Question

1. If an individual moves money from a checking deposit to a money market mutual fund account a. M1 stays the same and M2 stays the same. b. M1 increases and M2 decreases c. M1 decreases and M2 stays the same d. M1 stays the same and M2 increases

2. If a $1,000 face-value discount bond maturing in one year has an yield of 5%, then its price is?? a. $995 b. $1050 c. $1005 d. $952.4

3. If a perpetuity (a consol bond) has coupon payments of $80 and an interest rate of 6%, then its price is? a. $1333.3 b. $4.8 c. $480 d. $484.8

4. If a $1000 face-value discount bond maturing in one year is selling for $915, then its yield to maturity is...? a. 9.15% b. 9.3% c. 8.5% d. 10%

Answer 1

1.

M1 = Currency and Coin + Checkable deposits + Travelers checks

M2 = M1 + savings deposits + Money market mutual funds + Small denomination time deposits

So M! will decrease but M2 will remain same

Correct answer is option c. ie. M1 decreases and M2 stays the same

2.

Price = 1000 / (1+0.05) = 952.38 ~ 952.40

option d is correct answer

3.

Price = 80 / 0.06 = 1333.33

option a is correct answer

4.

YTM = 1000 / 915 - 1 = 0.092896 ~ 9.29% ~ 9.3%

option b is correct answer