the economics of money, banking, and financial markets

98 #

© 2014 Pearson Canada Inc.#

45. 
    

    If a perpetuity has a price of $500 and an annual interest payment of $25, the interest rate is
    ____.
    A) 2.5 percent
    B) 5 percent
    C) 7.5 percent
    D) 10 percent
    Answer: B
    Diff: 2 Type: MC Page Ref: 71
    Skill: Applied
    Objective List: 4.1 Understand how interest rates are measured

    
    


46. 
    

    The yield to maturity for a perpetuity is a useful approximation for the yield to maturity on
    long-term coupon bonds. It is called the ____ when approximating the yield for a coupon
    bond.
    A) current yield
    B) discount yield
    C) future yield
    D) star yield
    Answer: A
    Diff: 2 Type: MC Page Ref: 71
    Skill: Recall
    Objective List: 4.1 Understand how interest rates are measured

    
    


47. 
    

    The yield to maturity for a one-year discount bond equals the increase in price over the year,
    divided by the ____.
    A) initial price
    B) face value
    C) interest rate
    D) coupon rate
    Answer: A
    Diff: 2 Type: MC Page Ref: 72
    Skill: Recall
    Objective List: 4.1 Understand how interest rates are measured

    
    


48. 
    

    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
    Answer: D
    Diff: 2 Type: MC Page Ref: 72
    Skill: Applied
    Objective List: 4.1 Understand how interest rates are measured