QUESTION 1 1. At an interest rate of 3%, what is the present value of $1000 to b
ID: 2732246 • Letter: Q
Question
QUESTION 1
1. At an interest rate of 3%, what is the present value of $1000 to be received five years from now?
$1,667
$850
$1,159
$863
0.5 points
QUESTION 2
1. Which of the following is a coupon bond?
a U.S. savings bond
a zero-coupon bond
a U.S. Treasury note or bond
a U.S. Treasury bill
0.5 points
QUESTION 3
1. Why may investors buy a Treasury bill with a negative real interest rate?
fear of rising inflation
fear of default by the U.S. government
concern about the high default risk of alternative investments
concern about high yields on other bonds
0.5 points
QUESTION 4
1. If the annual interest rate is 9%, what would you expect to pay for a bond paying a lump sum of $10,000 in two years?
$11,881
$8,200
$8,417
$10,000
0.5 points
QUESTION 5
1. The coupon rate is the
coupon paid every 6 months divided by par value.
annual coupon payment divided by the face value of the bond.
difference between the face value of the bond and its par value.
annual coupon payment divided by the market value of the bond.
0.5 points
QUESTION 6
1. Issuers of coupon bonds
make a single payment of principal when the bonds matures, but multiple payments of interest over the life of the bond.
make a single payment of principal at the time the bond is issued and multiple payments of interest over the life of the bond.
make multiple payments of principal, but a single payment of interest.
make a single payment of interest and principal.
Explanation / Answer
1.
Present value = $1,000 / 1.035 = $862.61
Answer is $863
2.
Answer is a U.S. Treasury note or bond
3.
Answer is “concern about the high default risk of alternative investments.”
4.
Value of investment = Present value of $10,000 = $10,000/1.092 = $8,416.80
Answer is $8,417
5.
Answer is “annual coupon payment divided by the face value of the bond.”
6.
Answer is “make a single payment of principal when the bond matures, but multiple payments of interest over the life of the bond.”
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