Bus171A-Midterm#1 - Version A Name (please prinQ :'r...

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Version A Name (please prinQ :- 'B',rsiness lTla :'r " Fal] 2009 Professor Reza Sarr .lose State Uuir elsitl Midterm Examl Instructions and notes: L Please put your name on BOTH the scantron and this exam and return both. If your name is missing from either, you will receive ZERO on the exam - no exception and no changes afterwards. [. Please put 1,our test VERSION on the scantron. If the version is missing, ]/our exam rvill be assigned a version at random and corrected; the result will not be changed. ilI. This is a closed-book, closed-notes exam. Do not consult others, You may use only a calculator. IV. There is one corlect answer to each problem. Multiple answers receive zero point. \/. Unless specified otherwise, approximations should be rounded to 2 places after the decimal. Unless specified otheru'ise, a debt securitl'has a face (par) r,alue of $1,000 VI. Unless specified otherlvise. assume that a. investors maximize their net worth (i.e., thel'are "rational") and firms maximize their common shareholders' net lvorth. b. a// markets are efficient. -. c. firms are tl,pical of tbe industr)'in which they operate. Duration : ry ti: - !.' , pu -initial price; pi :final price; is:initial interest rare; Po l+ro i I :fina1 interest rate l. When there is a recession, normally the demand for bonds , the supply of bonds and the rate ofinterest a. Increases ; increases: rises @ Increases; decreases; falls c. Decreases; increases: rises d. Decreases; decreases; falls ' 2. When the borrower and lender have different amounts of information regarding a transaction, is said to exist a. Moral hazard y .ft; Xty^metric information c. Adverse selection d. Fraud 3. When the potential bonou,ers who are the most like1y to default are the ones most actively seekinc a loan. is said to exist @- Adu"rr"-r"h.ti* b. Asymmetric information c. Moral hazard d. Fraud 4. In general banks make most of their profits throu,qh borrou,ing short-term and lending long-term @ true b. False 1:30 xl sp09. r.A
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5. Everyone is worse off when interest rates nse a. True ,,"6 Faise 6. A company has issued various bonds r.r,ith different maturities and coupon rates. They all have the same face value of S 1,000. Bond A matures in 5 years. has coupon rate of 8% with a yield to maturity (YTM) of 87t. Bond B matures in 7 1'ss1s, iras coupon rate of 9oh and YTM : 9?t. Bond C matures in 12 years in'ith a coupon rate of |7o/o and YTM - 11%. a.
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This note was uploaded on 09/08/2010 for the course BUS 171A at San Jose State University .

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Bus171A-Midterm#1 - Version A Name (please prinQ :'r...

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