ANSWER OUTLINE
ECONOMICS 353 (SECTION 1) L. Tesfatsion/Spring 99
EXERCISE SET 4: 5 POINTS TOTAL DUE: Tuesday, March 2, 9:30 A.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
Please FILL IN YOUR NAME on Side 1 of the accompanying General Purpose
NCS Answer Sheet and use a #2 pencil to MARK YOUR ANSWERS on Side 1 of this
Answer Sheet to the following five multiple choice questions.
NOTE: If you missed the answer sheet hand-out in class, you can
obtain an answer sheet from Sue Streeter (4-6600) in Heady Hall 382.
1-1. Which of the following are true in general for fixed payment loans?
A. The borrower repays the entire principal plus interest at the
maturity date.
B. Installment loans and mortgages are frequently of the fixed
payment type.
C. The borrower repays the loan by making the same payment every
month
D. Both A and B of the above
E E. Both B and C of the above
2-1 Which of the following are true in general for coupon bonds?
A. When a coupon bond is priced at its face value, its yield to
maturity equals its coupon rate.
B. The purchase price and yield to maturity for a coupon bond are
negatively related, all else remaining constant.
C. For a coupon bond, its yield to maturity is greater than its
coupon rate when its purchase price is below its face value.
D D. All of the above are true.
E. Only A and B of the above are true.
3-1 Which of the following $1000 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 C. A 12 percent coupon bond selling for $1,000
D. A 12 percent coupon bond selling for $1,100
4-1 The current yield on a coupon bond with a $5000 face value, an
8 percent coupon rate, and a current purchase price of $4000 is
A. 5 percent
B. 8 percent
C C. 10 percent
D. 20 percent
E. None of the above
5-1 In which of the following situations would you prefer to be
making a loan?
A. The interest rate is 9 percent and the expected inflation rate
is 7 percent.
B B. The interest rate is 4 percent and the expected inflation rate
is 1 percent.
C. The interest rate is 13 percent and the expected inflation rate
is 15 percent.
D. The interest rate is 25 percent and the expected inflation rate
is 50 percent.
