Question 1

What is the real rate of interest if the nominal rate of interest is 15%, the IP is 3%, the DRP is 3%, the MRP is 3%, and the LP is 2%?

Accepted Answer

A)  3% 
B)  4% 
C)  5% 
D)  6% 
A)  3% 
B)  4% 
C)  5% 
D)  6%

Question 2

As interest rates rise, the prices of existing bonds will:

Accepted Answer

A)  rise 
B)  stay the same 
C)  fall 
D)  either a or b, depending on the state of the economy 
A)  rise 
B)  stay the same 
C)  fall 
D)  either a or b, depending on the state of the economy

Question 3

Which of the following factors is most correct?

Accepted Answer

A)  Demand-pull inflation traditionally exists during periods of economic expansion when the demand for goods and services exceeds the available supply of such goods and services. 
B)  Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages 
C)  Speculative inflation is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices 
D)  All of the above are correct 
A)  Demand-pull inflation traditionally exists during periods of economic expansion when the demand for goods and services exceeds the available supply of such goods and services. 
B)  Cost-push inflation occurs when prices are raised to cover rising production costs, such as wages 
C)  Speculative inflation is caused by the expectation that prices will continue to rise, resulting in increased buying to avoid even higher future prices 
D)  All of the above are correct

Question 4

Inflation caused by an increase in the money supply is called:

Accepted Answer

A)  demand-pull inflation 
B)  cost-push inflation 
C)  administrative inflation 
D)  a combination of administrative and speculative inflation 
A)  demand-pull inflation 
B)  cost-push inflation 
C)  administrative inflation 
D)  a combination of administrative and speculative inflation

Question 5

Business will increase current long-term borrowing if they forecast a decrease in interest rates.

Accepted Answer

A) True 
 B)False

Question 6

If the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, 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)  3.5% 
A)  2.0% 
B)  2.5% 
C)  3.0% 
D)  3.5%

Question 7

The interest rate that is observed in the marketplace is called a real interest rate.

Accepted Answer

A) True 
 B)False

Question 8

It is illegal for individuals to own Treasury notes in this country.

Accepted Answer

A) True 
 B)False

Question 9

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _______ sharply and were ______ than ______ percent by October, 2008.

Accepted Answer

A)  declined, less, 0.5 
B)  rose, more, 10 
C)  declined, more, 6. 
D)  declined, less, 20 
A)  declined, less, 0.5 
B)  rose, more, 10 
C)  declined, more, 6. 
D)  declined, less, 20

Question 10

A government securities issued with maturities up to one year.

Accepted Answer

A)  Treasury notes 
B)  Treasury certificate 
C)  Treasury bills 
D)  Treasury bonds 
A)  Treasury notes 
B)  Treasury certificate 
C)  Treasury bills 
D)  Treasury bonds

Question 11

The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its value to a given interest rate increase.

Accepted Answer

A) True 
 B)False

Question 12

A government securities issued with maturities ranging from two to 10 years.

Accepted Answer

A)  Treasury notes 
B)  Treasury certificate 
C)  Treasury bills 
D)  Treasury bonds 
A)  Treasury notes 
B)  Treasury certificate 
C)  Treasury bills 
D)  Treasury bonds

Question 13

Economists have estimated that the real rate of interest in the United States and other countries has averaged in the ________________ range in recent years.

Accepted Answer

A)  1 to 2 percent 
B)  3 to 5 percent 
C)  4 to 6 percent 
D)  5 to 7 percent 
A)  1 to 2 percent 
B)  3 to 5 percent 
C)  4 to 6 percent 
D)  5 to 7 percent

Question 14

A dealer cartel is a small group of dealers in government securities with an effective marketing network throughout the United States,

Accepted Answer

A) True 
 B)False

Question 15

If the nominal interest rate is 8% and the risk-free rate is 3%, the expected inflation rate must be:

Accepted Answer

A)  3% 
B)  5% 
C)  11% 
D)  13% 
A)  3% 
B)  5% 
C)  11% 
D)  13%

Question 16

The risk-free interest rate is composed of:

Accepted Answer

A)  an inflation premium and a default risk premium 
B)  a default risk premium and a maturity risk premium 
C)  a real rate of interest and a liquidity premium 
D)  a real rate of interest and an inflation premium 
A)  an inflation premium and a default risk premium 
B)  a default risk premium and a maturity risk premium 
C)  a real rate of interest and a liquidity premium 
D)  a real rate of interest and an inflation premium

