1) What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?
C) $453.51
2) If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is
B) 10 percent.
who is to receive $1 million per year for twenty years has won $203) 3) To million claim that a lottery winner of ignores the process
B) discounting the future.
4) If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is
A) $37.50.
5) A bond that is bought at a price below its face value and the face value is repaid at a maturity date is calleda
D) discount bond.
6) If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is
C) $2000
7) If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200?
B) 10 percent
8) If peanuts serve as a medium of exchange, a unit of account. and a store of value, then peanuts are
D) money
9) The price of a coupon bond and the yield to maturity arerelated that is, as the yield to maturitythe price of the bond
C) negatively: rises; falls
10) Suppose you are holding a 5 percent coupon bond maturing in one year with a yield to maturity of 15 percent. If the interest rate on one-year bonds rises from 15 percent to 20 percent over the course of the year, what is the yearly return on the bond
C) 15 percent
this bond to maturity, then my return on this asset is 11) When I purchase a 10 percent coupon bond, Icalculate a yield to maturity of 8 percent. I I hold
C) 8 percent
12) 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?
D) A bond with one year to maturity
13) Which of the following are generally true of all bonds?
A) Even though a bond has a substantial initial interest rate, its return can turn out to be negative if interest rates rise
14) Prices and returns for bonds are more volatile than those for _ bonds, everything14) else held constant
D) long-term; short-term
15) The nominal interest rate minus the expected rate of inflation
D) defines the real interest rate.
16) The opportunity cost of holding money is
A) the interest rate.
17) The conversion of a barter economy to one that uses money
C) increases efficiency by reducing transactions costs
1 8) are short-term loans in which Treasury bills serve as collateral.
B) Repurchase agreements
19) Federal funds are
A) funds raised by the federal government in the bond market.
20) If the maturity of a debt instrument is less than one year, the debt is called
D) intermediate-term.
21) The upward and downward movement of aggregate output produced in the economy is referred to as the
D) roller coaster.
22) Evidence from business cycle fluctuations in the United States indicates that
D) a negative relationship between money growth and general economic activity exists.
23) There is aassociation between inflation and the growth rate of money
A) negative: demand
24) Which of the following can be described as direct finance?
D) You buy shares in a mutual fund.
25) Which of the following statements about financial markets and securities is true?
C) A bond is a long-term security that promises to make periodic payments called dividends to the firm's residual claimants
24) If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is
A ) $ 30,000
25) Net profit after taxes per dollar of assets is a basic measure of bank profitability called
B) return on capital.
26) A $5 million deposit outflow from a bank has the immediate effect of
A) reducing deposits and capital by $5 million
27) Bankers concerns regarding the optimal mix of excess reserves, secondary reserves, borrowings from the Fed, and borrowings from other banks to deal with deposit outflows is an example of
D) liability management.
28) If the First National Bank has a gap equal to a negative $30 mion, then a 5 percentage point increase in interest rates will cause profits to
A) decline by $15 million.
29) If a bank has $50 million in rate-sensitive assets and $20 million in rate-sensitive liabilities then
B) an increase in interest rates will reduce bank profits.
30) When a new depositor opens a checking account at the First National Bank, the bank's assetsand its liabilities
B) increase; decrease