Question 1

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  True

Question 2

Which of the following is not considered to be a basic theory used to explain the term structure of interest rates?

Accepted Answer

A) expectations theory 
B) loanable funds theory 
C) liquidity premium theory 
D) market segmentation theory 
E) all of the above are theories used to explain the term structure of interest rates. 
A) expectations theory 
B) loanable funds theory 
C) liquidity premium theory 
D) market segmentation theory 
E) all of the above are theories used to explain the term structure of interest rates. E

Question 3

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

Accepted Answer

A) True 
 B)False  True

Question 4

The yield curve or the term structure of interest rates is typically downward sloping when:

Accepted Answer

A) short-term Treasury interest rates are lower than long-term Treasury interest rates 
B) short-term and long-term Treasury interest rates are the same 
C) long-term Treasury interest rates are lower than short-term Treasury interest rates 
D) long-term Treasure interest rates are higher than short-term Treasury interest rates 
A) short-term Treasury interest rates are lower than long-term Treasury interest rates 
B) short-term and long-term Treasury interest rates are the same 
C) long-term Treasury interest rates are lower than short-term Treasury interest rates 
D) long-term Treasure interest rates are higher than short-term Treasury interest rates

Question 5

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent.What type of yield curve is depicted?

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 6

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

Accepted Answer

A) increase 
B) decrease 
C) increase or decrease 
D) none of the above 
A) increase 
B) decrease 
C) increase or decrease 
D) none of the above

Question 7

The Treasury's major influence through its borrowing to finance federal deficits is on the supply rather than demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

In terms of dollar amounts, which of the following represents the single most important debt instrument bought and sold in the money market? Not in the chapter

Accepted Answer

A) U.S.Treasury bills 
B) commercial paper 
C) negotiable certificates of deposit 
D) Eurodollar time deposits 
A) U.S.Treasury bills 
B) commercial paper 
C) negotiable certificates of deposit 
D) Eurodollar time deposits

Question 9

Which of the following statements is most correct?

Accepted Answer

A) Speculative grade bonds have ratings of Baa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
B) Investment grade bonds have ratings of Daa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
C) Speculative grade bonds have ratings of Caa or lower and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
D) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
E) none of the above 
A) Speculative grade bonds have ratings of Baa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
B) Investment grade bonds have ratings of Daa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
C) Speculative grade bonds have ratings of Caa or lower and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
D) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
E) none of the above

Question 10

Interest rate differentialsThe 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 11

Tax deferral on investments may increase the volume of savings.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following may accumulate savings?

Accepted Answer

A) individuals 
B) corporations 
C) governmental units 
D) all the above may have savings 
A) individuals 
B) corporations 
C) governmental units 
D) all the above may have savings

Question 13

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

Accepted Answer

A) True 
 B)False

Question 14

The default risk 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 15

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, 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) none of the above 
A) 2.0% 
B) 2.5% 
C) 3.0% 
D) none of the above

Question 16

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

Accepted Answer

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

Question 17

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 18

Which of the following statements is most correct?

Accepted Answer

A) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
C) In reaction to the then developing 2007-2009 financial crisis, short-term interest rates declined sharply and were less than 100 percent by October, 2008. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above 
A) Extended refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
B) Investment grade bonds have ratings of Aaa or higher and meet financial institution (banks, pension funds, insurance companies, etc.) investment standards. 
C) In reaction to the then developing 2007-2009 financial crisis, short-term interest rates declined sharply and were less than 100 percent by October, 2008. 
D) Laddered refunding is one of the new debt-management techniques used to extend the average maturity of the marketable debt without disturbing the financial markets and occurs when the Treasury offers the owners of a given issue the opportunity to exchange their holdings well in advance of the holdings' regular maturity for new securities of longer maturity. 
E) none of the above

Question 19

A decrease in the supply for loanable funds accompanied by an increase 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 20

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

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

Which of the following is not considered to be a basic theory used to explain the term structure of interest rates?

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

The yield curve or the term structure of interest rates is typically downward sloping when:

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent.What type of yield curve is depicted?

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

The Treasury's major influence through its borrowing to finance federal deficits is on the supply rather than demand for loanable funds.

In terms of dollar amounts, which of the following represents the single most important debt instrument bought and sold in the money market? Not in the chapter

Which of the following statements is most correct?

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

Tax deferral on investments may increase the volume of savings.

Which of the following may accumulate savings?

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

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

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

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

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

Which of the following statements is most correct?

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

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

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 Valuation

Securities 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

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

Which of the following is not considered to be a basic theory used to explain the term structure of interest rates?

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

The yield curve or the term structure of interest rates is typically downward sloping when:

Assume that these current yields exist: long-term government securities yield 9 percent, five-year Treasury securities yield 8.5 percent, and one-year Treasury bills yield 8 percent.What type of yield curve is depicted?

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

The Treasury's major influence through its borrowing to finance federal deficits is on the supply rather than demand for loanable funds.

In terms of dollar amounts, which of the following represents the single most important debt instrument bought and sold in the money market? Not in the chapter

Which of the following statements is most correct?

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

Tax deferral on investments may increase the volume of savings.

Which of the following may accumulate savings?

Interest rates will move from one equilibrium level to another if an anticipated change occurs that causes the demand for loanable funds to change.

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

If the nominal rate of interest is 10%, the real rate of interest is 3%, the default premium is 3%, the liquidity premium is 0.5%, and the maturity premium is 1.5%, then the inflation premium must be ______.

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

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

Which of the following statements is most correct?

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

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

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 Valuation

Securities 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