Question 1

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Accepted Answer

A) True 
 B)False

Question 2

Holding supply constant, a decrease in the demand for loanable funds will result in a decrease in interest rates.

Accepted Answer

A) True 
 B)False

Question 3

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 4

The federal debt is owned primarily by:

Accepted Answer

A)  foreign and international investors 
B)  commercial banks 
C)  insurance companies 
D)  the sum of all private investors 
A)  foreign and international investors 
B)  commercial banks 
C)  insurance companies 
D)  the sum of all private investors

Question 5

Which of the following factors does not directly impact the level of interest rates?

Accepted Answer

A)  risk 
B)  marketability 
C)  maturity 
D)  cost of producing and distributing new currency 
A)  risk 
B)  marketability 
C)  maturity 
D)  cost of producing and distributing new currency

Question 6

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

Accepted Answer

A) True 
 B)False

Question 7

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

Accepted Answer

A)  2.0% 
B)  2.5% 
C)  3.0% 
D)  1.5% 
A)  2.0% 
B)  2.5% 
C)  3.0% 
D)  1.5%

Question 8

In an inflationary period, interest rates have a tendency to:

Accepted Answer

A)  rise 
B)  fall 
C)  stay the same 
D)  act erratically 
A)  rise 
B)  fall 
C)  stay the same 
D)  act erratically

Question 9

Treasury notes are held largely by private investors.

Accepted Answer

A) True 
 B)False

Question 10

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Accepted Answer

A)  liquidity premium 
B)  market risk premium 
C)  maturity premium 
D)  environmental premium 
A)  liquidity premium 
B)  market risk premium 
C)  maturity premium 
D)  environmental premium

Question 11

Interest rates generally fall during periods of economic expansion and rise during economic contraction.

Accepted Answer

A) True 
 B)False

Question 12

The maturity risk premium is the added return expected by lenders because of the expectation of inflation.

Accepted Answer

A) True 
 B)False

Question 13

If interest rates increase because of a previously unanticipated inflation rate risk:

Accepted Answer

A)  long-lived debt instruments will decline more than short-lived debt instruments 
B)  long-lived debt instruments will decline less than short-lived debt instruments 
C)  neither set of debt instruments will decline 
D)  all other things being equal, both should decline equally 
A)  long-lived debt instruments will decline more than short-lived debt instruments 
B)  long-lived debt instruments will decline less than short-lived debt instruments 
C)  neither set of debt instruments will decline 
D)  all other things being equal, both should decline equally

Question 14

Beginning in 1966, interest rates entered a period of unusual increases, leading to the highest rates in U.S. history.

Accepted Answer

A) True 
 B)False

Question 15

An increase in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

Accepted Answer

A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell 
A)  increase 
B)  decrease 
C)  stay the same 
D)  not enough information to tell

Question 16

The demand for loanable funds comes from all sectors of the economy.

Accepted Answer

A) True 
 B)False

Question 17

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 18

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

Accepted Answer

A) True 
 B)False

Question 19

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

Accepted Answer

A)  Aaa, Baa 
B)  Baa, Aaa 
C)  Baa, Caa 
D)  Caa, Baa 
A)  Aaa, Baa 
B)  Baa, Aaa 
C)  Baa, Caa 
D)  Caa, Baa

Question 20

The default risk premiums on Baa corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on Aaa-rated bonds.

Accepted Answer

A) True 
 B)False

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Holding supply constant, a decrease in the demand for loanable funds will result in a decrease in interest rates.

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

The federal debt is owned primarily by:

Which of the following factors does not directly impact the level of interest rates?

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

In an inflationary period, interest rates have a tendency to:

Treasury notes are held largely by private investors.

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Interest rates generally fall during periods of economic expansion and rise during economic contraction.

The maturity risk premium is the added return expected by lenders because of the expectation of inflation.

If interest rates increase because of a previously unanticipated inflation rate risk:

Beginning in 1966, interest rates entered a period of unusual increases, leading to the highest rates in U.S. history.

An increase in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

The demand for loanable funds comes from all sectors of the economy.

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.

The default risk premiums on Baa corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on Aaa-rated bonds.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 8: Interest Rates

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Holding supply constant, a decrease in the demand for loanable funds will result in a decrease in interest rates.

The loanable funds theory states that interest rates are a function of the supply of and demand for loanable funds.

The federal debt is owned primarily by:

Which of the following factors does not directly impact the level of interest rates?

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

In an inflationary period, interest rates have a tendency to:

Treasury notes are held largely by private investors.

Compensation for those financial debt instruments that cannot be easily converted to cash at prices close to estimated fair market values is termed:

Interest rates generally fall during periods of economic expansion and rise during economic contraction.

The maturity risk premium is the added return expected by lenders because of the expectation of inflation.

If interest rates increase because of a previously unanticipated inflation rate risk:

Beginning in 1966, interest rates entered a period of unusual increases, leading to the highest rates in U.S. history.

An increase in the supply for loanable funds accompanied by an increase in demand will cause interest rates to:

The demand for loanable funds comes from all sectors of the economy.

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

There are two basic sources of loanable funds: current savings and the expansion of deposits of depository institutions.

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

The default risk premiums on Baa corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on Aaa-rated bonds.

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Time Value of Money

Bonds and Stocks: Characteristics and Valuations

Securities and Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.