Question 1

Federal obligations usually issued for maturities of five up to one year 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 2

The average maturity of the marketable debt in the United States:

Accepted Answer

A) is of little importance, unlike that of private corporations 
B) has been constant for the last two decades 
C) remains unchanged unless new obligations are issued 
D) decreases day by day unless new obligations are issued to offset such decreases 
A) is of little importance, unlike that of private corporations 
B) has been constant for the last two decades 
C) remains unchanged unless new obligations are issued 
D) decreases day by day unless new obligations are issued to offset such decreases

Question 3

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

Accepted Answer

A) supply of and demand for moneyinvestor preference for short-term securties 
B) supply of and demand for loanable fundsinvestor preference for higher-yielding long-term securities. 
C) "flow" of funds over time 
D) "flow" of bank credit over time 
A) supply of and demand for moneyinvestor preference for short-term securties 
B) supply of and demand for loanable fundsinvestor preference for higher-yielding long-term securities. 
C) "flow" of funds over time 
D) "flow" of bank credit over time

Question 4

In an inflationary period, interest rates have a tendency to:

Accepted Answer

A) rise 
B) fall 
C) stay the same 
D) act erratically 
A) rise 
B) fall 
C) stay the same 
D) act erratically

Question 5

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 
E) none of the above 
A) rise 
B) stay the same 
C) fall 
D) either a or b, depending on the state of the economy 
E) none of the above

Question 6

Holding demand constant, a decrease in the supply of loanable funds will result in an increase in interest rates.

Accepted Answer

A) True 
 B)False

Question 7

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is most correct?

Accepted Answer

A) Advance 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) Reverse 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. 
C) 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. 
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) Advance 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) Reverse 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. 
C) 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. 
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 9

Which war led to no inflationary price movements?

Accepted Answer

A) The Revolutionary War 
B) The War of 1812 
C) The Civil War 
D) World War I 
A) The Revolutionary War 
B) The War of 1812 
C) The Civil War 
D) World War I

Question 10

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

Accepted Answer

A) True 
 B)False

Question 11

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

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 12

If interest rates increase because of a previously unanticipated inflation rate risk:

Accepted Answer

A) long-lived debt instruments will decline more than short-lived debt instruments 
B) long-lived debt instruments will decline less than short-lived debt instruments 
C) neither set of debt instruments will decline 
D) all other things being equal, both should decline equally 
A) long-lived debt instruments will decline more than short-lived debt instruments 
B) long-lived debt instruments will decline less than short-lived debt instruments 
C) neither set of debt instruments will decline 
D) all other things being equal, both should decline equally

Question 13

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

Accepted Answer

A) True 
 B)False

Question 14

The most important holders of Treasury bills are corporations and individuals.

Accepted Answer

A) True 
 B)False

Question 15

Interest rate differentialsA maturity 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 
E) none of the above 
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 
E) none of the above

Question 16

If the money supply and total demand increase faster than output, prices will:

Accepted Answer

A) fall 
B) stay the same 
C) rise 
D) reflect lower inflation 
A) fall 
B) stay the same 
C) rise 
D) reflect lower inflation

Question 17

The risk free rate of interest is the interest rate on a debt instrument with no default, maturity, or liquidity risks.

Accepted Answer

A) True 
 B)False

Question 18

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

Question 19

Which of the following is not true of Treasury bonds?

Accepted Answer

A) long-lived 
B) noncallable 
C) stated interest rate 
D) all the above are false 
A) long-lived 
B) noncallable 
C) stated interest rate 
D) all the above are false

Question 20

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) none of the above 
A) 3% 
B) 4% 
C) 5% 
D) none of the above

Federal obligations usually issued for maturities of five up to one year are called:

The average maturity of the marketable debt in the United States:

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

In an inflationary period, interest rates have a tendency to:

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

Holding demand constant, a decrease in the supply of loanable funds will result in an increase in interest rates.

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

Which of the following statements is most correct?

Which war led to no inflationary price movements?

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

If interest rates increase because of a previously unanticipated inflation rate risk:

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

The most important holders of Treasury bills are corporations and individuals.

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

If the money supply and total demand increase faster than output, prices will:

The risk free rate of interest is the interest rate on a debt instrument with no default, maturity, or liquidity risks.

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

Which of the following is not true of Treasury bonds?

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%?

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Exam 8: Interest Rates

Federal obligations usually issued for maturities of five up to one year are called:

The average maturity of the marketable debt in the United States:

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

In an inflationary period, interest rates have a tendency to:

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

Holding demand constant, a decrease in the supply of loanable funds will result in an increase in interest rates.

Default risk is the risk that a borrower will not pay interest and/or repay the principal on a loan or other debt instrument according to the agreed contractual terms.

Which of the following statements is most correct?

Which war led to no inflationary price movements?

Treasury bonds may be issued with any maturity but generally have an original maturity in excess of one year.

______________ is the tendency of prices, aided by union-corporation contracts, to rise during economic expansions and resist declines during recessions.

If interest rates increase because of a previously unanticipated inflation rate risk:

Three theories commonly used to explain the term structure of interest rates are the expectations theory, the liquidity preference theory, and the market segmentation theory.

The most important holders of Treasury bills are corporations and individuals.

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

If the money supply and total demand increase faster than output, prices will:

The risk free rate of interest is the interest rate on a debt instrument with no default, maturity, or liquidity risks.

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

Which of the following is not true of Treasury bonds?

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%?

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