Question 1

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) cannot be determined without additional information 
A) 3% 
B) 5% 
C) 11% 
D) cannot be determined without additional information

Question 2

___________________ 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 3

______________ occurs during economic expansions when demand for goods and services is greater than supply.

Accepted Answer

A) Administrative inflation 
B) Speculative inflation 
C) Cost-push inflation 
D) Demand-pull inflation 
A) Administrative inflation 
B) Speculative inflation 
C) Cost-push inflation 
D) Demand-pull inflation

Question 4

An economy with a large share of young people will have more total savings than one with more late middle-aged people.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is false?

Accepted Answer

A) the A major determinant in the long run of the volume of savings is the level of national incometaxes. 
B) the money market involves obtaining and trading of credit and debt instruments with maturity of one year or less. 
C) bond risk premiums follow changes in investor optimism/pessimism about expected economic activity. 
D) A high interest rate level but downward sloping yield curve is generally perceived as being conductive to future economic expansion. 
A) the A major determinant in the long run of the volume of savings is the level of national incometaxes. 
B) the money market involves obtaining and trading of credit and debt instruments with maturity of one year or less. 
C) bond risk premiums follow changes in investor optimism/pessimism about expected economic activity. 
D) A high interest rate level but downward sloping yield curve is generally perceived as being conductive to future economic expansion.

Question 6

Which of the following factors is most correct? None of the above clone of prior item

Accepted Answer

A) Cost-push 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) Speculative inflation occurs when prices are raised to cover rising production costs, such as wages 
C) Demand-pull 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 
E) none of the above are correct 
A) Cost-push 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) Speculative inflation occurs when prices are raised to cover rising production costs, such as wages 
C) Demand-pull 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 
E) none of the above are correct

Question 7

If the Fed changes discount policies it may affect the supply of loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

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) 4% 
B) 7% 
C) 2% 
D) 1% 
A) 4% 
B) 7% 
C) 2% 
D) 1%

Question 9

Federal obligations usually issued for maturities of two to five ten years are called:

Accepted Answer

A) Treasury bonds 
B) Treasury notes 
C) Treasury bills 
D) Agency issues 
E) none of the above 
A) Treasury bonds 
B) Treasury notes 
C) Treasury bills 
D) Agency issues 
E) none of the above

Question 10

An increase in the demand for loanable funds, holding supply constant, 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 11

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 
E) none 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 
E) none of the above are correct

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A decrease in the supply for loanable funds accompanied by a decrease 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 14

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 Baa 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 Baa 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 15

Three theories commonly used to explain the term structure of interest rates include all of the following EXCEPT

Accepted Answer

A) the default risk theory 
B) the expectations theory 
C) the market segmentation theory 
D) the liquidity preference theory 
A) the default risk theory 
B) the expectations theory 
C) the market segmentation theory 
D) the liquidity preference theory

Question 16

When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation.

Accepted Answer

A) higher, higher 
B) higher, lower 
C) lower, higher 
D) none of the above 
A) higher, higher 
B) higher, lower 
C) lower, higher 
D) none of the above

Question 17

Federal obligations usually issued for maturities of five between 40 and 50 years are called:

Accepted Answer

A) Treasury bonds 
B) Treasury notes 
C) Treasury bills 
D) Agency issues 
E) none of the above 
A) Treasury bonds 
B) Treasury notes 
C) Treasury bills 
D) Agency issues 
E) none of the above

Question 18

An increase in the supply for loanable funds accompanied by a decrease 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 19

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 
E) none of the above 
A) Treasury bonds 
B) Treasury notes 
C) Treasury bills 
D) Marketable government securities 
E) none of the above

Question 20

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) not enough information to tell 
A) increase 
B) decrease 
C) stay the same 
D) not enough information to tell

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

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

______________ occurs during economic expansions when demand for goods and services is greater than supply.

An economy with a large share of young people will have more total savings than one with more late middle-aged people.

Which of the following statements is false?

Which of the following factors is most correct? None of the above clone of prior item

If the Fed changes discount policies it may affect the supply of loanable funds.

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?

Federal obligations usually issued for maturities of two to five ten years are called:

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

Which of the following factors is most correct?

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

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

Which of the following statements is most correct?

Three theories commonly used to explain the term structure of interest rates include all of the following EXCEPT

When investors expect inflation rates they will require nominal interest rates so that a real rate of return will remain after the inflation.

Federal obligations usually issued for maturities of five between 40 and 50 years are called:

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

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

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

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

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

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

______________ occurs during economic expansions when demand for goods and services is greater than supply.

An economy with a large share of young people will have more total savings than one with more late middle-aged people.

Which of the following statements is false?

Which of the following factors is most correct? None of the above clone of prior item

If the Fed changes discount policies it may affect the supply of loanable funds.

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?

Federal obligations usually issued for maturities of two to five ten years are called:

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

Which of the following factors is most correct?

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

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

Which of the following statements is most correct?

Three theories commonly used to explain the term structure of interest rates include all of the following EXCEPT

When investors expect __________ inflation rates they will require __________ nominal interest rates so that a real rate of return will remain after the inflation.

Federal obligations usually issued for maturities of five between 40 and 50 years are called:

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

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

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

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

When investors expect inflation rates they will require nominal interest rates so that a real rate of return will remain after the inflation.