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Chapter3WhatDoInterestRatesMeanandWhatIsTheirRoleinValuation?3.1SingleChoice1)AloanthatrequirestheborrowertomakethesamepaymenteveryperioduntilthematuritydateiscalledaA)simpleloan.B)fixed-paymentloan.C)discountloan.D)same-paymentloan.E)noneoftheabove.2)AcouponbondpaystheownerofthebondA)thesameamounteverymonthuntilmaturitydate.B)afixedinterestpaymenteveryperiodandrepaysthefacevalueatthematuritydate.C)thefacevalueofthebondplusaninterestpaymentoncethematuritydatehasbeenreached.D)thefacevalueatthematuritydate.E)noneoftheabove.3)Abond'sfuturepaymentsarecalleditsA)cashflows.B)maturityvalues.C)discountedpresentvalues.D)yieldstomaturity.4)AcreditmarketinstrumentthatpaystheownerthefacevalueofthesecurityatthematuritydateandnothingpriortotheniscalledaA)simpleloan.B)fixed-paymentloan.C)couponbond.D)discountbond.5)(I)Asimpleloanrequirestheborrowertorepaytheprincipalatthematuritydatealongwithaninterestpayment.(II)Adiscountbondisboughtatapricebelowitsfacevalue,andthefacevalueisrepaidatthematuritydate.A)(I)istrue,(II)false.B)(I)isfalse,(II)true.C)Botharetrue.D)Botharefalse.6)Whichofthefollowingaretrueofcouponbonds?A)Theownerofacouponbondreceivesafixedinterestpaymenteveryyearuntilthematuritydate,whenthefaceorparvalueisrepaid.B)U.S.Treasurybondsandnotesareexamplesofcouponbonds.C)Corporatebondsareexamplesofcouponbonds.D)Alloftheabove.E)OnlyAandBoftheabove.7)Whichofthefollowingaregenerallytrueofallbonds?A)Thelongerabond'smaturity,theloweristherateofreturnthatoccursasaresultoftheincreaseinaninterestrate.B)Eventhoughabondhasasubstantialinitialinterestrate,itsreturncanturnouttobenegativeifinterestratesrise.C)Pricesandreturnsforlong-termbondsaremorevolatilethanthoseforshorter-termbonds.D)Alloftheabovearetrue.E)OnlyAandBoftheabovearetrue.8)(I)Adiscountbondrequirestheborrowertorepaytheprincipalatthematuritydateplusaninterestpayment.(II)Acouponbondpaysthelenderafixedinterestpaymenteveryyearuntilthematuritydate,whenaspecifiedfinalamount(faceorparvalue)isrepaid.A)(I)istrue,(II)false.B)(I)isfalse,(II)true.C)Botharetrue.D)Botharefalse.9)Ifa$5,000couponbondhasacouponrateof13percent,thenthecouponpaymenteveryyearisA)$650.B)$1,300.C)$130.D)$13.E)Noneoftheabove.10)An$8,000couponbondwitha$400annualcouponpaymenthasacouponrateofA)5percent.B)8percent.C)10percent.D)40percent.11)Theconceptof_________isbasedonthecommon-sensenotionthatadollarpaidtoyouinthefutureislessvaluabletoyouthanadollartoday.A)presentvalueB)futurevalueC)interestD)deflation12)Dollarsreceivedinthefutureareworth_________thandollarsreceivedtoday.Theprocessofcalculatingwhatdollarsreceivedinthefutureareworthtodayiscalled_________A)more;discounting.B)less;discounting.C)more;inflating.D)less;inflating.13)TheprocessofcalculatingwhatdollarsreceivedinthefutureareworthtodayiscalledA)calculatingtheyieldtomaturity.B)discountingthefuture.C)compoundingthefuture.D)compoundingthepresent.14)Withaninterestrateof5percent,thepresentvalueof$100receivedoneyearfromnowisapproximatelyA)$100.B)$105.C)$95.D)$90.15)Withaninterestrateof10percent,thepresentvalueofasecuritythatpays$1,100nextyearand$1,460fouryearsfromnowisapproximatelyA)$1,000.B)$2,000.C)$2,560.D)$3,000.16)Withaninterestrateof8percent,thepresentvalueof$100receivedoneyearfromnowisapproximatelyA)$93.B)$96.C)$100.D)$108.17)Withaninterestrateof6percent,thepresentvalueof$100receivedoneyearfromnowisapproximatelyA)$106.B)$100.C)$94.D)$92.18)TheinterestratethatequatesthepresentvalueofthecashflowreceivedfromadebtinstrumentwithitsmarketpricetodayistheA)simpleinterestrate.B)discountrate.C)yieldtomaturity.D)realinterestrate.19)TheinterestratethatfinancialeconomistsconsidertobethemostaccuratemeasureistheA)currentyield.B)yieldtomaturity.C)yieldonadiscountbasis.D)couponrate.20)Financialeconomistsconsiderthe_________tobethemostaccuratemeasureofinterestrates.A)simpleinterestrateB)discountrateC)yieldtomaturityD)realinterestrate21)Forasimpleloan,thesimpleinterestrateequalstheA)realinterestrate.B)nominalinterestrate.C)currentyield.D)yieldtomaturity.22)Forsimpleloans,thesimpleinterestrateis_________theyieldtomaturity.A)greaterthanB)lessthanC)equaltoD)notcomparableto23)Theyieldtomaturityofaone-year,simpleloanof$500thatrequiresaninterestpaymentof$40isA)5percent.B)8percent.C)12percent.D)12.5percent.24)Theyieldtomaturityofaone-year,simpleloanof$400thatrequiresaninterestpaymentof$50isA)5percent.B)8percent.C)12percent.D)12.5percent.25)A$10,000,8percentcouponbondthatsellsfor$10,000hasayieldtomaturityofA)8percent.B)10percent.C)12percent.D)14percent.26)Whichofthefollowing$1,000facevaluesecuritieshasthehighestyieldtomaturity?A)A5percentcouponbondsellingfor$1,000B)A10percentcouponbondsellingfor$1,000C)A12percentcouponbondsellingfor$1,000D)A12percentcouponbondsellingfor$1,10027)Whichofthefollowing$1,000facevaluesecuritieshasthehighestyieldtomaturity?A)A5percentcouponbondsellingfor$1,000B)A10percentcouponbondsellingfor$1,000C)A15percentcouponbondsellingfor$1,000D)A15percentcouponbondsellingfor$90028)Whichofthefollowingaretrueforacouponbond?A)Whenthecouponbondispricedatitsfacevalu