Chapter 1 Quiz

This activity contains 13 questions.

Money, financial institutions, and financial markets in the United States can have a major impact on
(a) the economic well-being of other countries besides the United States. (b) the quantity and kinds of goods and services that are produced. (c) the outcome of political elections. (d) all of the above. (e) only (a) and (b) of the above.

A security (also called a financial instrument)

is instrumental in moving funds between countries. promises to make payments periodically for a specific time. provides secure returns to investors. represents a share of ownership in a corporation. is a claim on the issuer's future income or assets.

Interest rates are determined in the markets for

stocks. foreign currencies. assets. bonds and other forms of debt.

Which of the following is true of the stock market?

It is the most widely followed financial market in the United States.

It is the market where the interest rate is determined. It is the market where the values of currencies are determined. It is the market where the cost of borrowing is determined.

Determine which of the following scenarios is true: I. Historically in the U.S. interest rates on three-month Treasury bills on average are higher than interest rates on Treasury bonds. II. Historically in the U.S. interest rates on Treasury bonds on average are lower than interest rates on corporate Baa bonds.
Both are false. Both are true. I is false, II is true. I is true, II is false.

A rise in interest rates ______ the cost to financial institutions of acquiring funds and ______ the income they earn on assets.
raises; lowers raises; raises lowers; raises lowers; lowers

A rising stock market index due to higher share prices

(c) decreases the amount of funds that business firms can raise by selling newly issued stock. (a) increases people's wealth and as a result may increase their willingness to spend. (b) increases people's wealth, but is unlikely to increase their willingness to spend. (d) both (a) and (c) of the above. (e) both (b) and (c) of the above.

From 1980 to early 1985 the dollar appreciated in value, thereby benefiting _____ and harming ___________.
foreign businesses; American consumers American businesses; foreign businesses American businesses; American consumers American consumers; American businesses

Everything else constant, a stronger dollar will mean that

vacationing in England becomes less expensive. French cheese becomes more expensive. Japanese cars become more expensive. vacationing in the United States becomes less expensive.

Banks, savings and loan associations, mutual savings banks, and credit unions
(b) have been adept at innovating in response to changes in the regulatory environment. (a) play an important role in determining the quantity of money in the economy. (c) link those who want to save with those who want to invest. (d) all of the above. (e) only (a) and (c) of the above.

Banks (including commercial banks, savings and loan associations, mutual savings banks, and credit unions) are distinct from other financial institutions because they
have not been as innovative at developing new services and new ways to provide them.

trade securities. link those who want to save with those who want to invest. accept deposits and make loans.

The central bank in the United States, the ______, is responsible for ______.
Federal Reserve System; regulating the stock market Central Reserve Bank; regulating the stock market Federal Reserve System; the conduct of monetary policy Central Reserve Bank; the conduct of monetary policy

Improving a poor country's financial system would

help channel funds to their highest-valued uses. lower living standards in the country. increase government corruption. increase economic inequality.

Chapter 2 Quiz
This activity contains 14 questions.

Which of the following involves direct finance?

An insurance company buys shares of common stock in the primary markets. A corporation takes out loans from a bank. A money market mutual fund buys commercial paper in a secondary market. People buy shares in a mutual fund.

Which of the following involves indirect finance?

A corporation buys shares of common stock issued by another corporation. You make a loan to your neighbor. You buy a U.S. Treasury bill from the U.S. Treasury. You make a deposit in a bank account.

Which of the following statements about the characteristics of debt and equity is untrue?
They can both be short-term instruments. They both enable a corporation to raise funds. They can both be long-term instruments. They both involve a claim on the issuer's income. None of the above.

The capital market is the market in which

new issues of a security are sold to the initial buyers. previously issued securities can be resold. short-term debt and equity instruments are traded. long-term debt and equity instruments are traded.

A bond denominated in Japanese yen and sold in the United States is known as a
foreign bond. yenbond. eurobond. international bond.

When borrowers know more than lenders about the future prospects of a project to be undertaken with borrowed funds, the lender faces the problem of
default risk. free-riding. asymmetric information. moral hazard.

If bad credit risks are the ones most actively seeking loans, then lenders are subject to the
moral hazard problem. free-rider problem. asymmetric information problem. principal-agent problem. adverse selection problem.

