Deck 6: Understanding Financial Markets and Institutions

Question 1

Which of the following is NOT a capital market instrument?

A)U.S. Treasury notes and bonds
B)U.S. Treasury bills
C)U.S. government agency bonds
D)corporate stocks and bonds

Answer 1

U.S. Treasury bills

Question 2

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?

A)investment banks
B)money markets
C)primary markets
D)secondary markets

Answer 2

primary markets

Question 3

Which of these is NOT a participant in the shadow banking system?

A)structured investment vehicles (SIVs)
B)special purpose vehicles (SPVs)
C)limited-purpose finance companies
D)credit unions

Answer 3

credit unions

Question 4

Which of the following is NOT a money market instrument?

A)treasury bills
B)commercial paper
C)corporate bonds
D)bankers' acceptances

Question 5

How is the shadow banking system the same as the traditional banking system?

A)It intermediates the flow of funds between net savers and net borrowers.
B)It serves as a middle man.
C)The complete credit intermediation is performed through a series of steps involving many nonbank financial service firms.
D)The complete credit intermediation is performed by a single bank.

Question 6

Primary market financial instruments include stock issues from firms allowing their equity shares to be publicly traded on the stock market for the first time. We usually refer to these first-time issues as which of the following?

A)initial public offerings
B)direct transfers
C)money market transfers
D)over-the-counter stocks

Question 7

Which of these does NOT perform vital functions to securities markets of all sorts by channelling funds from those with surplus funds to those with shortages of funds?

A)commercial banks
B)secondary markets
C)insurance companies
D)mutual funds

Question 8

Which of these markets trade currencies for immediate or for some future stated delivery?

A)money markets
B)primary markets
C)foreign exchange markets
D)over-the-counter stocks

Question 9

Which of these capital market instruments are long-term loans to individuals or businesses to purchase homes, pieces of land, or other real property?

A)treasury notes and bonds
B)mortgages
C)mortgage-backed securities
D)corporate bonds

Question 10

Which of these is the interest rate that would exist on a default-free security if no inflation were expected?

A)nominal interest rate
B)real interest rate
C)default premium
D)market premium

Question 11

Which of these is the interest rate that is actually observed in financial markets?

A)nominal interest rates
B)real interest rates
C)real risk-free rate
D)market premium

Question 12

Which of the following is the risk that an asset's sale price will be lower than its purchase price?

A)default risk
B)liquidity risk
C)price risk
D)trading risk

Question 13

In the United States, which of these financial institutions arrange most primary market transactions for businesses?

A)investment banks
B)asset transformer
C)direct transfer agents
D)over-the-counter agents

Question 14

Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in which of these?

A)initial public offerings
B)direct transfers
C)secondary markets
D)over-the-counter stocks

Question 15

Which of the following is the continual increase in the price level of a basket of goods and services?

A)deflation
B)inflation
C)recession
D)stagflation

Question 16

Which of these refer to the ease with which an asset can be converted into cash?

A)direct transfer
B)liquidity
C)primary market
D)secondary market

Question 17

Which of these formalizes an agreement between two parties to exchange a standard quantity of an asset at a predetermined price on a specified date in the future?

A)derivative security
B)initial public offering
C)liquidity asset
D)trading volume

Question 18

Which of these feature debt securities or instruments with maturities of one year or less?

A)money markets
B)primary markets
C)secondary markets
D)over-the-counter stocks

Question 19

Which of the following is the risk that a security issuer will miss an interest or principal payment or continue to miss such payments?

A)default risk
B)liquidity risk
C)maturity risk
D)price risk

Question 20

Which of these money market instruments are short-term funds transferred between financial institutions, usually for no more than one day?

A)treasury bills
B)federal funds
C)commercial paper
D)banker acceptances

Question 21

Which of these is NOT a theory that explains the shape of the term structure of interest rates?

