Finance Quiz

The present value of an expected future payment ________ as the interest rate increases.

• rises

• is constant

• is unaffected

• falls

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

• $100

• $99

• $94

• $92

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

• $500.00

• $476.25

• $550.00

• $453.51

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

• par value

• deflation

• face value

• discounting the future

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a

• fixed-payment loan

• coupon bond

• simple loan

• discount bond

Which of the following are TRUE for discount bonds?

• The purchaser receives the face value of the bond at the maturity date.

• A discount bond is bought at par.

• U.S. Treasury bonds and notes are examples of discount bonds.

• The purchaser receives the par value at maturity plus any capital gains.

or a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is

• $13,310

• $10,300

• $13,000

• $13,800

The price of a coupon bond and the yield to maturity are ________ related; that is, as the yield to maturity ________, the price of the bond ________.

• negatively; rises; falls

• negatively; falls; falls

• positively; rises; falls

• positively; rises; rises

The ________ is below the coupon rate when the bond price is ________ its par value.

• yield to maturity; above

• yield to maturity; below

• discount rate; above

• discount rate; below

Which of the following $1,000 face-value securities has the highest yield to maturity?

• a 5 percent coupon bond with a price of $600

• a 5 percent coupon bond with a price of $800

• a 5 percent coupon bond with a price of $1,000

• a 5 percent coupon bond with a price of $1,200