Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

The nominal rate of interest is equal to the real rate of interest plus an inflation premium plus the default risk premium plus the maturity risk premium plus the liquidity risk premium.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements is most correct?

Accepted Answer

A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above 
A) More firms fail or suffer financial distress during periods of economic expansion than during periods of economic recession.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
B) More firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
C) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require higher premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
D) Fewer firms fail or suffer financial distress during periods of recession than during periods of economic expansion.Thus, investors tend to require lower premiums to compensate for default risk when the economy is in a recession or is expected to enter one. 
E) none of the above

Question 4

An increase 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 5

A basic source of loanable funds is:

Accepted Answer

A) current savings that flow through financial institutions 
B) future savings and investment by the Federal Reserve 
C) current and future savings 
D) investment by the Federal Reserve and expansion of deposits by insurance companies 
A) current savings that flow through financial institutions 
B) future savings and investment by the Federal Reserve 
C) current and future savings 
D) investment by the Federal Reserve and expansion of deposits by insurance companies

Question 6

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

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 7

Inflation caused by an increase in the money supply is called:

Accepted Answer

A) demand-pull inflation 
B) cost-push inflation 
C) administrative inflation 
D) a combination of administrative and speculative inflation 
A) demand-pull inflation 
B) cost-push inflation 
C) administrative inflation 
D) a combination of administrative and speculative inflation

Question 8

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

Accepted Answer

A) True 
 B)False

Question 9

The risk-free interest rate is composed of:

Accepted Answer

A) an inflation premium and a default risk premium 
B) a default risk premium and a maturity risk premium 
C) a real rate of interest and a liquidity premium 
D) a real rate of interest and an inflation premium 
A) an inflation premium and a default risk premium 
B) a default risk premium and a maturity risk premium 
C) a real rate of interest and a liquidity premium 
D) a real rate of interest and an inflation premium

Question 10

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

Accepted Answer

A) Aaa, Baa 
B) Baa, Daa 
C) Daa, Gaa 
D) Gaa, Kaa 
E) none of the above 
A) Aaa, Baa 
B) Baa, Daa 
C) Daa, Gaa 
D) Gaa, Kaa 
E) none of the above

Question 11

Holding demand constant, a decrease in the supply 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 12

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

Accepted Answer

A) True 
 B)False

Question 13

The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called

Accepted Answer

A) the yield to maturity 
B) the term structure of interest rates 
C) the maturity risk premium 
D) the expectations hypothesis 
A) the yield to maturity 
B) the term structure of interest rates 
C) the maturity risk premium 
D) the expectations hypothesis

Question 14

Treasury notes are intermediate-term Federal debt obligations.

Accepted Answer

A) True 
 B)False

Question 15

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

Accepted Answer

A) True 
 B)False

Question 16

The maturity 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 17

The risk-free rate of interest is equal to the real rate of interest plus a premium for inflation.

Accepted Answer

A) True 
 B)False

Question 18

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Accepted Answer

A) True 
 B)False

Question 19

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

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

The nominal rate of interest is equal to the real rate of interest plus an inflation premium plus the default risk premium plus the maturity risk premium plus the liquidity risk premium.

Which of the following statements is most correct?

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

A basic source of loanable funds is:

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

Inflation caused by an increase in the money supply is called:

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

The risk-free interest rate is composed of:

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.

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

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

The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called

Treasury notes are intermediate-term Federal debt obligations.

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

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

The risk-free rate of interest is equal to the real rate of interest plus a premium for inflation.

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

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

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

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

The nominal rate of interest is equal to the real rate of interest plus an inflation premium plus the default risk premium plus the maturity risk premium plus the liquidity risk premium.

Which of the following statements is most correct?

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

A basic source of loanable funds is:

What yield curve shape is depicted if intermediate-term Treasury securities yield 10 percent, short-term Treasuries yield 10.5 percent, and long-term Treasuries yield 9.5 percent?

Inflation caused by an increase in the money supply is called:

The expectations theory contends that the shape of the yield curve reflects investor expectations about future GDP growth rates.

The risk-free interest rate is composed of:

The default risk premiums on _______ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on ______ bonds.

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

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

The relationship between interest rates or yields and the time to maturity for debt instruments of comparable quality is called

Treasury notes are intermediate-term Federal debt obligations.

The market segmentation theory holds that securities of different maturities are not perfect substitutes for each other.

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

The risk-free rate of interest is equal to the real rate of interest plus a premium for inflation.

The liquidity premium is compensation for those financial debt instruments that cannot be easily converted to cash at prices close to their estimated fair market values.

Demand-pull inflation may be defined as an excessive demand for goods and services during periods of economic expansion as a result of large increases in the money supply.

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

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

The default risk premiums on _ corporate bonds are generally better indicators of investor pessimism or optimism about economic expectations than are those on bonds.