Commercial banks face the moral hazard problem because

borrowers may take on more risk after getting a loan. borrowers may turn to financial markets to get funds for high-risk projects. borrowers who face income shortfalls may default on loans. borrowers who are high risk will most aggressively seek to borrow funds.

Which of the following are investment intermediaries?

pension funds mutual funds state government retirement funds

life insurance companies

Which of the following is not a contractual savings institution?

pension fund life insurance company fire and casualty insurance company savings and loan association

Which of the following financial intermediaries acquires the bulk of its funds through deposits and uses them to fund business and consumer loans?
pension funds finance companies savings and loans associations commercial banks

Which of the following are not subject to federal government regulation?

mutual savings banks state-chartered depository institutions savings and loans associations futures market exchanges insurance companies

Which of the following is no longer used to ensure the soundness of financial intermediaries?
restrictions on interest rates

restrictions on entry deposit insurance restrictions on assets and activities

Which of the following describes a conflict of interest?

People who seek bank loans are more risky on average than people who don't. John knows more than his bank about his personal financial situation. John has an incentive to act in his own interest rather than in his bank's interest. People who seek bank loans are less risky on average than people who don't.

Chapter 3 Quiz
This activity contains 11 questions.

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a
coupon bond. fixed-payment loan. simple loan. discount bond.

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
simple loan. fixed-payment loan. coupon bond. discount bond.

Which of the following are true of simple loans?

(a) A simple loan requires the borrower to repay the principal and interest at the maturity date. (b) Commercial loans to businesses are often of this type. (c) The borrower repays the loan by making the same payment every month. (d) Both (a) and (b) of the above. (e) Both (b) and (c) of the above.

Which of the following are true concerning the distinction between interest rates and return?
(a) The rate of return on a bond will not necessarily equal the interest rate on that bond. (b) The return can be expressed as the sum of the current yield and the rate of capital gains. (c) The rate of return will be greater than the interest rate when the price of the bond falls between time t and time t+1. (d) All of the above are true. (e) Only (a) and (b) of the above are true.

Which of the following $1,000 face-value securities has the highest yield to maturity?
5 percent coupon bond with a price of $800 5 percent coupon bond with a price of $1,000 5 percent coupon bond with a price of $1,200 5 percent coupon bond with a price of $900 5 percent coupon bond with a price of $1,100

Determine whether the below statements are true or false. I. Bond prices are inversely related to interest rates. II. The smaller a bond's duration, the greater its interest-rate risk.
I is true, II false.

Both are false. Both are true. I is false, II true.

Of the following measures of interest rates, which is considered by financial economists to be the most accurate?
the rate of return the coupon rate the current yield the yield to maturity

With an interest rate of 4 percent, the present value of $100 next year is approximately
$92. $96. $104. $100.

If you expect the inflation rate to be 5 percent over the next year and a oneyear bond has a yield to maturity of 7 percent, then the real interest rate on this bond is
-12 percent. -2 percent. 2 percent. 12 percent.

Determine whether the below statements are true or false. I. Prices and returns for short-term bonds are less volatile than those for long-term bonds. II. The prices of longer-maturity bonds respond more dramatically to changes in interest rates.
Both are true. Both are false. I is true, II false. I is false, II true.

A bond investor faces reinvestment risk if his or her holding period is

shorter than the maturity of the bond. identical to the maturity of the bond. longer than the maturity of the bond. none of the above.

Chapter 4 Quiz
This activity contains 12 questions.

Which of the following will not increase the demand for an asset?
The asset's risk increases relative to other assets. The asset's expected return rises relative to other assets. Wealth increases. The asset's liquidity rises relative to other assets.

