345_2010sample - Econ 345 SAMPLE MIDTERM MULTIPLE CHOICE...

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Unformatted text preview: Econ 345 SAMPLE MIDTERM MULTIPLE CHOICE QUESTIONS 1. Suppose the earnings of an asset are expected to rise for the foreseeable future. Then, given the current asset price, its yield to maturity must _________. a. b. c. d. rise ** fall remain constant change ambiguously 2. Which of the following $1000 face value securities has the lowest yield to maturity? a. b. c. d. a 5% coupon bond selling for $1000 ** a 10% coupon bond selling for $1000 a 15% coupon bond selling for $1000 a 15% coupon bond selling for $900 3. The annualized return on a 5% coupon bond that is initially bought for $1000 and is sold for $900 a year later is: a. b. c. d. -10% -5% ** 0 5% 4. For which one of the following is the current yield the most accurate representation of the true yield on the bond? a. b. c. d. treasury bills a 5 year bond a 10 year bond a 30 year bond. ** 5. Suppose interest rates are held fixed indefinitely and there is no default risk. The risk in holding the 10-year bond is necessarily _________ than the risk in holding the 1-year bond. a. b. c. d. higher lower the same as ** could be either higher or lower 6. When interest rates are expected to increase in coming periods, this will typically ________ current bond prices and ________ current stock prices. a. b. c. d. raise, raise lower, lower raise, lower lower, raise 7. In the early stages of Phase I in our stock market model, we would expect that many firms would have expected earnings ________ than current reported earnings and that average asset prices are __________. a. b. c. d. greater, necessarily rising ** less, necessarily falling greater, possibly rising less, possibly rising 8. In Phase III of our stock market model, we would expect that many firms would have expected earnings _________than current reported earnings and that average asset prices are ____________. a. b. c. d. less, necessarily rising greater, necessarily falling ** greater, possibly falling less, possibly rising 9. In the basic consumption-only model, a doubling of incomes in both periods for all agents will lead lenders to demand _________ bonds, borrowers to supply _________ bonds, and both to demand _________ money. . a. more, more, more ** b. less, more, less c. more, less, more d. less, less, more 10. The pure substitution effect of a rise in interest rates causes a borrower to _______ first period consumption and a lender to _______ first period consumption. a. b. c. d. increase, increase reduce, reduce ** increase, reduce reduce, increase 11. In the three-sector model with consumption alone, an increase in first-period income (second period income constant) for all agents will cause the supply of bonds to ___________ and the equilibrium interest rate to _________. a. b. c. d. rise, fall fall, rise rise, rise fall, fall ** 12. When the interest rate in the bond market is below its equilibrium value, there is excess _______ in the goods market and excess _______ in the money market. a. b. c. d. demand, demand ** demand, supply supply, demand supply, supply 13. Which one of the following features is not consistent with an economic boom? a. b. c. d. e. rising interest rates rising consumption demand increased corporate debt stable expected earnings for firms ** excessively optimistic earnings for firms 14. An increase in expected inflation by itself _________ the demand for bonds, _________ the supply of bonds and __________ the nominal demand for money. a. b. c. d. reduces, increases, reduces increases, reduces, increases reduces, reduces, reduces reduces, increases, leaves constant ** 15. If expected inflation is negative, the nominal interest rate is _________ than the real interest rate, and the rate of return on money is __________. a. b. c. d. greater, positive greater, negative less, positive ** less, negative 16. In a setting of perfectly-fixed (forever) prices, an increase in the money growth rate (µ) will cause: a. b. c. d. the nominal rate of interest to immediately increase above the real rate both the nominal and real rate to sustain a one time fall the nominal rate to decline continuously ** both the nominal and real rate to remain constant ...
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This note was uploaded on 06/21/2011 for the course ECON 345 taught by Professor Sumaila during the Spring '09 term at UBC.

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