A)liquidity theory
B)market segmentation theory
C)short-term structure of interest rates theory
D)unbiased expectations theory

Question 22

A corporation's 10-year bonds are currently yielding a return of 7.75 percent. The expected inflation premium is 3.0 percent annually and the real interest rate is expected to be 3.00 percent annually over the next 10 years. The liquidity risk premium on the corporation's bonds is 0.50 percent. The maturity risk premium is 0.25 percent on two-year securities and increases by 0.10 percent for each additional year to maturity. What is the default risk premium on the corporation's 10-year bonds?

A)0.18 percent
B)0.20 percent
C)0.22 percent
D)0.27 percent

Question 23

A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special covenants. What is the security's equilibrium rate of return?

A)1.78 percent
B)3.95 percent
C)8.90 percent
D)17.8 percent

Question 24

According to this theory of term structure of interest rates, at any given point in time, the yield curve reflects the market's current expectations of future short-term rates.

A)expectations theory
B)future short-term rates theory
C)term structure of interest rates theory
D)unbiased expectations theory

Question 25

One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. The liquidity premium on two-year securities is 0.075 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

A)3.775 percent
B)5.625 percent
C)5.662 percent
D)11.325 percent

Question 26

The Wall Street Journal reports that the rate on three-year Treasury securities is 4.75 percent and the rate on four-year Treasury securities is 5.00 percent. The one-year interest rate expected in three years is E(₄r₁), 5.25 percent. According to the liquidity premium theory, what is the liquidity premium on the four-year Treasury security, L₄?

A)0.0375 percent
B)0.504 percent
C)5.01 percent
D)5.04 percent

Question 27

Which of the following theories argues that individual investors and financial institutions have specific maturity preferences, and to encourage buyers to hold securities with maturities other than their most preferred requires a higher interest rate?

A)liquidity premium hypothesis
B)market segmentation theory
C)supply and demand theory
D)unbiased expectations theory

Question 28

One-year Treasury bills currently earn 5.50 percent. You expect that one year from now, one-year Treasury bill rates will increase to 5.75 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?

A)5.50 percent
B)5.625 percent
C)5.75 percent
D)11.25 percent

Question 29

Suppose we observe the following rates: ₁R₁ = 8 percent, ₁R₂ = 10 percent, and E(₂r₁) = 8 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L₂?

A)1.02 percent
B)4.04 percent
C)6.15 percent
D)12.03 percent

Question 30

One-year Treasury bills currently earn 2.55 percent. You expect that one year from now, one-year Treasury bill rates will increase to 2.85 percent and that two years from now, one-year Treasury bill rates will increase to 3.15 percent. If the unbiased expectations theory is correct, what should the current rate be on 3-year Treasury securities?

A)2.55 percent
B)2.85 percent
C)2.93 percent
D)3.15 percent

Question 31

A corporation's 10-year bonds have an equilibrium rate of return of 7 percent. For all securities, the inflation risk premium is 1.50 percent and the real interest rate is 3.0 percent. The security's liquidity risk premium is 0.15 percent and maturity risk premium is 0.70 percent. The security has no special covenants. What is the bond's default risk premium?

A)1.40 percent
B)1.65 percent
C)5.35 percent
D)9.35 percent

Question 32

The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the six-year Treasury rate is 7.25 percent. From discussions with your broker, you have determined that the expected inflation premium will be 1.75 percent next year, 2.25 percent in year 2, and 2.40 percent in year 3 and beyond. Further, you expect that real interest rates will be 3.75 percent annually for the foreseeable future. What is the maturity risk premium on the six-year Treasury security?

A)0.83 percent
B)0.983 percent
C)1.10 percent
D)1.233 percent

Question 33

Which of these is the expected or "implied" rate on a short-term security that will originate at some point in the future?

A)current yield
B)forward rate
C)spot rate
D)yield to maturity

Question 34

Which of these is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

A)liquidity risk
B)market risk
C)maturity risk
D)term structure of interest rates

Question 35

A two-year Treasury security currently earns 5.25 percent. Over the next two years, the real interest rate is expected to be 3.00 percent per year and the inflation premium is expected to be 2.00 percent per year. What is the maturity risk premium on the two-year Treasury security?

