS YIELD _______.
I. RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES
IV ONLY
II AND IV
I AND III
II ONLY
AS A BOND'S CREDIT RATING _______ ITS PRICE _______.
I. RISES; RISES
II. RISES; FALLS
III. FALLS; FALLS
IV. FALLS; RISES
II AND IV
IV ONLY
I ONLY
I AND III
A BOND WITH A COUPON RATE OF 6% HAS A PRICE OF $800. THIS MEANS THE BOND'S YIELD MUST BE _______
6%
LOWER THAN 6%
HIGHER THAN 6%
CONSIDER THE CASH FLOWS IN THE FOLLOWING TABLE:
WHEN THE DISCOUNT RATE IS 10%, THE PRESENT VALUE OF ALL THE CASH FLOWS (INCLUDING THE MISSING CASH FLOW) IS $1,840.35. THE VALUE OF THE MISSING CASH FLOW MUST BE _______.
$592
$439
$558
$638
GOOD NEWS! MICHAEL JORDAN'S HOME IN CHICAGO IS FOR SALE! SUPPOSE YOU AGREE TO PAY MR. JORDAN'S ASKING PRICE OF $20,0000,000 FOR THE HOME. YOUR BANK AGREES TO LEND YOU 80% OF THIS AMOUNT USING A FIXED-RATE, 30-YEAR MORTGAGE (WITH MONTHLY PAYMENTS) HAVING AN INTEREST RATE OF 7%.
YOUR MONTHLY INTEREST PAYMENTS ON THIS LOAN WILL BE _______.
$106,448.40
$133,060.50
$117,904.28
$102,893.51
THE BONDS OF THE FIN 301 CORPORATION HAVE A COUPON RATE OF 8% (PAID SEMIANNUALLY), A FACE VALUE OF $1,000, A PRICE OF $877.15 AND MATURE IN 20 YEARS. THE YIELD ON THESE BONDS MUST BE _______.
8.51%
8.32%
7.95%
9.37%
GOOD NEWS! MICHAEL JORDAN'S HOME IN CHICAGO IS FOR SALE! SUPPOSE YOU AGREE TO PAY MR. JORDAN'S ASKING PRICE OF $20,0000,000 FOR THE HOME. YOUR BANK AGREES TO LEND YOU 80% OF THIS AMOUNT USING A FIXED-RATE, 30-YEAR MORTGAGE HAVING AN INTEREST RATE OF 7%.
THE TOTAL AMOUNT OF INTEREST PAID ON THIS LOAN OVER ITS 30-YEAR LIFE WILL BE _________.
$10,394,193.81
$25,030,219.58
$8,394,193.35
$22,321,423.72
THE SLOPE OF THE YIELD CURVE WILL ______ WHEN INFLATION IS EXPECTED TO _______.
I. RISE; RISE
II. RISE; FALL
III. FALL; FALL
IV. FALL; RISE
II ONLY
I AND III
II AND IV
I ONLY
II ONLY
I ONLY
I AND III
II AND IV
Explanation / Answer
1. II and IV only
2. 4.07%
3. UPWARD SLOPING
4. I and III
5. I, IV and V
6. FALSE
7. 6.65%