ANSWER OUTLINE
ECONOMICS 353 (SECTION 2) L. Tesfatsion/Spring 00
EXERCISE SET 4: 5 POINTS TOTAL DUE: Tuesday, February 15, 2:10 P.M.
*IMPORTANT REMINDER: LATE ASSIGNMENTS CANNOT BE ACCEPTED -- NO EXCEPTIONS*
*NOTE:* Please FILL IN YOUR NAME, BIRTH DATE, AND ID (SOC SEC) No. on Side 1
of the accompanying answer sheet and write "353 SECTION 2-EXERCISE SET 2" in
the top margin of Side 1. Use a #2 pencil to MARK YOUR ANSWERS on Side 1 of
the answer sheet to the following five multiple choice questions:
1-2 Key features that distinguish discount bonds from fixed payment loan
contracts include the following:
A. for a discount bond, the amount of funds the borrower receives is
not set in advance as part of the payment schedule.
B. a discount bond is generally acquired by a lender in some type of
securities market rather than through a financial intermediary.
C. for a discount bond, the borrower does not pay any interest.
D. all of the above are true.
E E. only A and B are true.
2-2. Which of the following are true of coupon bonds:
A. A coupon bond is always bought at face value.
B. Standard 30-year mortgages are examples of coupon bonds.
C. The purchaser receives a fixed payment at regular intervals
until the maturity date, plus the face value at the maturity date.
D. Corporate bonds are examples of coupon bonds.
E E. Only C and D are true.
3-2. If a coupon bond with a face value of $12,000 has a coupon rate of 7
percent, then the coupon payment is
A. $84
B. $700
C. $70
D D. $840
E. None of the above
4-2. With an annual interest rate of 6 percent, the present value of
$100 received next year is defined to be the value given by the formula
A. $100 divided by 1.60 = $62.50
B. 0.94 times $100 = $94
C. 1.60 times $100 = $160
D. 1.06 times $100 = $106
E E. $100 divided by 1.06 = $94.34
5-2. For simple loans with a one year maturity, the simple interest rate is
_____ the yield to maturity calculated as an annual rate.
A. greater than
B. less than
C C. equal to
D. never a good approximation for
E. not comparable to