Stock A has an expected return of 15% with a standard deviation of returns of 10%. Stock B has an expected return of 15% with a standard deviation of returns of 5%. Most investors are _____, which means they would prefer to invest in _____.
risk averse; Stock B

risk averse; Stock A risk lovers; Stock B risk lovers; Stock A

When people expect interest rates to rise in the future, the _____ curve for bonds shifts to the _____.
demand; right supply; right demand; left supply; left

An increase in the expected rate of inflation will _____ the expected return on bonds relative to that on _____ assets.
raise; financial reduce; real raise; real reduce; financial

An increase in the expected rate of inflation causes the demand for bonds to _____ and the supply of bonds to _____.
fall; rise fall; fall rise; fall rise; rise

During a business cycle expansion, the supply of bonds shifts to the _____ as businesses perceive more profitable investment opportunities, while the

demand for bonds shifts to the _____ as a result of the increase in wealth generated by the economic expansion.
right; right left; right right; left left; left

Government budget surpluses shift the bond ______ curve to the ______.
supply; right supply; left demand; right demand; left

When stock prices become _____ volatile, the demand curve for bonds shifts to the _____ and the interest rate _____.
more; left; falls less; left; rises more; right; falls less; left; falls more; right; rises

Liquidity refers to
the ease with which an asset can be turned into cash. the size of an asset's expected return. the stability of an asset's expected return.

the amount of wealth a person has to invest.

The Fisher effect is the _____ relationship between _____ and _____.
direct; expected inflation; interest rates inverse; expected inflation; interest rates direct; interest rates; bond prices inverse; interest rates; bond prices

Which of the following causes the interest rate to rise, ceteris paribus?
an increase in the government budget deficit a decrease in stock prices a decrease in expected inflation an increase in investors' wealth

If the interest rate is below equilibrium, then there is excess _____ in the bond market and bond prices will _____.
demand; fall supply; rise supply; fall demand; rise

Chapter 5 Quiz
This activity contains 13 questions.

The risk premium is

the interest rate on municipal bonds minus the interest rate on treasury bonds.

the interest rate on treasury bonds minus the interest rate on corporate bonds. the interest rate on treasury bonds minus the interest rate on default-free bonds. the interest rate on corporate bonds minus the interest rate on treasury bonds.

The risk premium on corporate bonds becomes smaller if

(a) the interest rate of corporate bonds increases. (b) the liquidity of corporate bonds increases. (c) the riskiness of corporate bonds increases. (d) both (a) and (c) occur.

An increase in default risk on corporate bonds _____ the demand for these bonds and _____ the demand for default-free bonds.
does not change; greatly increases increases; lowers lowers; increases moderately lowers; does not change

Bonds with relatively low risk of default are called _____ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called _____.
high quality; lower grade investment grade; lower grade investment grade; junk bonds high quality; junk bonds

Following the Enron collapse the spread between interest rates on lower quality (Baa-rated) and higher quality (Aaa-rated) corporate bonds
narrowed. did not change. widened slightly. widened significantly.

The interest rate on municipal bonds falls relative to the interest rate on Treasury securities when
municipal bonds become less widely traded. corporate bonds become riskier. income tax rates are raised. there is a major default in the municipal bond market. none of the above occur.

The relationship between interest rates and maturity dates for various Treasury bonds is called the ______ structure of interest rates.
liquidity term chronological risk

If the expected path of one-year interest rates over the next four years is 5 percent, 4 percent, 2 percent, and 1 percent, then the pure expectations theory predicts that today's interest rate on the four-year bond is
5 percent. 3 percent. 4 percent.

2 percent. 1 percent.

According to the pure expectations theory of the term structure,

(a) when the yield curve is steeply upward sloping, short-term interest rates are expected to rise in the future. (b) when the yield curve is downward sloping, short-term interest rates are expected to decline in the future. (c) yield curves should be equally likely to slope downward as to slope upward. (d) all of the above. (e) only (a) and (b) of the above.

According to the market segmentation theory of the term structure,

(a) the interest rate for each maturity bond is determined by supply and demand for that maturity bond. (b) investors' strong preferences for short-term bonds relative to long-term bonds explains why yield curves typically slope upward. (c) bonds of one maturity are close substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities move together over time. (d) all of the above. (e) only (a) and (b) of the above.

The liquidity premium theory assumes that

the liquidity premium is negative and it decreases with the term of the bond. a long-term interest rate is the average of the short-term interest rates that people expect to occur over the life of the long-term bond. bonds of different maturities are perfect substitutes for one another. the liquidity premium is positive and it increases with the term of the bond.

According to the liquidity premium theory of the term structure, a flat yield curve indicates that short-term interest rates are expected to
remain unchanged in the future. decline sharply in the future. decline moderately in the future. rise in the future.

