Test 1 (Chapters 1,2,3,4,5,6)

Test 1 (Chapters 1,2,3,4,5,6) - _ . : t . .-Exam 1 Versron...

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Unformatted text preview: _ . : t . .-Exam 1 Versron A ‘5 _ (x Econ 2035 Fall 2010 I f— ; -. 3” Sigh MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. #< ‘/1) Everything else held constant, if the expected return on ABCstock rises from 5 to 10 percent and l) the expected return on CBS stock is unchanged, then the expected return of holding CBS stock relative to ABC stock and the demand for CBS stock ls; falls arises; rises wiles; falls D) fans" rises 2) The price of a coupon bond and the yield to maturity are related; that is, as the yield to 2) D maturity the price of the bond ' A) positively; rises; rises a», R r} ‘ VGknegan'veiy; falls; falls \T'fl v i i Rposifively; rises; falls @negafively; rises; falls C) J3) An example of the problem of is when a corporation uses the funds raised from selling 3) bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families. A risk sharing B) adverse selection loral hazard D) credit risk \/4) In ch of the following situations would you prefer to be the lender? mi gifleétmiSC if 4) The interest rate is 4percent and the expected inflation rate is 1 percenfifi—El : test???— B The interest rate is 9 percent and the expected inflation rate is 7 percent. 9—? :32 C) The interest rate is 13 percent and the expected inflation rate is 15 percent. i3 _.. g a 3 _. 2 D) The interest rate is 25 percent and the expected inflation rate is 50 percent. 25;; _. 2,3533, : _ :3 X 5) If gold becomes acceptable as a medium of exchange, the demand for gold Will and the 5) dema d for bonds ‘11 , thi 1 h 1d st t. ' i ' 3 ‘ 1“» d “Cg/fir n 3 W1 every ngese e con an N \miUUiQfi—ny 3! .fi decrease, increase B) increase, increase ’7 ' C)__-increase; decrease \ “decrease; decrease ’ z 6) D nnis notices that jackets are on sale for $99. In this case money is functioning as a . 6) E Nayments—system ruler B) store of value C) medium of exchange T® unit of account Q J 7) The present value of a fixed—payment loan is calculated as the of the present value of 7) all cash flow payments. , A) difference B) log D) multiple a a a? fr \WM \qu—a, ‘- 5'” ' . \(x‘ apt-.62 "2 - , 1,: _ i.» _. Q "'2 r- U. 77* ‘V‘J‘a 3‘1")“ t) . J x 8) Holding everything else constant, _ _ filial if asset A's risk rises relative to that of alternative assets, the demand will increase for asset A. . <“ a _ B) if weaith increases, demand for asset A increases and demand-for alternative assets decreases. d 4% m E “it " C \‘he more liquid is asset A, relative toalternative assets, the greater will be the demand for _ asset A. d —> _ . . I D)_the lewer the expected return to asset A relative to alternative assets, the greater will be - . .t‘ _. _ the demand for asset A. \p ‘- _ d (U s/ 9) If the price level doubles, the value of money A} rises but does not double, due to diminishing returns. B) doubles. eve Forth: no, COG‘E-TS its 1.: 1@fiafls by 50 percent. _ Q5344 Gin. .\ bag-ct ,{T t - 1w? -, 1 sign I a .' i-wl _ _ - V'— s 4 r <' iat- ‘1 r-r- \J 'x}: in, 3., 1 L" I) more than doubles, due to scale economies. J _ r ' “10) Everything else held constant, a decrease in wealth 10} . educes the demand for silver A) increases the demand for stocks. _ 33) increases the demand for gold. \S)\increases the demand for bonds. \LW 6‘03 interest rate is low, there are greater incentives to V; . J11) When the incentives to . A) real; lend; borrow lQir-rlar‘ket; lend; borrow and fewer nominal ,‘I lend; borrow @ r5331; borrow; lend \f 12) If 1—year interest rates for the next three years are expected to be 4, 2, and 3 percent, and the [,1 Jr 7 :7 3—§ar term premium is 1 percent, than the Swyear bond rate will be \ - \ :_ _,a , ‘ i :1? "W.— + _—; q 1 percent. \B{2 percent. C) 3 percent. 4 percent I V/ 13) The present value of an expected future payment as the interest-rate increases. A) is constant 3 B) rises , A . ails . D) is unaffected . : :- \/14) A bond with default risk" wili always have a risk premium and an increase in its default risk will ' the risk premium. ' ""1. positive; raise ~ - .p051t1ve; lower B) negative; lower "13) negative; raise purchasing a house or car but at the same time high interest i§é§9discouragq encourage encourage; discourage x15) High interest rates might 11/06:; Jpn} 3m rates might _ saving. is I if fami- i—g encourage; encourage " (Ci/discourage; discourage ‘ ' m “'2 5 = . - oxen. east . is gt t..