Question 17

As interest rates fall, the prices of existing bonds will:

Accepted Answer

A)  rise 
B)  stay the same 
C)  fall 
D)  either a or b, depending on the state of the economy 
A)  rise 
B)  stay the same 
C)  fall 
D)  either a or b, depending on the state of the economy

Question 18

An increase in the supply for loanable funds, holding demand constant, will cause interest rates to:

Accepted Answer

A)  increase 
B)  decrease 
C)  stay the same 
D)  increase slowly then decrease rapidly 
A)  increase 
B)  decrease 
C)  stay the same 
D)  increase slowly then decrease rapidly

Question 19

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

Accepted Answer

A)  The expectations theory 
B)  The market segmentation theory 
C)  The liquidity preference theory 
D)  The loanable funds theory 
A)  The expectations theory 
B)  The market segmentation theory 
C)  The liquidity preference theory 
D)  The loanable funds theory

Question 20

Which of the following statements is most correct?

Accepted Answer

A)  A downward sloping yield curve implies that government securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities. 
B)  Commercial paper is a primary source of short-term borrowing used by the U.S. government. 
C)  A decline in interest rates for long-term Treasury securities indicates an increase in investor long-run inflation expectations. 
D)  The establishment of the Federal Reserve System has caused the yield curve to always be upward sloping. 
A)  A downward sloping yield curve implies that government securities with long-term maturities have lower interest rates relative to similar quality securities with short-term maturities. 
B)  Commercial paper is a primary source of short-term borrowing used by the U.S. government. 
C)  A decline in interest rates for long-term Treasury securities indicates an increase in investor long-run inflation expectations. 
D)  The establishment of the Federal Reserve System has caused the yield curve to always be upward sloping.

What is the real rate of interest if the nominal rate of interest is 15%, the IP is 3%, the DRP is 3%, the MRP is 3%, and the LP is 2%?

As interest rates rise, the prices of existing bonds will:

Which of the following factors is most correct?

Inflation caused by an increase in the money supply is called:

Business will increase current long-term borrowing if they forecast a decrease in interest rates.

If the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

The interest rate that is observed in the marketplace is called a real interest rate.

It is illegal for individuals to own Treasury notes in this country.

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _ sharply and were than __ percent by October, 2008.

A government securities issued with maturities up to one year.

The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its value to a given interest rate increase.

A government securities issued with maturities ranging from two to 10 years.

Economists have estimated that the real rate of interest in the United States and other countries has averaged in the ________________ range in recent years.

A dealer cartel is a small group of dealers in government securities with an effective marketing network throughout the United States,

If the nominal interest rate is 8% and the risk-free rate is 3%, the expected inflation rate must be:

The risk-free interest rate is composed of:

As interest rates fall, the prices of existing bonds will:

An increase in the supply for loanable funds, holding demand constant, will cause interest rates to:

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

Which of the following statements is most correct?

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

What is the real rate of interest if the nominal rate of interest is 15%, the IP is 3%, the DRP is 3%, the MRP is 3%, and the LP is 2%?

As interest rates rise, the prices of existing bonds will:

Which of the following factors is most correct?

Inflation caused by an increase in the money supply is called:

Business will increase current long-term borrowing if they forecast a decrease in interest rates.

If the nominal rate of interest is 11%, the risk-free rate of interest is 2%, the default premium is 4%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

The interest rate that is observed in the marketplace is called a real interest rate.

It is illegal for individuals to own Treasury notes in this country.

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _______ sharply and were ______ than ______ percent by October, 2008.

A government securities issued with maturities up to one year.

The shorter the maturity of a fixed-rate debt instrument, the greater the reduction in its value to a given interest rate increase.

A government securities issued with maturities ranging from two to 10 years.

Economists have estimated that the real rate of interest in the United States and other countries has averaged in the ________________ range in recent years.

A dealer cartel is a small group of dealers in government securities with an effective marketing network throughout the United States,

If the nominal interest rate is 8% and the risk-free rate is 3%, the expected inflation rate must be:

The risk-free interest rate is composed of:

As interest rates fall, the prices of existing bonds will:

An increase in the supply for loanable funds, holding demand constant, will cause interest rates to:

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

Which of the following statements is most correct?

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

In reaction to the then developing 2007-2009 financial crisis, short-term interest rates _ sharply and were than __ percent by October, 2008.