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Exam 4: Understanding Interest Rates

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Question 41

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Would it make sense to buy a house when mortgage rates are 14% and expected inflation is 15%? Explain your answer.

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Even though the nominal rate f...

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Question 42

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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?

A) A bond with one year to maturity
B) A bond with five years to maturity
C) A bond with ten years to maturity
D) A bond with twenty years to maturity

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Question 43

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What is the present value of $500.00 to be paid in two years if the interest rate is 5 percent?

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

The interest rate on a consol equals the

With an interest rate of 6 percent, the present value of $100 next year is approximately

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a

The concept of ________ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today.

The ________ interest rate is adjusted for expected changes in the price level.

The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the

In which of the following situations would you prefer to be the lender?

If the amount payable in two years is $2420 for a simple loan at 10 percent interest, the loan amount is

If a $1000 face value coupon bond has a coupon rate of 3.75 percent, then the coupon payment every year is

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's

An equal decrease in all bond interest rates

Economists consider the ________ to be the most accurate measure of interest rates.

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of

Which of the following are true of fixed payment loans?

A ________ is bought at a price below its face value, and the ________ value is repaid at the maturity date.

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 you are holding?