When yield curves are downward sloping,

short-term interest rates are above long-term interest rates. long-term interest rates are above short-term interest rates. medium-term interest rates are above both short-term and long-term interest rates. medium-term interest rates are below both short-term and long-term interest rates. short-term interest rates are about the same as long-term interest rates.

Chapter 6 Quiz
This activity contains 10 questions.

The theory that security prices fully reflect all available information is called the

Fisher effect. unexploited profit theory. random walk theory. efficient market hypothesis.

A stronger version of the efficient market hypothesis is based on the condition that

the market price of a security reflects the optimal forecast of the return. the equilibrium price of a security cannot be forecast.

the market price of a security reflects market fundamentals. the market price of a security reflects the equilibrium return. the equilibrium price of a security reflects the optimal forecast of the return.

In an efficient financial market

there will be no profit opportunities to exploit. all relevant information must be publicly available. unexploited profit opportunities must be zero on average. everyone must be well informed about a security's fundamentals.

Evidence from studies of the performance of mutual funds supports the efficient market hypothesis because funds that do _____ in the first period _____ the market in the second.

poorly; beat poorly; do not beat well; also beat well; do not beat

Technical analysis applied to foreign exchange markets is based on the idea that

expected future changes in exchange rates should be zero. use of public information about exchange rates will not allow profitable trading opportunities. future changes in exchange rates should be zero. trends and regular cycles in exchange rates should

allow profitable trading opportunities.

Among the anomalies that call the efficient market hypothesis into question, evidence on _____ remains controversial.

excessive volatility mean reversion the small-firm effect the January effect

If you have received emails that correctly predicted the direction of the stock market over the last 9 weeks, should you pay to get a prediction for next week?

No, having been correct so consistently in the past the sender is more likely to be wrong next week. Yes, the chain of correct predictions shows that the sender has valuable skills in financial analysis. Yes, the sender obviously has valuable inside information. No, a con game could have produced the same chain of correct predictions.

The stock market crash of 1987 and the tech-laden NASDAQ crash of 2000 convinced many financial economists that

asset prices do not reflect fundamental values. market participants are unable to eliminate unexploited profit opportunities. technical analysis based on the institutional structure of the marketplace can be profitable. rational bubbles can only last for a short time.

Behavioral finance applies concepts from _____ to understand the behavior of securities' prices.

economics physics biology psychology

Which of the following supports the efficient market hypothesis?

Fluctuations in stocks' prices are larger than fluctuations in their fundamental values. Stock prices continue to rise for some time following unexpectedly high profits. Stock prices rise predictably from December to January. All of the above. None of the above.

Chapter 7 Quiz
This activity contains 12 questions.

The Fed has instrument independence regarding monetary policy if it is free to set
the nominal GDP growth rate. the inflation rate. the exchange rate. the discount rate.

The first two experiments in central banking in the United States in the early 19th century, combined with financial panics in 1873, 1884, 1893, and 1907, convinced Americans that
regional Federal Reserve banks needed to be created as a check on the power possessed by the Board of Governors of the Federal Reserve System. the advantages of a central bank outweighed its disadvantages. regulation of the banking system was too costly and ineffective.

all of the above.

Which of the following are entities of the Federal Reserve System?

(a) Federal Reserve Banks (b) the Federal Open Market Committee (c) the Board of Governors (d) All of the above are Federal Reserve entities. (e) Only (a) and (b) of the above are Federal Reserve entities.

The Fed's chief monetary policy making unit is

the Board of Governors. the Federal Open Market Committee. the Federal Reserve Banks. the Federal Funds Rate Committee.

Which of the following is not a function of the Federal Reserve Banks?

economic research setting monetary policy for each Federal Reserve district bank examination check clearing

Factors that provide the Federal Reserve with a high degree of autonomy include
(a) 14-year terms for members of the Board of Governors.

(b) a source of revenue free from the appropriations process. (c) a four-year term for the chairman of the Board of Governors that does not coincide with the president's four-year term. (d) all of the above. (e) only (a) and (b) of the above.

Supporters of the current system of Fed independence believe that a less autonomous Fed would
(a) adopt a short-run bias toward policymaking. (b) pursue overly expansionary monetary policies. (c) be more likely to create a political business cycle. (d) do all of the above. (e) do only (b) and (c) of the above.

