Financial Markets and Institutions, 8e (Mishkin)
1) A loan that requires the borrower to make the same payment every period until the maturity
date is called a
A) simple loan.
B) fixed-payment loan.
C) discount loan.
D) same-payment loan.
E) none of the above.
2) A coupon bond pays the owner of the bond
A) the same amount every month until the maturity date.
B) a fixed interest payment every period, plus the face value of the bond at the maturity date.
C) the face value of the bond plus an interest payment once the maturity date has been reached.
D) the face value at the maturity date.
E) none of the above.
3) A bond’s future payments are called its
A) cash flows.
B) maturity values.
C) discounted present values.
D) yields to maturity.
4) A credit market instrument that pays the owner the face value of the security at the maturity
date and nothing prior to then is called a
A) simple loan.
B) fixed-payment loan.
C) coupon bond.
D) discount bond.
5) (I) A simple loan requires the borrower to repay the principal at the maturity date along with
an interest payment.
(II) A discount bond is bought at a price below its face value, and the face value is repaid at the
maturity date.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.
6) Which of the following are true of coupon bonds?
A) The owner of a coupon bond receives a fixed interest payment every year until the maturity
date, when the face or par value is repaid.
B) U.S. Treasury bonds and notes are examples of coupon bonds.
C) Corporate bonds are examples of coupon bonds.
D) All of the above.
E) Only A and B of the above.
7) Which of the following are generally true of all bonds?
A) The longer a bond’s maturity, the lower is the rate of return that occurs as a result of the
increase in the interest rate.
B) Even though a bond has a substantial initial interest rate, its return can turn out to be negative
if interest rates rise.
C) Prices and returns for long-term bonds are more volatile than those for shorter-term bonds.
D) All of the above are true.
E) Only A and B of the above are true.
8) (I) A discount bond requires the borrower to repay the principal at the maturity date plus an
interest payment.
(II) A coupon bond pays the lender a fixed interest payment every year until the maturity date,
when a specified final amount (face or par value) is repaid.
A) (I) is true, (II) false.
B) (I) is false, (II) true.
C) Both are true.
D) Both are false.
9) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon payment every year
is
A) $650.
B) $1,300.
C) $130.
D) $13.
E) None of the above.
10) An $8,000 coupon bond with a $400 annual coupon payment has a coupon rate of
A) 5 percent.
B) 8 percent.
C) 10 percent.
D) 40 percent.
11) The concept of ________ is based on the notion that a dollar paid to you in the future is less
valuable to you than a dollar today.
A) present value
B) future value
C) interest
D) deflation
12) Dollars received in the future are worth ________ than dollars received today. The process
of calculating what dollars received in the future are worth today is called ________.
A) more; discounting
B) less; discounting
C) more; inflating
D) less; inflating
13) The process of calculating what dollars received in the future are worth today is called
A) calculating the yield to maturity.
B) discounting the future.
C) compounding the future.
D) compounding the present.
14) With an interest rate of 5 percent, the present value of $100 received one year from now is
approximately
A) $100.
B) $105.
C) $95.
D) $90.
15) With an interest rate of 10 percent, the present value of a security that pays $1,100 next year
and $1,460 four years from now is approximately
A) $1,000.
B) $2,000.
C) $2,560.
D) $3,000.
16) With an interest rate of 8 percent, the present value of $100 received one year from now is
approximately
A) $93.
B) $96.
C) $100.
D) $108.
17) With an interest rate of 6 percent, the present value of $100 received one year from now is
approximately
A) $106.
B) $100.
C) $94.
D) $92.
18) The interest rate that equates the present value of the cash flow received from a debt
instrument with its market price today is the
A) simple interest rate.
B) discount rate.
C) yield to maturity.
D) real interest rate.
19) The interest rate that financial economists consider to be the most accurate measure is the
A) current yield.
B) yield to maturity.
C) yield on a discount basis.
D) coupon rate.
20) Financial economists consider the ________ to be the most accurate measure of interest
rates.
