The interest rate that economists consider to be the most accurate measure is the
yield to maturity
The interest rate that equates the present value of payments received from a debt instrument with its value
yield to maturity.
The concept of _____ is based on the common-sense notion that a dollar paid to you in the future is less
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million
discounting the future.
With an interest rate of 5 percent, the present value of $100 next year is approximately
If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200?
A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a
If $1102.50 is the amount payable in two years for a $1000 simple loan made today, the interest rate is
A loan that requires the borrower to make the same payment every period until the maturity date is called
) fixed-payment loan.
A coupon bond pays the owner of the bond
a fixed-interest payment every period and repays the face value at the maturity date.
What is true for a coupon bond?
(a) When the coupon bond is priced at its face value, the yield to maturity equals the coupon rate. (b) The price of a coupon bond and the yield to maturity are negatively related. (c) The yield to maturity is greater than the coupon rate when the bond price is below the par value.
An $8,000 coupon bond with a $400 coupon payment every year has a coupon rate of
A $10,000 8 percent coupon bond that sells for $10,000 has a yield to maturity of
If a $20,000 coupon bond has a coupon rate of 4 percent, then the coupon payment every year is
A bond that is bought at a price below its face value and the face value is repaid at a maturity date is
If a $10,000 face-value discount bond maturing in one year is selling for $5,000, then its yield to maturity
The return on a 10 percent coupon bond that initially sells for $1,000 and sells for $1,200 next year is
The return on a 5 percent coupon bond that initially sells for $1,000 and sells for $950 next year is
Interest-rate risk is
the riskiness of an asset's returns due to interest-rate changes.
Prices and returns for _____ bonds are more volatile than those for _____ bonds.
The Fisher equation states that
the nominal interest rate equals the real interest rate plus the expected rate of inflation. , the real interest rate equals the nominal interest rate less the expected rate of inflation.
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
In which of the situations would you prefer to be the lender?
When the interest rate is greater than the inflation rate
In which situations would you prefer to be borrowing?
When the interest rate is far lower the the inflation rate.
If wealth increases, the demand for stocks _____ and that of long-term bonds _____.
If the expected return on ABC stockstock is rises from 5 to 10 percent and the expected return on CBS unchanged, then the expected return of holding CBS stock _____ relative to ABC stock and the demand for CBS stock _____.
If housing prices are suddenly expected to shoot up, then, other things equal, the demand for houses will _____ and that of Treasury bills will _____.
As the price of a bond _____ and the expected return _____, bonds become more attractive to investors and the quantity demanded rises.
When stock prices become more volatile, the demand curve for bonds shifts to the _____ and the interest rate _____.
When bonds become more widely traded, and as a consequence the market becomes more liquid, the demand curve for bonds shifts to the _____ and the interest rate _____.
Factors that decrease the demand for bonds include
Wealth, Risk, Expected Return, Inflation
In an expanding economy with growing wealth, the demand for bonds _____ and the demand curve for bonds shifts to the _____.
The risk structure of interest rates is
the relationship among interest rates of different bonds with the same maturity.
Bonds with no default risk are called
The spread between the interest rates on bonds with default risk and default-free bonds is called the
The theory of asset demand predicts that as the possibility of a default on a corporate bond increases, theexpected return on the bond _____ while its relative riskiness _____.
When the default risk in corporate bonds increases, other things equal, the demand curve for corporate bonds shifts to the _____ and the demand curve for Treasury bonds shifts to the _____.
A plot of the interest rates on default-free government bonds with different terms to maturity is called
a yield curve.
When yield curves are downward sloping,
short-term interest rates are above long-term interest rates.
If the expected path of 1-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the expectations theory predicts that today's interest rate on the four-year bond is
According to the segmented markets theory of the term structure
interest rates on bonds of different maturities do not move together over time.
Which of the following theories of the term structure is (are) able to explain the fact that interest rates on bonds of different maturities tend to move together over time?
Expectations Theory and Liquidity premium theory
Which of the following are reported as liabilities on a bank's balance sheet?
Everything else equal, a bank will hold less excess reserves when
it expects to have a deposit inflow in the near future.
The First National Bank gains reserves when
a check written on an account at another bank is deposited in First National.
The purpose of regulation of financial markets is to
promote the provision of information to shareholders, depositors and the public.
Which of the following is not one of the eight basic puzzles about financial structure?
Direct finance, in which businesses raise funds directly from lenders in financial markets, is many times more important than indirect finance, which involves the activities of financial intermediaries.
The benefits financial intermediaries provide their customers include
increased diversification, reduced risk, reduced transaction costs
The presence of _____ in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.
Due to the problem of adverse selection, lenders
may lend only to those "who do not need the money." may be reluctant to make loans not secured by collateral.