Question 1

In response to the financial crisis of 2007-2009, the yield spread between AAA corporate bonds and treasury bonds:

Accepted Answer

A)  widened 
B)  narrowed 
C)  remained the same 
D)  has no relationship 
A)  widened 
B)  narrowed 
C)  remained the same 
D)  has no relationship

Question 2

An additional expected return to compensate for anticipated inflation over the life of a debt instrument.

Accepted Answer

A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium 
A)  Maturity risk premium 
B)  Default risk premium 
C)  Interest rate risk 
D)  Inflation premium

Question 3

Long-run inflation expectations in the capital markets can be estimated by:

Accepted Answer

A)  subtracting a real return component from the rate on short-term Treasury bills 
B)  adding a real return component to interest rates on long-term corporate bonds 
C)  subtracting a real return component from the rate on long-term Treasury securities 
D)  adding a real return component to interest rates on short-term corporate securities 
A)  subtracting a real return component from the rate on short-term Treasury bills 
B)  adding a real return component to interest rates on long-term corporate bonds 
C)  subtracting a real return component from the rate on long-term Treasury securities 
D)  adding a real return component to interest rates on short-term corporate securities

Question 4

The major factor that determines the volume of savings, corporate as well as individual, is the:

Accepted Answer

A)  volume of spending 
B)  level of national income 
C)  amount of private pension plans 
D)  amount of life insurance policies 
A)  volume of spending 
B)  level of national income 
C)  amount of private pension plans 
D)  amount of life insurance policies

Question 5

Securities that may be bought and sold through the usual market channels are called:

Accepted Answer

A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Marketable government securities 
A)  Treasury bonds 
B)  Treasury notes 
C)  Treasury bills 
D)  Marketable government securities

Question 6

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

Accepted Answer

A) True 
 B)False

Question 7

Speculative inflation is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices.

Accepted Answer

A) True 
 B)False

Question 8

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Accepted Answer

A) True 
 B)False

Question 9

Treasury bills are:

Accepted Answer

A)  issued on a premium basis and pay a fixed annual interest rate. 
B)  issued on a discount basis and mature at par. 
C)  issued on a premium basis and mature at par. 
D)  issued on a discount basis and pay a fixed annual interest rate. 
A)  issued on a premium basis and pay a fixed annual interest rate. 
B)  issued on a discount basis and mature at par. 
C)  issued on a premium basis and mature at par. 
D)  issued on a discount basis and pay a fixed annual interest rate.

Question 10

The maturity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Accepted Answer

A) True 
 B)False

Question 11

Loanable funds amount of money made available by the government to borrowers.

Accepted Answer

A) True 
 B)False

Question 12

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates?

Accepted Answer

A)  1% 
B)  2% 
C)  5% 
D)  7% 
A)  1% 
B)  2% 
C)  5% 
D)  7%

Question 13

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

Accepted Answer

A)  increase 
B)  decrease 
C)  increase or decrease 
D)  undetermined change 
A)  increase 
B)  decrease 
C)  increase or decrease 
D)  undetermined change

Question 14

Federal obligations usually issued for maturities up to one year 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

Question 15

Price inflation has been characteristic of:

Accepted Answer

A)  modern industrial society 
B)  our post gold-standard period 
C)  the history of prices since earliest recorded history 
D)  only modern industrialized societies 
A)  modern industrial society 
B)  our post gold-standard period 
C)  the history of prices since earliest recorded history 
D)  only modern industrialized societies

Question 16

Junk bonds are bonds that have a relatively high probability of default.

Accepted Answer

A) True 
 B)False

Question 17

Junk bonds and high-yield bonds are the same thing.

Accepted Answer

A) True 
 B)False

Question 18

In general, short-term interest rates are more stable than long-term interest rates.

Accepted Answer

A) True 
 B)False

Question 19

Interest rates in the United States are mainly influenced by domestic factors.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

In response to the financial crisis of 2007-2009, the yield spread between AAA corporate bonds and treasury bonds:

An additional expected return to compensate for anticipated inflation over the life of a debt instrument.

Long-run inflation expectations in the capital markets can be estimated by:

The major factor that determines the volume of savings, corporate as well as individual, is the:

Securities that may be bought and sold through the usual market channels are called:

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

Speculative inflation is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices.

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Treasury bills are:

The maturity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Loanable funds amount of money made available by the government to borrowers.

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates?

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

Federal obligations usually issued for maturities up to one year are called:

Price inflation has been characteristic of:

Junk bonds are bonds that have a relatively high probability of default.

Junk bonds and high-yield bonds are the same thing.

In general, short-term interest rates are more stable than long-term interest rates.

Interest rates in the United States are mainly influenced by domestic factors.

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

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

In response to the financial crisis of 2007-2009, the yield spread between AAA corporate bonds and treasury bonds:

An additional expected return to compensate for anticipated inflation over the life of a debt instrument.

Long-run inflation expectations in the capital markets can be estimated by:

The major factor that determines the volume of savings, corporate as well as individual, is the:

Securities that may be bought and sold through the usual market channels are called:

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

Speculative inflation is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices.

The liquidity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Treasury bills are:

The maturity premium is the compensation that investors demand for holding securities that cannot easily be converted to cash without major price discounts.

Loanable funds amount of money made available by the government to borrowers.

If you expect the inflation premium to be 2%, the default risk premium to be 1% and the real interest rate to be 4%, what interest would you expect to observe in the marketplace under the simplest form of market interest rates?

Holding demand constant, an increase in the supply of loanable funds will result in a (n) ___________ in interest rates.

Federal obligations usually issued for maturities up to one year are called:

Price inflation has been characteristic of:

Junk bonds are bonds that have a relatively high probability of default.

Junk bonds and high-yield bonds are the same thing.

In general, short-term interest rates are more stable than long-term interest rates.

Interest rates in the United States are mainly influenced by domestic factors.

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

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