Professional Documents
Culture Documents
Practice Exam1
Practice Exam1
MULTIPLE CHOICE. Choose the one alternative that best completes the statement
or answers the question.
B) A Treasury bill
C) A certificate of deposit
A) A six-month loan
C) A bankers acceptance
A) A bankers acceptance
D) A six-month loan
A) Eurodollars
C) Banker's acceptances
D) Commercial paper
A) Banker's acceptances
D) Repurchase agreements
C) exist because there are substantial information and transactions costs in the
economy.
14) Which of the following statements about financial markets and securities
are true?
C) A debt instrument is intermediate term if its maturity is less than one year.
D) A bond is a long term security that promises to make periodic payments called
dividends to the firm's residual claimants.
15) An important financial institution that assists in the initial sale of
securities in the primary market is the
18) A debt instrument sold by a bank to its depositors that pays annual
interest of a given amount and at maturity pays back the original purchase price
is called
20) If bad credit risks are the ones who most actively seek loans and,
therefore, receive them from financial intermediaries, then financial
intermediaries face the problem of
21) The problem created by asymmetric information before the transaction occurs
is called _____, while the problem created after the transaction occurs is
called _____.
A) corporations get more funds through equity financing than they get from
financial intermediaries.
C) equity and bond financing play such an important role in financial markets.
23) There is no single precise measure of money or the money supply for
economists because
A) economists cannot agree if currency should be considered money.
26) The conversion of a barter economy to one that uses money increases
efficiency by reducing
A) transactions costs.
28) When economists say that money promotes efficiency, they mean that money
A) is inexpensive to produce.
33) Money is
35) Which of the following sequences accurately describes the evolution of the
payments system?
36) Which of the following statements accurately describes the three different
measures of the money supply--M1, M2, and M3?
A) The three measures' movements closely parallel each other, even on a month-
to-month basis.
B) the face value of the bond plus an interest payment once the maturity date
has been reached.
D) a fixed-interest payment every period and repays the face value at the
maturity date.
38) If a $5,000 coupon bond has a coupon rate of 13 percent, then the coupon
payment every year is
A) $13.
B) $1,300.
C) $650.
D) $130.
E) None of the above.
39) An $8,000 coupon bond with a $400 coupon payment every year has a coupon
rate of
40) With an interest rate of 5 percent, the present value of $100 next year is
approximately
41) With an interest rate of 10 percent, the present value of a security that
pays $1,100 next year and $1,460 four years from now is:
42) Which of the following $1,000 face-value securities has the highest yield
to maturity?
43) If a $10,000 face-value discount bond maturing in one year is selling for
$5,000, then its yield to maturity is
A) 8 percent.
B) 5 percent.
C) 10 percent.
D) 20 percent.
45) The yield on a discount basis of a 90-day, $1,000 Treasury bill selling for
$950 is
A) 20 percent.
B) 10 percent.
C) 5 percent.
D) 15 percent.
46) What is the return on a 5 percent coupon bond that initially sells for
$1,000 and sells for $1,200 next year?
A) 5 percent
B) -5 percent
C) 10 percent
D) 25 percent
47) If the interest rates on all bonds rise from 5 to 6 percent over the course
of the year, which bond would you prefer to have been holding?
A) A bond with one year to maturity B) A bond with ten years to maturity
C) A bond with five years to maturity D) A bond with twenty years to maturity
48) In which of the following situations would you prefer to be making a loan?
B) The interest rate is 4 percent and the expected inflation rate is 1 percent.
C) The interest rate is 9 percent and the expected inflation rate is 7 percent.
49) The current yield is a less accurate measure of the yield to maturity the
______ the time to maturity of the bond and the ______ the price is from/to the
par value.
50) The nominal interest rate minus the expected rate of inflation
A) is a better measure of the incentives to borrow and lend than is the nominal
interest rate.
