Question 1

Which of the following is not a determinant of market interest rates?

Accepted Answer

A)  the inflation premium 
B)  the maturity risk premium 
C)  the volatility risk premium 
D)  the real rate of interest 
A)  the inflation premium 
B)  the maturity risk premium 
C)  the volatility risk premium 
D)  the real rate of interest

Question 2

If the money supply and total demand increase faster than output, prices will:

Accepted Answer

A)  fall 
B)  stay the same 
C)  rise 
D)  reflect lower inflation 
A)  fall 
B)  stay the same 
C)  rise 
D)  reflect lower inflation

Question 3

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

Accepted Answer

A) True 
 B)False

Question 4

The Public Debt Act of 1941 prohibits the federal government from issuing tax-free obligations.

Accepted Answer

A) True 
 B)False

Question 5

The term structure of interest rates indicates the relation between interest rates and the maturity of comparable quality debt instruments.

Accepted Answer

A) True 
 B)False

Question 6

Which one of the following is not a marketable government security?

Accepted Answer

A)  Treasury stock 
B)  Treasury bill 
C)  Treasury note 
D)  Treasury bond 
A)  Treasury stock 
B)  Treasury bill 
C)  Treasury note 
D)  Treasury bond

Question 7

A decrease in the supply for loanable funds accompanied by a decrease 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 8

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

Accepted Answer

A)  Administrative inflation 
B)  Speculative inflation 
C)  Cost-push inflation 
D)  Demand-pull inflation 
A)  Administrative inflation 
B)  Speculative inflation 
C)  Cost-push inflation 
D)  Demand-pull inflation

Question 9

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

Accepted Answer

A)  downward sloping 
B)  flat or level 
C)  upward sloping 
D)  U shaped 
A)  downward sloping 
B)  flat or level 
C)  upward sloping 
D)  U shaped

Question 10

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

Accepted Answer

A) True 
 B)False

Question 11

The default risk premium at a certain point in time may be expressed by comparing the interest rates on:

Accepted Answer

A)  a Treasury bill and a Treasury bond. 
B)  a Treasury bill and a long-term corporate bond. 
C)  a Treasury bill and the commercial paper rate. 
D)  a risky security and a comparable maturity U.S. Treasury security. 
A)  a Treasury bill and a Treasury bond. 
B)  a Treasury bill and a long-term corporate bond. 
C)  a Treasury bill and the commercial paper rate. 
D)  a risky security and a comparable maturity U.S. Treasury security.

Question 12

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

Accepted Answer

A) True 
 B)False

Question 13

Administrative inflation is the tendency of prices, aided by union-corporation contracts, to rise during economic expansion and to resist declines during recessions.

Accepted Answer

A) True 
 B)False

Question 14

Income from the obligations of the federal government is exempt from all state and local taxes.

Accepted Answer

A) True 
 B)False

Question 15

The liquidity preference theory holds that interest rates are determined by the:

Accepted Answer

A)  investor preference for short-term securities 
B)  investor preference for higher-yielding long-term securities. 
C)  "flow" of funds over time 
D)  "flow" of bank credit over time 
A)  investor preference for short-term securities 
B)  investor preference for higher-yielding long-term securities. 
C)  "flow" of funds over time 
D)  "flow" of bank credit over time

Question 16

Investment grade bonds have ratings of Aaa or higher that meet financial institution investment standards.

Accepted Answer

A) True 
 B)False

Question 17

A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on:

Accepted Answer

A)  a Treasury bill and a Treasury bond. 
B)  a Treasury bill and a long-term corporate bond. 
C)  a Treasury bill and the commercial paper rate. 
D)  a risky security and a comparable maturity U.S. Treasury security. 
A)  a Treasury bill and a Treasury bond. 
B)  a Treasury bill and a long-term corporate bond. 
C)  a Treasury bill and the commercial paper rate. 
D)  a risky security and a comparable maturity U.S. Treasury security.

Question 18

Historically, one of the biggest borrowers has been the federal government.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following statements is most correct?

Accepted Answer

A)  More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C)  Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
A)  More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C)  Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D)  More firms fail or suffer financial distress during periods of recession than during periods of economic expansion. Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one.

Question 20

Federal obligations usually issued for maturities in excess of ten years are called:

Accepted Answer

A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Agency issues 
A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Agency issues

Which of the following is not a determinant of market interest rates?

If the money supply and total demand increase faster than output, prices will:

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

The Public Debt Act of 1941 prohibits the federal government from issuing tax-free obligations.

The term structure of interest rates indicates the relation between interest rates and the maturity of comparable quality debt instruments.

Which one of the following is not a marketable government security?

A decrease in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to:

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

The default risk premium at a certain point in time may be expressed by comparing the interest rates on:

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

Administrative inflation is the tendency of prices, aided by union-corporation contracts, to rise during economic expansion and to resist declines during recessions.

Income from the obligations of the federal government is exempt from all state and local taxes.

The liquidity preference theory holds that interest rates are determined by the:

Investment grade bonds have ratings of Aaa or higher that meet financial institution investment standards.

A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on:

Historically, one of the biggest borrowers has been the federal government.

Which of the following statements is most correct?

Federal obligations usually issued for maturities in excess of ten years are called:

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

Which of the following is not a determinant of market interest rates?

If the money supply and total demand increase faster than output, prices will:

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

The Public Debt Act of 1941 prohibits the federal government from issuing tax-free obligations.

The term structure of interest rates indicates the relation between interest rates and the maturity of comparable quality debt instruments.

Which one of the following is not a marketable government security?

A decrease in the supply for loanable funds accompanied by a decrease in demand will cause interest rates to:

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages.

The default risk premium at a certain point in time may be expressed by comparing the interest rates on:

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

Administrative inflation is the tendency of prices, aided by union-corporation contracts, to rise during economic expansion and to resist declines during recessions.

Income from the obligations of the federal government is exempt from all state and local taxes.

The liquidity preference theory holds that interest rates are determined by the:

Investment grade bonds have ratings of Aaa or higher that meet financial institution investment standards.

A maturity risk premium at a certain point in time may be expressed by comparing the interest rates on:

Historically, one of the biggest borrowers has been the federal government.

Which of the following statements is most correct?

Federal obligations usually issued for maturities in excess of ten years are called:

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