Question 1

The price of an asset moves in the same direction of a change in its discount rate.

Accepted Answer

A) True 
 B)False

Question 2

It is important to be able to measure the price sensitivity of an asset or liability to interest rate changes and the appropriate measure is the modified duration.

Accepted Answer

A) True 
 B)False

Question 3

An asset's price is the present value of its expected cash flows, discounted at an appropriate rate.

Accepted Answer

A) True 
 B)False

Question 4

Suppose that you have a bond issued by a German firm and that all payments are in euros for the maturity of the bond which is four years. Why is the cash flow in U.S. dollars that you will receive as a U.S. investor uncertain? In your answer illustrate the uncertainty in terms of an exchange rate premium and the appropriate discount rate.

Accepted Answer

The cash flow in U.S. dollars that a U.S

Question 5

It should be understood that even a financial asset with a stated maturity may terminate before its stated maturity. This may occur for several reasons. Describe some of these reasons.

Accepted Answer

Reasons for the termination of a financi

Question 6

Return ________ is a basic property of financial assets, in that it is a major determinant of their value.

Accepted Answer

A)  convertibility 
B)  divisibility 
C)  predictability 
D)  complexity. 
A)  convertibility 
B)  divisibility 
C)  predictability 
D)  complexity.

Question 7

The appropriate discount rate, r, is the return that the market or the consensus of investors requires on the asset. A convenient (but approximate) expression for the appropriate discount rate is this: r = RR + IP + DP + MP + LP + EPP where ________.

Accepted Answer

A)  IP= the real rate of interest, which is the reward for not consuming and for lending to other users. 
B)  MP = the maturity risk premium, which is the reward for taking on the risk of default in the case of a loan or bond or the risk of loss of principal for other assets. 
C)  LP = the liquidity premium, which is the reward for not consuming and for lending to other users. 
D)  EP= the exchange-rate risk premium, which is the reward for investing in an asset that is not denominated in the investor's home currency. 
A)  IP= the real rate of interest, which is the reward for not consuming and for lending to other users. 
B)  MP = the maturity risk premium, which is the reward for taking on the risk of default in the case of a loan or bond or the risk of loss of principal for other assets. 
C)  LP = the liquidity premium, which is the reward for not consuming and for lending to other users. 
D)  EP= the exchange-rate risk premium, which is the reward for investing in an asset that is not denominated in the investor's home currency.

Question 8

A financial asset has many properties, and each affects the asset's value in a similar and important way.

Accepted Answer

A) True 
 B)False

Question 9

DP is the default risk premium, which is the ________.

Accepted Answer

A)  reward for investing in an asset that may not be readily converted to cash at a fair market value. 
B)  reward for taking on the risk of default in the case of a loan or bond or the risk of loss of principal for other assets. 
C)  compensation for lending money for long periods of time. 
D)  reward for investing in an asset that is not denominated in the investor's home currency. 
A)  reward for investing in an asset that may not be readily converted to cash at a fair market value. 
B)  reward for taking on the risk of default in the case of a loan or bond or the risk of loss of principal for other assets. 
C)  compensation for lending money for long periods of time. 
D)  reward for investing in an asset that is not denominated in the investor's home currency.

Question 10

Which of the below is NOT one of the eleven properties of financial assets?

Accepted Answer

A)  convertibility 
B)  currency 
C)  liquidity predictability 
D)  tax status 
A)  convertibility 
B)  currency 
C)  liquidity predictability 
D)  tax status

Exam 9: Properties and Pricing of Financial Assets

The price of an asset moves in the same direction of a change in its discount rate.

It is important to be able to measure the price sensitivity of an asset or liability to interest rate changes and the appropriate measure is the modified duration.

An asset's price is the present value of its expected cash flows, discounted at an appropriate rate.

It should be understood that even a financial asset with a stated maturity may terminate before its stated maturity. This may occur for several reasons. Describe some of these reasons.

Return ________ is a basic property of financial assets, in that it is a major determinant of their value.

The appropriate discount rate, r, is the return that the market or the consensus of investors requires on the asset. A convenient (but approximate) expression for the appropriate discount rate is this: r = RR + IP + DP + MP + LP + EPP where ________.

A financial asset has many properties, and each affects the asset's value in a similar and important way.

DP is the default risk premium, which is the ________.

Which of the below is NOT one of the eleven properties of financial assets?

Introduction

Financial Institutions, Financial Intermediaries, and Asset Management Firms

Depository Institutions: Activities and Characteristics

The U.S. Federal Reserve and the Creation of Money

Monetary Policy in the United States

Insurance Companies

Investment Companies and Exchange Traded Funds

Pension Funds

The Level and Structure of Interest Rates

The Term Structure of Interest Rates

Risk/Return and Asset Pricing Models

Primary Markets and the Underwriting of Securities

Secondary Markets

Treasury and Agency Securities Markets

Municipal Securities Markets

Markets for Common Stock: The Basic Characteristics

Markets for Common Stock: Structure and Organization

Markets for Corporate Senior Instruments: I

Markets for Corporate Senior Instruments: II

The Markets for Bank Obligations

The Residential Mortgage Market

Mortgage-Backed Securities Market

Market for Commercial Mortgage Loans and Commercial Mortgage-Backed Securities

Market for Asset-Backed Securities

Financial Futures Markets

Options Markets

Pricing of Futures and Options Contracts

The Applications of Futures and Options Contracts

OTC Interest Rate Derivatives: Forward Rate Agreements, Swaps, Caps, and Floors

Market for Credit Risk Transfer Vehicles: Credit Derivatives and Collateralized Debt Obligations

The Market for Foreign Exchange and Risk Control Instruments

Filters