Exam 5: The Financial System, Corporate Governance, and Interest

You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, what is the nominal interest rate that the finance company is charging? If inflation is 2.5%, what is the expected real rate of interest?

The term "red herring" relates to the:

The term of an investment can be described as either:

The main purpose of an economy's financial system is to facilitate the transfer of funds from:

A bank issuing a Certificate of Deposit (CD) to a depositor and then lending the money deposited to a business borrower is an example of a(n):

Based on the concept of supply and demand driving changes in the cost of money (interest rates), which of the following changes in the economy will tend to increase interest rates?

Liquidity risk refers to the chance that an investor will incur a loss because it's hard to sell the bond of a company that isn't well known.

The secondary market is the resale market for securities.

CDOs can be valued easily and are priced on the basis of their annualized yields.

A firm that goes public generally explains to potential investors how it intends to use the proceeds from the stock issue.

Which of the following definitions does not describe the risk-free rate?

Which of the following is not true of CDOs?

Given the following closing stock quote, what was the closing price two business days ago. YTD 52 Weeks YLD VOL NET \% CHG Hi Lo STOCK (SYM) \% PE 100 s LAST CHG 21\% 81 32 XYZ (XYZ) 2.5\% 22 25000 51 +.50

The over-the-counter market differs from the New York Stock Exchange in that it:

Stocks, and bonds are long-term investment vehicles. They are similar in that both have stipulated terms that designate the maturity of the investment.

Which is not an example of a money market security?

The market segmentation theory proposes that:

Financial intermediaries include:

Which of the following theories can be used to explain the shape of both inverted and normal yield curves?

Riordan Services Inc. just issued a 2-year bond at a 15% interest rate. Riordan's default risk premium has been estimated at 2.5%, its liquidity risk premium is about 2%, and its maturity risk premium is 3%. Inflation is expected to be 5% in the bond's first year and 4% in its second year. What is the implied pure rate of interest?