51) A credit market instrument that pays the owner a fixed coupon payment every
year until the maturity date and then repays the face value is called a
53) If you expect the inflation rate to be 12 percent next year and a one year
bond has a yield to maturity of 7 percent, then the real interest rate on this
bond is
54) The concept of _____ is based on the common-sense notion that a dollar paid
to you in the future is less valuable to you than a dollar today.
55) The interest rate that equates the present value of payments received from
a debt instrument with its value today is the
56) Which of the following are true concerning the distinction between interest
rates and return?
A) The return can be expressed as the sum of the current yield and the rate of
capital gains.
B) The rate of return on a bond will not necessarily equal the interest rate on
that bond.
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.
57) If the expected return on ABC stock rises from 5 to 10 percent and the
expected return on CBS stock is unchanged, then the expected return of holding
CBS stock _____ relative to ABC stock and the demand for CBS stock _____.
58) If wealth increases, the demand for stocks _____ and that of long-term
bonds _____.
59) If the price of gold becomes more volatile, then, other things equal, the
demand for stocks will _____ and the demand for antiques will _____.
60) If housing prices are suddenly expected to shoot up, then, other things
equal, the demand for houses will _____ and that of Treasury bills will _____.
A) the more liquid an asset, relative to alternative assets, the greater will be
the demand.
B) if an asset's risk rises relative to that of alternative assets, the demand
will fall.
C) the lower the expected return relative to alternative assets, the greater
will be the demand.
62) When the price of a bond is above the equilibrium price, there is an excess
_____ for (of) bonds and price will _____.
63) When the interest rate on a bond is _____ the equilibrium interest rate, in
the bond market there is excess _____ and the interest rate will _____.
64) When a recession occurs, normally the demand for bonds _____ and the supply
of bonds _____.
65) When people expect interest rates to rise in the future, the _____ curve
for bonds shifts to the _____.
67) When the expected inflation rate increases, the demand for bonds _____, the
supply of bonds _____, and the interest rate ______.
68) When bond interest rates become more volatile, the demand for bonds _____
and the interest rate _____.
69) When bonds become more widely traded, and as a consequence the market
becomes more liquid, the demand curve for bonds shifts to the _____ and the
interest rate _____.
A) the demand curve for bonds shifts to the left and the interest rate rises.
B) the supply curve for bonds shifts to the right and the interest rate falls.
C) the demand curve for bonds shifts to the left and the interest rate falls.
D) the demand curve for bonds shifts to the right and the interest rate rises.
1) Answer: B
2) Answer: A
3) Answer: D
4) Answer: E
5) Answer: E
6) Answer: E
7) Answer: E
8) Answer: E
9) Answer: E
10) Answer: B
11) Answer: D
12) Answer: A
13) Answer: C
14) Answer: A
15) Answer: A
16) Answer: D
17) Answer: E
18) Answer: A
19) Answer: C
20) Answer: C
21) Answer: A
22) Answer: B
23) Answer: B
24) Answer: C
25) Answer: A
26) Answer: A
27) Answer: C
28) Answer: C
29) Answer: A
30) Answer: C
31) Answer: B
32) Answer: A
33) Answer: D
34) Answer: D
35) Answer: B
36) Answer: C
37) Answer: D
38) Answer: C
39) Answer: D
40) Answer: A
41) Answer: A
42) Answer: A
43) Answer: C
44) Answer: C
45) Answer: A
46) Answer: D
47) Answer: A
48) Answer: B
49) Answer: A
50) Answer: D
51) Answer: D
52) Answer: D
53) Answer: D
54) Answer: B
55) Answer: B
56) Answer: E
57) Answer: A
58) Answer: B
59) Answer: B
60) Answer: D
61) Answer: E
62) Answer: A
63) Answer: B
64) Answer: B
65) Answer: D
66) Answer: C
67) Answer: B
68) Answer: C
69) Answer: A
70) Answer: E
71) Answer: E