When applied to the Fed, the theory of bureaucratic behavior helps to explain why the Fed
(a) resists so vigorously congressional attempts to limit the central bank's autonomy. (b) is secretive about the conduct of future monetary policy. (c) sought less control over banks in the 1980s. (d) only (a) and (b) of the above.

Politicians in a democratic society may be shortsighted because of their desire to win reelection; thus, the political process can
(a) impart an inflationary bias to monetary policy. (b) generate a political business cycle, in which just before an election expansionary policies are pursued to lower unemployment and interest rates. (c) place too much pressure on the Fed to finance federal budget deficits. (d) cause all of the above.

(e) cause only (a) and (b) of the above.

The Fed may feel pressure to support the president's policies since the president can
(a) dismiss members of the Board of Governors appointed by previous presidents. (b) appoint a new chairman of the Board of Governors immediately after taking office. (c) approve or veto legislation that might limit the Fed's discretionary authority and power. (d) do all of the above. (e) do both (a) and (c) of the above.

The case for Federal Reserve independence does not include the idea that
(a) the principal-agent problem is perhaps worse for the Fed than for politicians since the former does not answer to the voters on election day. (b) policy is always performed better by an elite group such as the Fed. (c) political pressure would impart an inflationary bias to monetary policy. (d) both (a) and (b) of the above.

The case for Federal Reserve independence includes the idea that
putting the Fed under the control of the President could lead to Treasury pressure on the Fed to finance large budget deficits. a Federal Reserve under the control of Congress or the President might make the socalled political business cycle more pronounced. a politically insulated Fed would be more concerned with long-run objectives and thus be a defender of a sound dollar and a stable price level. all of the above.

Chapter 8 Quiz
This activity contains 13 questions.

Which of the Fed's tools of monetary policy does not cause the monetary base to change?

reserve requirements the federal funds rate discount lending open market operations

The monetary liabilities of the Fed are

government securities and discount loans. reserves and discount loans. currency in circulation and reserves. currency in circulation and discount loans.

Open market purchases _____ nonborrowed reserves and cause the federal funds rate to _____.
increase; fall decrease; rise decrease; fall increase; rise

Which of the following sets of Fed actions unambiguously will increase the federal funds interest rate?
lowering the discount rate and raising reserve requirements open market sales and raising reserve requirements raising the discount rate and open market purchases open market purchases and lowering reserve requirements

The Federal Reserve will engage in a repurchase agreement if it wants to _____ reserves _____ in the banking system.
decrease; permanently decrease; temporarily increase; temporarily increase; permanently

In the operation of the Fed's discount window, secondary credit

is the discount lending that is most important for monetary policy. provides liquidity on a temporary basis to sound banks. is given to banks that have experienced severe liquidity problems. has an interest rate set below the discount rate.

The Fed's primary monetary policy tool is

the federal funds rate. the discount rate. reserve requirements. open market operations.

Which of the following is not an advantage of open market operations?

They are under complete control of the Fed. They can be implemented quickly. They are flexible, precise, and reversible. They help the Fed perform its role as lender of last resort.

Which of the following is not a goal of monetary policy?

stable interest rates high employment price stability low interest rates

When it comes to choosing an operating target, both the _____ rate and _____ aggregates are easily controllable using the Fed's policy tools.
federal funds; reserve ten-year T-bond; reserve federal funds; monetary three-month T-bill; monetary

The Fed's operating strategy that led to double-digit inflation following the end of World War I was known as
the real-bills doctrine. the free-reserves policy. pegging the money supply. the federal-funds targeting strategy.

The Fed accidentally discovered open market operations when

it purchased securities for income following the 1920-1921 recession. it reinterpreted a key provision of the Federal Reserve Act. it came to the rescue of failing banks in the early 1930s, and found that its purchases of bank loans injected reserves into the banking system. it attempted to slow inflation in 1919 by selling securities and found that its sales drained reserves from the banking system.

Determine whether the below statements are true or false. I. Inflation targeting makes the central bank more accountable. II. Inflation targeting has achieved low inflation without substantial reductions in output.
Both are false. Both are true. I is true; II is false I false; II is true

hapter 9 Quiz
This activity contains 12 questions.

Which of the following is not a characteristic of money markets?