A)0.25 percent
B)1.00 percent
C)1.05 percent
D)5.00 percent

Question 36

Suppose we observe the following rates: ₁R₁ = 6 percent, ₁R₂ = 7.5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁)?

A)6.75 percent
B)7.50 percent
C)9.02 percent
D)13.5 percent

Question 37

Which of these statements is true?

A)The higher the default risk, the higher the interest rate that securities buyers will demand.
B)The lower the default risk, the higher the interest rate that securities buyers will demand.
C)The higher the default risk, the lower the interest rate that securities buyers will demand.
D)The default risk does not impact the interest rate that securities buyers will demand.

Question 38

One-year Treasury bills currently earn 3.15 percent. You expect that one year from now, 1-year Treasury bill rates will increase to 3.65 percent and that two years from now, one-year Treasury bill rates will increase to 4.05 percent. If the unbiased expectations theory is correct, what should the current rate be on three-year Treasury securities?

A)3.40 percent
B)3.62 percent
C)3.75 percent
D)3.85 percent

Question 39

On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows: ₁R₁= 5.25%, ₁R₂= 5.75%, ₁R₃ = 6.25%, ₁R₄= 6.45%
Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon Treasury bonds for year 4 as of May 23, 20XX?

A)5.925 percent
B)6.45 percent
C)7.05 percent
D)10.32 percent

Question 40

The Wall Street Journal reports that the rate on four-year Treasury securities is 4.75 percent and the rate on five-year Treasury securities is 5.95 percent. According to the unbiased expectations hypotheses, what does the market expect the one-year Treasury rate to be four years from today, E(₅r₁)?

A)1.11 percent
B)5.95 percent
C)10.70 percent
D)10.89 percent

Question 41

A two-year Treasury security currently earns 5.13 percent. Over the next two years, the real interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be 1.75 percent per year. Calculate the maturity risk premium on the two-year Treasury security.

A)5.13 percent
B)3.38 percent
C)2.98 percent
D)1.23 percent

Question 42

The Wall Street Journal reports that the rate on three-year Treasury securities is 6.50 percent, and the six-year Treasury rate is 6.80 percent. From discussions with your broker, you have determined that the expected inflation premium will 2.25 percent next year, 2.50 percent in year 2, and 2.60 percent in year 3 and beyond. Further, you expect that real interest rates will be 3.4 percent annually for the foreseeable future. Calculate the maturity risk premium on the three-year and the six-year Treasury security.

A)3-year: 0.6 percent, 6-year: 0.80 percent
B)3-year: 0.5 percent, 6-year: 0.90 percent
C)3-year: 0.6 percent, 6-year: 1.20 percent
D)3-year: 0.5 percent, 6-year: 0.80 percent

Question 43

One-year Treasury bills currently earn 3.75 percent. You expect that one year from now, one-year Treasury bill rates will increase to 4.15 percent. If the unbiased expectations theory is correct, what should the current rate be on two-year Treasury securities?

A)4.25 percent
B)3.85 percent
C)3.95 percent
D)4.35 percent

Question 44

The Wall Street Journal reports that the rate on three-year Treasury securities is 6.25 percent and the rate on five-year Treasury securities is 6.45 percent. According to the unbiased expectations hypothesis, what does the market expect the two-year Treasury rate to be three years from today, E(₄r₂)?

A)6.35 percent
B)6.75 percent
C)7.25 percent
D)7.45 percent

Question 45

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.75 percent, on 20-year Treasury bonds is 7.25 percent, and on a 20-year corporate bond is 8.50 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, what is the current rate on a 10-year corporate bond.

A)7.50 percent
B)8.00 percent
C)8.50 percent
D)8.75 percent

Question 46

The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 6.50 percent and on 10-year Treasury bonds is 6.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a 5-year Treasury bond purchased five years from today, E(₅r₁).

