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1Copyright©2016PearsonEducation,Ltd.EconomicsofMoney,Banking,andFinancialMarkets,11e,GlobalEdition(Mishkin)Chapter4TheMeaningofInterestRates4.1MeasuringInterestRates1)Theconceptof________isbasedonthecommon-sensenotionthatadollarpaidtoyouinthefutureislessvaluabletoyouthanadollartoday.A)presentvalueB)futurevalueC)interestD)deflationAnswer:AAACSB:ApplicationofKnowledge2)Thepresentvalueofanexpectedfuturepayment________astheinterestrateincreases.A)fallsB)risesC)isconstantD)isunaffectedAnswer:AAACSB:ReflectiveThinking3)Anincreaseinthetimetothepromisedfuturepayment________thepresentvalueofthepayment.A)decreasesB)increasesC)hasnoeffectonD)isirrelevanttoAnswer:AAACSB:ReflectiveThinking4)Withaninterestrateof6percent,thepresentvalueof$100nextyearisapproximatelyA)$106.B)$100.C)$94.D)$92.Answer:CAACSB:AnalyticalThinking5)Whatisthepresentvalueof$500.00tobepaidintwoyearsiftheinterestrateis5percent?A)$453.51B)$500.00C)$476.25D)$550.00Answer:AAACSB:AnalyticalThinking2Copyright©2016PearsonEducation,Ltd.6)Ifasecuritypays$55inoneyearand$133inthreeyears,itspresentvalueis$150iftheinterestrateisA)5percent.B)10percent.C)12.5percent.D)15percent.Answer:BAACSB:AnalyticalThinking7)Toclaimthatalotterywinnerwhoistoreceive$1millionperyearfortwentyyearshaswon$20millionignorestheprocessofA)facevalue.B)parvalue.C)deflation.D)discountingthefuture.Answer:DAACSB:AnalyticalThinking8)AcreditmarketinstrumentthatprovidestheborrowerwithanamountoffundsthatmustberepaidatthematuritydatealongwithaninterestpaymentisknownasaA)simpleloan.B)fixed-paymentloan.C)couponbond.D)discountbond.Answer:AAACSB:ApplicationofKnowledge9)AcreditmarketinstrumentthatrequirestheborrowertomakethesamepaymenteveryperioduntilthematuritydateisknownasaA)simpleloan.B)fixed-paymentloan.C)couponbond.D)discountbond.Answer:BAACSB:ApplicationofKnowledge10)WhichofthefollowingareTRUEoffixedpaymentloans?A)Theborrowerrepaysboththeprincipalandinterestatthematuritydate.B)Installmentloansandmortgagesarefrequentlyofthefixedpaymenttype.C)Theborrowerpaysinterestperiodicallyandtheprincipalatthematuritydate.D)Commercialloanstobusinessesareoftenofthistype.Answer:BAACSB:ReflectiveThinking3Copyright©2016PearsonEducation,Ltd.11)AfullyamortizedloanisanothernameforA)asimpleloan.B)afixed-paymentloan.C)acommercialloan.D)anunsecuredloan.Answer:BAACSB:ApplicationofKnowledge12)AcreditmarketinstrumentthatpaystheownerafixedcouponpaymenteveryyearuntilthematuritydateandthenrepaysthefacevalueiscalledaA)simpleloan.B)fixed-paymentloan.C)couponbond.D)discountbond.Answer:CAACSB:ApplicationofKnowledge13)A________paystheownerafixedcouponpaymenteveryyearuntilthematuritydate,whenthe________valueisrepaid.A)couponbond;discountB)discountbond;discountC)couponbond;faceD)discountbond;faceAnswer:CAACSB:AnalyticalThinking14)The________isthefinalamountthatwillbepaidtotheholderofacouponbond.A)discountvalueB)couponvalueC)facevalueD)presentvalueAnswer:CAACSB:ApplicationofKnowledge15)Whentalkingaboutacouponbond,facevalueand________meanthesamething.A)parvalueB)couponvalueC)amortizedvalueD)discountvalueAnswer:AAACSB:ApplicationofKnowledge4Copyright©2016PearsonEducation,Ltd.16)Thedollaramountoftheyearlycouponpaymentexpressedasapercentageofthefacevalueofthebondiscalledthebond'sA)couponrate.B)maturityrate.C)facevaluerate.D)paymentrate.Answer:AAACSB:ApplicationofKnowledge17)The________iscalculatedbymultiplyingthecouponratetimestheparvalueofthebond.A)presentvalueB)facevalueC)couponpaymentD)maturitypaymentAnswer:CAACSB:AnalyticalThinking18)Ifa$1000facevaluecouponbondhasacouponrateof3.75percent,thenthecouponpaymenteveryyearisA)$37.50.B)$3.75.C)$375.00.D)$13.75Answer:AAACSB:AnalyticalThinking19)Ifa$5,000couponbondhasacouponrateof13percent,thenthecouponpaymenteveryyearisA)$650.B)$1,300.C)$130.D)$13.Answer:AAACSB:AnalyticalThinking20)An$8,000couponbondwitha$400couponpaymenteveryyearhasacouponrateofA)5percent.B)8percent.C)10percent.D)40percent.Answer:AAACSB:AnalyticalThinking5Copyright©2016PearsonEducation,Ltd.21)A$1000facevaluecouponbondwitha$60couponpaymenteveryyearhasacouponrateofA).6percent.B)5percent.C)6percent.D)10percent.Answer:CAACSB:AnalyticalThinking22)AllofthefollowingareexamplesofcouponbondsEXCEPTA)corporatebonds.B)U.S.Treasurybills.C)U.S.Treasurynotes.D)U.S.Treasurybonds.Answer:BAACSB:AnalyticalThinking23)AbondthatisboughtatapricebelowitsfacevalueandthefacevalueisrepaidatamaturitydateiscalledaA)simpleloan.B)fixed-paymentloan.C)couponbond.D)discountbond.Answer:DAACSB:ApplicationofKnowledge24)A________isboughtatapricebelowitsfacevalue,andthe________valueisrepaidatthematuritydate.A)couponbond;discountB)discountbond;discountC)couponbond;faceD)discountbond;faceAnswer:DAACSB:AnalyticalThinking25)AdiscountbondA)paysthebondholderafixedamounteveryperiodandthefacevalueatmaturity.B)paysthebondholderthefacevalueatmaturity.C)paysallinterestandthefacevalueatmaturity.D)paysthefacevalueatmaturityplusanycapitalgain.Answer:BAACSB:ReflectiveThinking6Copyright©2016PearsonEducation,Ltd.26)ExamplesofdiscountbondsincludeA)U.S.Treasurybills.B)corporatebonds