Bus173-Exam1Fall09

# Bus173-Exam1Fall09 - ". ' ,_/.- I I. Multiple Choice...

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". ''' ,,_/- Ja, " .- I I. Multiple Choice Questions ( 5 points each) 1.. The current inflation rate is 5Yo, tlne nominal rate necessary for you to earn an 8o/o real interest rate on your investment is closest to: rs.0% 13.4% 4.9%. 3.0%. \$ 970 \$ 1,000 2. Suppose Bank One offers a semi-annual coupon bond with 10o% coupon rate and face value \$ 1,000 maturing in 5 years. If its YTM(Yield-to-maturity) is 10%, what is its price? a. ffi, c. d. c. \$ 1,020 d. \$ 1,030 3. The EAR of a 8% APR loan compounded monthly is closest to: a. 75% b. 7.8% I -: ,..i _. c. 8.1% i1a-) 8:% '\ i l 4. A corporation has been trying to decide if it should continue with a project. An argument in favor of continuing is that a lot of money has already been spent on the project. What is the major problem with this argument? a. It ignores the opportunity cost of the money spent. . "'b;, It includes sunk costs in the decision. c. It includes the opportunity cost of the money spent. d. It excludes sunk costs in the decision. 5. Whicir of the following statements is/are true? I. Fundamentally, Federal Reserve determines the interest rates. II. Federal Reserve has very signihcant influence on over very short term federal fund rate. III. The interest rates bank offers on loan depends on time horizon of the loan. @ I only !, II only {q II and III ---d. All of above \ j t,-il ra ] .lC x IC'cc .: r, : lC. t) t. i'-l .!l q:

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6. Which of the following statements is/are false?'f Lr " ( I. The plot of the relationship between invg\$raeerft risk and the interest rate is called the yield curve. II. Recessions in the United States usually are preceded with an inverted yield curve. ( III. Norninal interest rate represents the increase in purchasing power that
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## This note was uploaded on 09/08/2010 for the course BUS 173A at San Jose State.

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Bus173-Exam1Fall09 - ". ' ,_/.- I I. Multiple Choice...

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