A)6.625 percent
B)6.75 percent
C)7.00 percent
D)7.58 percent

Question 47

A particular security's default risk premium is 3 percent. For all securities, the inflation risk premium is 1.75 percent and the real interest rate is 4.2 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the security's equilibrium rate of return.

A)8.50 percent
B)6.05 percent
C)10.25 percent
D)9.90 percent

Question 48

One-year Treasury bills currently earn 4.5 percent. You expect that one year from now, one-year Treasury bill rates will increase to 6.65 percent. The liquidity premium on two-year securities is 0.05 percent. If the liquidity theory is correct, what should the current rate be on two-year Treasury securities?

A)5.24 percent
B)5.59 percent
C)5.65 percent
D)5.95 percent

Question 49

Suppose we observe the three-year Treasury security rate (₁R₃) to be 6 percent, the expected one-year rate next year E(₂r₁) to be 3 percent, and the expected one-year rate the following year E(₃r₁) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate, ₁R₁?

A)3.00 percent
B)10.13 percent
C)14.00 percent
D)19.88 percent

Question 50

The Wall Street Journal reports that the rate on four-year Treasury securities is 7.50 percent and the rate on five-year Treasury securities is 9.15 percent. According to the unbiased expectations hypothesis, what does the market expect the one-year Treasury rate to be four years from today, E(₅r₁)?

A)16.0 percent
B)18.4 percent
C)15.9 percent
D)13.7 percent

Question 51

One-year Treasury bills currently earn 2.95 percent. You expect that one year from now, one-year Treasury bill rates will increase to 3.15 percent and that two years from now, one-year Treasury bill rates will increase to 3.35 percent. The liquidity premium on two-year securities is 0.05 percent and on three-year securities is 0.15 percent. If the liquidity theory is correct, what should the current rate be on three-year Treasury securities?

A)2.95 percent
B)3.15 percent
C)3.22 percent
D)3.35 percent

Question 52

Assume the current interest rate on a one-year Treasury bond (₁R₁) is 5.00 percent, the current rate on a two-year Treasury bond (₁R₂) is 5.75 percent, and the current rate on a three-year Treasury bond (₁R₃) is 6.25 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, ₃f₁?

A)5.00 percent
B)5.67 percent
C)7.26 percent
D)8.00 percent

Question 53

Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. For all securities, the inflation risk premium is 1.95 percent and the real interest rate is 3.65 percent. The security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special covenants. Calculate the bond's default risk premium.

A)2.10 percent
B)3.05 percent
C)3.40 percent
D)2.45 percent

Question 54

Nikki G's Corporation's 10-year bonds are currently yielding a return of 9.25 percent. The expected inflation premium is 2.0 percent annually and the real interest rate is expected to be 3.10 percent annually over the next 10 years. The liquidity risk premium on Nikki G's bonds is 0.1 percent. The maturity risk premium is 0.10 percent on two-year securities and increases by 0.05 percent for each additional year to maturity. Calculate the default risk premium on Nikki G's 10-year bonds.

A)2.55 percent
B)5.65 percent
C)3.55 percent
D)1.85 percent

Question 55

A recent edition of The Wall Street Journal reported interest rates of 3.10 percent, 3.50 percent, 3.75 percent, and 3.95 percent for three-year, four-year, five-year, and six-year Treasury security yields, respectively, According to the unbiased expectation theory of the term structure of interest rates, what are the expected one-year rates for year 6?

A)3.575 percent
B)3.95 percent
C)4.96 percent
D)5.33 percent

Question 56

The Wall Street Journal reports that the rate on three-year Treasury securities is 7.25 percent and the rate on four-year Treasury securities is 8.50 percent. The one-year interest rate expected in three years is E(₄r₁), 4.10 percent. According to the liquidity premium theory, what is the liquidity premium on the four-year Treasury security, L₄?