They are wholesale markets. They are beyond the reach of small investors. They have an active secondary market. Transactions occur in a central location.

Investors use the money market

to earn high returns on their investments. to reduce the opportunity cost of idle funds. to reduce the liquidity of their funds. to gain from expected declines in future interest rates.

Which of the following is always a demander and never a supplier of funds in the money market?
the Federal Reserve System businesses

commercial banks the U.S. Treasury

_____ hold a larger percentage of U.S. government securities than any other group of financial institutions.
Pension funds Insurance companies Commercial banks Finance companies

The smallest denomination of Treasury bills is

$10,000. $25,000. $100,000. $1,000. $50,000.

On what day of the week does the Treasury announce how many bills will be offered for sale?
Tuesday Thursday Friday Wednesday Monday

If the government wants to raise the Fed funds rate, then

the Fed will buy securities from the public. the Treasury will sell more T-bills. the Treasury will sell fewer T-bills. the Fed will announce an increase in the rate at its regular meeting. the Fed will sell securities to the public.

Commercial paper is issued by

money market mutual funds. commercial banks. small businesses. corporations.

What percentage of commercial paper is sold directly by the issuer to the buyer?
80 percent 20 percent 60 percent 40 percent

Which of the following typically finances import and export trade?

LIBOR Banker's acceptances Freddie Mac Eurodollars

Repurchase agreements

Which of the following is not a characteristic of Treasury bills?

The market for them is deep and liquid. They have low interest-rate risk. The interest they pay is based on a coupon rate announced weekly by the Treasury. They have zero default risk.

Large banks issue_____ as an alternative to checking and savings accounts as sources of funds.
banker's acceptances commercial paper Treasury bills negotiable CDs repurchase agreements

Chapter 10 Quiz
This activity contains 13 questions.

The primary reason that individuals and firms choose to borrow long-term is to
reduce the risk that interest rates will rise before they pay off their debt. reduce the costs of warehousing funds. reduce the transactions costs they must pay when issuing their debt. reduce the interest rate they must pay on their debt.

A bond's annual interest payment expressed as a percentage of its market price is the bond's

discount rate. coupon rate. yield to maturity. current yield.

Treasury inflation-indexed bonds reduce investors' inflation risk by increasing the bond's _____ when the consumer price index rises.
principal term to maturity interest rate none of the above

Which of the following statements about Treasury bonds is true?

The government faces interest-rate risk since its interest costs will be higher if market interest rates fall. Investors face interest-rate risk since their returns will be lower if market interest rates fall. Investors face interest-rate risk since their returns will be lower if market interest rates rise. The government faces interest-rate risk since its interest costs will be higher if market interest rates rise.

The fact that U.S. agency bonds offer interest rates that are significantly higher than those available on U.S. Treasury bonds is most likely due to
the lower liquidity of agency bonds. the agencies' access to lines of credit with the Treasury. the lack of an explicit government guarantee. the high default rates on the loans that secure the agency bonds. the highly developed secondary market for agency bonds.

Bearer bonds have largely been replaced by

Eurobonds. registered bonds, which do not have coupons. bond indentures. bonds which have coupons attached. restrictive covenants.

The largest use of funds raised by tax-exempt municipal bonds is

education. transportation. industrial aid. utilities.

Determine whether the following statements are true or false. I. General obligation bonds do not depend on a specific source of revenue for repayment. II. The value of general obligation bonds issued exceeds that of revenue bonds.
Both are true. I is true; II is false Both are false. I false; II is true

The least risky type of corporate bond is a

secured bond. subordinated bond.

debenture. variable rate bond.

Equipment trust certificates are an example of

a debenture. an unsecured bond. a bearer bond. an indenture. a secured bond.

Suppose the interest rate on a taxable corporate bond is 10% and the marginal tax rate is 25%. What is the equivalent tax-free interest rate on this bond?
12.5% 9.25% 7.5% 2.5%

Corporate bond issuers generally have the right to buy bonds back before they mature. Bonds subject to this provision are called _____ bonds.
registered unsecured callable sinking convertible

A bond's current yield better approximates the bond's yield to maturity the _____ the time until the bond matures and the _____.
shorter; closer is the bond's price to its face value longer; closer is the bond's price to its face value longer; farther is the bond's price from its face value shorter; farther is the bond's price from its face value