A) simple interest rate
B) discount rate
C) yield to maturity
D) real interest rate
21) For a simple loan, the simple interest rate equals the
A) real interest rate.
B) nominal interest rate.
C) current yield.
D) yield to maturity.
22) For simple loans, the simple interest rate is ________ the yield to maturity.
A) greater than
B) less than
C) equal to
D) not comparable to
23) The yield to maturity of a one-year, simple loan of $500 that requires an interest payment of
$40 is
A) 5 percent.
B) 8 percent.
C) 12 percent.
D) 12.5 percent.
24) The yield to maturity of a one-year, simple loan of $400 that requires an interest payment of
$50 is
A) 5 percent.
B) 8 percent.
C) 12 percent.
D) 12.5 percent.
25) A $10,000, 8 percent coupon bond that sells for $10,000 has a yield to maturity of
A) 8 percent.
B) 10 percent.
C) 12 percent.
D) 14 percent.
26) A $10,000, 8 percent coupon bond that sells for $10,100 has a yield to maturity ________.
A) equal to 8 percent
B) greater than 8 percent
C) less than 8 perfect
D) that cannot be calculated
27) Which of the following $1,000 face value securities has the highest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 12 percent coupon bond selling for $1,000
D) A 12 percent coupon bond selling for $1,100
28) Which of the following $1,000 face value securities has the highest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 10 percent coupon bond selling for $1,000
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900
29) Which of the following $1,000 face value securities has the lowest yield to maturity?
A) A 5 percent coupon bond selling for $1,000
B) A 7 percent coupon bond selling for $1,100
C) A 15 percent coupon bond selling for $1,000
D) A 15 percent coupon bond selling for $900
30) Which of the following are 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.
D) All of the above are true.
E) Only A and B of the above are true.
31) Which of the following are 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 above the par
value.
D) All of the above are true.
E) Only A and B of the above are true.
32) Which of the following are 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 positively related.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par
value.
D) All of the above are true.
E) Only A and B of the above are true.
33) A consol bond is a bond that
A) pays interest annually and its face value at maturity.
B) pays interest in perpetuity and never matures.
C) pays no interest but pays its face value at maturity.
D) rises in value as its yield to maturity rises.
34) The yield to maturity on a consol bond that pays $100 yearly and sells for $500 is
A) 5 percent.
B) 10 percent.
C) 12.5 percent.
D) 20 percent.
E) 25 percent.
35) The yield to maturity on a consol bond that pays $200 yearly and sells for $1000 is
A) 5 percent.
B) 10 percent.
C) 20 percent.
D) 25 percent.
36) A frequently used approximation for the yield to maturity on a long-term bond is the
A) coupon rate.
B) current yield.
C) cash flow interest rate.
D) real interest rate.
37) The current yield on a coupon bond is the bond’s ________ divided by its ________.
A) annual coupon payment; price
B) annual coupon payment; face value
C) annual return; price
D) annual return; face value
38) When a bond’s price falls, its yield to maturity ________ and its current yield ________.
A) falls; falls
B) rises; rises
C) falls; rises
D) rises; falls
39) The yield to maturity for a one-year discount bond equals
A) the increase in price over the year, divided by the initial price.
B) the increase in price over the year, divided by the face value.
C) the increase in price over the year, divided by the interest rate.
D) none of the above.
40) If a $10,000 face value discount bond maturing in one year is selling for $8,000, then its
yield to maturity is
A) 10 percent.
B) 20 percent.
C) 25 percent.
D) 40 percent.
41) If a $10,000 face value discount bond maturing in one year is selling for $9,000, then its
yield to maturity is approximately
A) 9 percent.
B) 10 percent.
C) 11 percent.
D) 12 percent.
42) If a $10,000 face value discount bond maturing in one year is selling for $5,000, then its
yield to maturity is
A) 5 percent.
B) 10 percent.
C) 50 percent.
D) 100 percent.
43) If a $5,000 face value discount bond maturing in one year is selling for $5,000, then its yield
to maturity is
A) 0 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.