Practice Midterm I (SU2010)

Practice Midterm I (SU2010) - Exam Name_ MULTIPLE CHOICE....

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Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question 1) An automobile loan is likely to be a(an) A) long - term debt instrument. B) intermediate - term debt instrument. C) equity. D) short - term debt instrument. 1) 2) Diversification reduces the riskiness of a financial portfolio provided A) interest rates are stable. B) the returns on the assets in the portfolio do not vary in the same way. C) the portfolio does not contain too many different assets. D) at least some tax - free assets are included. 2) 3) When economists refer to default risk on a debt instrument, they are referring to A) the risk that lenders will insist that borrowers repay the obligation before the maturity date. B) the risk that borrowers will not repay all or part of their obligations. C) the risk that lenders will insist that borrowers pay more than the agreed upon interest rate. D) the interest rate on the instrument minus the tax liability on that interest. 3) 4) Why do savers supply funds? A) They want to accumulate more financial liabilities. B) They expect to earn higher income in the future. C) They are promised to be repaid even more funds in the future. D) It's a way to increase current consumption. 4) 5) Interest is best thought of as A) in most cases, equal to the maturity of the debt. B) compensation for taxes incurred on an investment. C) an example of the exploitation of borrowers by lenders. D) a rental fee on the principal of a debt. 5) 6) Promises given by borrowers to lenders are A) assets to the borrowers. B) recognized as legally enforceable only in some states. C) not subject to federal taxation. D) liabilities to the borrowers. 6) 7) U.S. Treasury bills A) have a maturity of at least two years. B) may only be purchased directly from the federal government. C) have the largest trading volume of any money market asset. D) have a default risk slightly greater than that of corporate bonds. 7) 1
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8) Simple loans and discount bonds differ from coupon bonds and fixed - payment loans in that A) interest on simple loans and discount bonds is taxable, while interest on coupon bonds and fixed - payment loans is not. B) interest rates on simple loans and discount bonds are generally higher than interest rates on comparable coupon bonds and fixed - payment loans. C) interest on simple loans and discount bonds is paid in a single payment, while issuers of coupon bonds and fixed - payment loans make multiple payments of interest and principal. D) interest on coupon bonds and fixed - payment loans is taxable, while interest on simple loans and discount bonds is not. 8) 9) A simple loan involves A) no repayment of principal by the borrower to the lender. B) payment of interest by the borrower to the lender only at the time the loan matures.
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Practice Midterm I (SU2010) - Exam Name_ MULTIPLE CHOICE....

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