Exam 4: Determining Interest Rates

Suppose there's a 50% chance of a stock rising by 20% and a 50% chance of it falling by 20%. What is the expected rate of return on the stock?

The bond supply curve slopes up because

According to the Fisher effect, an increase in expected inflation results in:

In an article, "Preparing for the Next Black Swan" (Wall Street Journal, Aug 21, 2010), the point is made that diversification may be insufficient in protecting one's portfolio during a "Black Swan" event. Why may this be true?

Since Germany is a large open economy, the increase in German borrowing and investment in what was formerly East Germany in the early 1990s resulted in

In the market for loanable funds the price of the funds exchanged is

The average investor must weigh the benefits of liquidity against

An investor who bases the decision to buy an asset solely on the expected return of an asset is considered to be:

If the government were to simultaneously cut the personal income tax and the corporate profits tax, the equilibrium interest rate

In an effort to increase government revenue, Congress and the president decide to increase the corporate profits tax. The likely result will be

Economists believe that as a saver's wealth increases, the saver will generally

How should a financial plan of an older saver differ from that of a younger saver?

As wealth decreases, which of the following is likely to account for a smaller fraction of a saver's portfolio?

Which type of investor is most likely to have a diversified portfolio?

In November 2012, concern was raised about Spain's sovereign debt. Make use of a graph of the bond market to show how this would affect the price of Spanish bonds.

A small open economy

A decrease in expected inflation

In late 2008 and early 2009, many feared that the economy may experience deflation. Make use of a graph of the bond market to show how this affected interest rates.

Which of the following would NOT cause the demand curve for bonds to shift?

If households increase their saving at the same time that the government increases its deficit,