- r _ _ \ flé) When the expected inflation rate increases, the demand for bonds and the interest rate . ' everything else held constant. - Alinereases; decreases; falls B) decreases; decreases; falls \Qincreases; increases; rises g/gn‘decreases; increases; rises dC 5—9' ’3“ the suppiy of bonds ‘1 16) J 17) Which of the following benefit directiy from any increase in the corporation‘s profitability? N a T—biil holder B) a commercial paper holder shareholder D) a bond holder \‘3/18) It is possible that when the money supply rises, interest rates may if the effect 7 l is more than offset by changes in income, the price level, and expected inflation. @w liquidity I? n EMth liquidity b(smut; risk hl‘rise,‘ risk tit? " ' $9) Securities are for the person who buys them, but are for the individual or Q wig firI/Iglthat issues them. ‘ I“ "Qxfissets; liabilities B) negotiable; nonnegotiable ' C} liabilities; assets D) nonnegotiable; negotiable \/ 20) Which of the following is included in both M1 and M2? A) Savings deposits 13) Small-denommation time deposits ©Currency D) Money market deposit accounts 21) If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to have been holding? fé'A bond with one year to maturity A bond with ten years to maturity I? ‘ IB)__A bond with twenty years to maturity A bond with five years to maturity 2" \NOY is "it ‘\ 1 i i a i his-- 4 v 22) Everything else held constant, if interest rates are expected to fall in the future, the demand for long—term bonds today and the demand curve shifts to the kkfalls; right \BKfalls; left rises; right { A _ l ‘ . ;. .i - = OCscm 3 ‘3" D) rises; left K23) When the interest rate ortJa bond is above is excess and the interest rate will ® emand,‘ fall 'C) supply; rise 17) u 18) Yield to Maturity Term to Maturity \/ 24) The steeply upward sloping yield curve in the figure above indicates that - interest rates I 24) till are xpected to _ in the future. ‘ _ ' ' short—term; rise ' \thort—term; remain unchanged ' short—term; fall moderately ' D) orig-term; fall moderately \/ 25) - policy involves decisions about ggvérnment ening ancl taxation; 25) C ‘Ag‘Systernic B) Monetary , iscal - 2%) Financial _ ' X26) in the money sapply-creates excess money, causing interest rates to , 26) everything else held constant. _ _ I ' y _ i A) A decrease; supply of; fall '~" " :B); An increase; supply of; rise C) An increase; demand for; fall - A decrease; demand for; rise x ' {2‘} i X 27) When real income ’3) ' the demanci curve for money shifts to the ’3 ' and the interest 27) _..—— rate I)“ everything else held constant. _ A) rfalls; left; rises @ises; right; rises \S)\falls; right; rises - D_ rises; left; rises tie—.5) ‘V‘ L"! ‘1 { MC“; {Ex I I .x W ‘\ A ,5, f’ 1‘ f '- ‘z/Lfl- my & “J . A L \l. Yield to Maturity Term to Maturity \/ 28) The mound-shaped yield curve in the figure above indicates that the inflation rate is expected to 28) Q/ a z , A) fall moderately in the near-term and rise later on. , ‘ _ WSWMME X B) remain unchanged in the near-term and rise later on. ll \Ofit‘d 5"" ‘l V01“: I“: all ‘i ’@rise moderately in the near—term and fall later on. W\Cl\,-’ Q, . " D) remain constant in the near—term and fall later on. \/ 29) Which of the followin $5,000 face—value securities has the hi hest ield to maturi ? 29) l g g Y W A) A 6 percent coupon bond selling for $5,000 ‘ fl B) A 6 percent coupon bond selling for $5,500 6 5 @A 12 percent coupon bond selling for $4,500 .~, ‘ a 5f}? r:- A 10 percent coupon bond selling for $5,000 ”‘ fix a. s; :'_ ' a i"~ €® E\ 4933’, K ‘ . \i- -. - - ‘tj‘ i g) V! 30) Everything else held constant, if the federal government weratnguarantee today that it will pay 30) creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will and the interest rate on Treasury securities ‘_ ll Mncrease; decrease 3‘: decrease; increase Werease; increase D) decrease; decrease {are “in; t: ...
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Test 1 (Chapters 1,2,3,4,5,6) - _ . : t . .-Exam 1 Versron...

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