A)6.7 percent
B)7.1 percent
C)8.2 percent
D)9.6 percent

Question 57

Suppose we observe the following rates: ₁R₁ = 13 percent, ₁R₂ = 16 percent, and E(₂r₁) = 10 percent. If the liquidity premium theory of the term structure of interest rates holds, what is the liquidity premium for year 2, L₂?

A)8.7 percent
B)9.1 percent
C)9.7 percent
D)10.0 percent

Question 58

One-year Treasury bills currently earn 3.25 percent. You expect that one year from now, one-year Treasury bill rates will increase to 3.45 percent and that two years from now, one-year Treasury bill rates will increase to 3.95 percent. The liquidity premium on two-year securities is 0.05 percent and on three-year securities is 0.15 percent. If the liquidity theory is correct, what should the current rate be on three-year Treasury securities?

A)3.25 percent
B)3.55 percent
C)3.62 percent
D)4.10 percent

Question 59

The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent, and the six-year Treasury rate is 6.20 percent. From discussions with your broker, you have determined that the expected inflation premium will be 2.25 percent next year, 2.50 percent in year 2, and 2.50 percent in year 3 and beyond. Further, you expect that real interest rates will be 4.4 percent annually for the foreseeable future. Calculate the maturity risk premium on the 3-year Treasury security.

A)0.00 percent
B)0.10 percent
C)4.50 percent
D)2.60 percent

Question 60

Suppose we observe the following rates: ₁R₁ = 12 percent, ₁R₂ = 15 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year interest rate expected one year from now, E(₂r₁)?

A)13.5 percent
B)14.2 percent
C)15.6 percent
D)18.0 percent

Question 61

The Wall Street Journal reports that the current rate on five-year Treasury bonds is 6.45 percent and on 10-year Treasury bonds is 7.75 percent. Assume that the maturity risk premium is zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today, E(₅r₅).

A)7.25 percent
B)8.12 percent
C)9.07 percent
D)10.16 percent

Question 62

All of the following are factors that affect nominal interest rates EXCEPT

A)time to maturity.
B)real interest rate.
C)convertibility features.
D)foreign exchange.

Question 63

Which of the following statements is correct?

A)If the unbiased expectations theory is correct, we could see an inverted yield curve.
B)If a yield curve is inverted, long-term bonds have higher yields than short-term bonds.
C)If the maturity risk premium is zero, the yield curve would be flat.
D)If the unbiased expectations theory is correct, the maturity risk premium is zero.

Question 64

If the yield curve is downward sloping, what is the yield to maturity on a 30-year Treasury bond relative to a 10-year Treasury bond?

A)The yield on the 10-year bond must be greater than the yield on the 30-year bond.
B)The yield on the 10-year bond must be less than the yield on the 30-year bond.
C)The yields on the two bonds are equal.
D)We need to know the other risk premiums to answer this question.

Question 65

One-year Treasury bill rates in 20XX averaged 5.15 percent and inflation for the year was 7.3 percent. If investors had expected the same inflation rate as that realized, calculate the real interest rate for 20XX according to the Fisher effect.

A)0.00 percent
B)(-2.15 percent)
C)2.15 percent
D)3.95 percent

Question 66

The theory that argues that individual investors and financial institutions have specific maturity preferences is called the

A)market segmentation theory.
B)unbiased expectations theory.
C)liquidity preference theory.
D)inverted forward theory.

Question 67

Which of the following statements is correct?

A)The default risk premium of Baa 20-year corporate bonds over Aaa 20-year corporate bonds does not vary.
B)The market segmentation theory assumes that borrowers and investors do not want to shift from one maturity sector to another without an interest rate premium.
C)Real interest rates are the rates that are quoted in the news.
D)All of these choices are correct.

Question 68

Which of the following statements is incorrect?

A)Governments affect foreign exchange rates indirectly by altering prevailing interest rates within their own countries.
B)Foreign currency exchange rates vary with the day-to-day demand and supply of the two foreign currencies.
C)Central governments can intervene in foreign exchange markets directly and value their currency at high rates relative to another currency.
D)All of these choices are correct.

Question 69

Which of the following statements is correct?

A)A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-maturity.
B)Real interest rates are generally lower than nominal interest rates.
C)Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value.
D)All of these choices are correct.

Question 70

The Wall Street Journal states that the yield curve for Treasuries is downward sloping and there is no liquidity premium or maturity risk premium. Given this information, which of the following statements is correct?

A)A 30-year corporate bond must have a higher yield than a five-year corporate bond.
B)A five-year corporate bond must have a higher yield than a 30-year Treasury bond.
C)A five-year Treasury bond must have a higher yield than a five-year corporate bond.
D)All of these choices are correct.

Question 71

The theory that states that the yield curve reflects the market's current expectations of future short-term rates is called the

A)market segmentation theory.
B)liquidity premium theory.
C)unbiased expectations theory.
D)inverted forward theory.

Question 72

Suppose we observe the three-year Treasury security rate (₁R₃) to be 11 percent, the expected one-year rate next year E(₂r₁) to be 4 percent, and the expected one-year rate the following year E(₃r₁) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates holds, what is the one-year Treasury security rate, ₁R₁?

A)18.57 percent
B)10.19 percent
C)23.19 percent
D)25.24 percent

Question 73

One-year interest rates are 3 percent. The market expects one-year rates to be 5 percent one year from now. The market also expects one-year rates to be 7 percent two years from now. Assume that the unbiased expectations theory holds. Which of the following is correct?

A)The yield curve is downward sloping.
B)The yield curve is flat.
C)The yield curve is upward sloping.
D)We need the maturity risk premiums to be able to answer this question.

Question 74

All of the following are types of financial institutions EXCEPT

A)insurance companies.
B)pension funds.
C)thrifts.
D)Federal reserve

Question 75

Assume the current interest rate on a one-year Treasury bond (₁R₁) is 5.50 percent, the current rate on a two-year Treasury bond (₁R₂) is 5.95 percent, and the current rate on a three-year Treasury bond (₁R₃) is 8.50 percent. If the unbiased expectations theory of the term structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills during year 3, ₃f₁?

A)13.79 percent
B)12.29 percent
C)11.69 percent
D)10.29 percent

Question 76

Which of the following statements is correct?

A)According to the unbiased expectations theory, the return for holding a two-year bond to maturity is equal to the nominal rate divided by the real interest rate.
B)The rate on a 10-year Corporate bond can never be less than the rate on a 10-year Treasury.
C)We usually observe the inverted yield curve.
D)The rate on a three-year Treasury can never be less than the rate on a 15-year Treasury.

Question 77

Which of the following statements is correct?

A)An IPO is an example of a primary market transaction.
B)Money markets are subject to wider price fluctuations and are therefore more risky than capital market instruments.
C)A direct transfer of funds is more efficient than utilizing financial institutions.
D)The market segmentation theory argues that the different investors have different risk preferences which determine the shape of the yield curve.

Question 78

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.25 percent, on 20-year Treasury bonds is 7.95 percent, and on a 20-year corporate bond is 10.75 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, calculate the current rate on a 10-year corporate bond.

A)9.05 percent
B)6.15 percent
C)7.60 percent
D)8.70 percent

Question 79

In 20XX, the 10-year Treasury rate was 4.5 percent while the average 10-year Aaa corporate bond debt carried an interest rate of 6.0 percent. What is the average default risk premium on Aaa corporate bonds?

A)0.75 percent
B)1.5 percent
C)1.95 percent
D)2.25 percent

Question 80

All of the following are benefits that financial institutions provide to our economy EXCEPT

A)increased liquidity.
B)increased monitoring.
C)increased dollar amount of funds flowing from suppliers to fund users.
D)increased price risk.