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Unformatted text preview: FIN 353 Quiz 1 Review Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The interest rate on a one year bond today is 4%. The rate on a two year bond today is 6%. What is the market predicting about the interest rate on a one year bond one year from now solely based on the expectations theory? 1) _______ A) Will increase by 2%. B) Will increase by 4%. C) Will decrease by 2%. D) Will decrease by 4%. 2) The federal funds rate is currently 3% and the Federal Reserve lowers the discount rate from 4% to 2%. What is the federal funds rate after the Fed lowers the discount rate? 2) _______ A) 3%. B) 2%. C) 2.5%. D) 4.5% 3) According to the Liquidity Premium Theory, a moderately upward sloping yield curve indicates that short term interest rates are expected to 3) _______ A) neither rise nor fall, but that long term rates are expected to rise moderately. B) neither rise nor fall in the near future. C) rise moderately in the near future. D) remain relatively unchanged, but that long term rates are expected to fall. 4) You purchase a Treasury Inflation Protected Securities, TIPS, where the coupon rate is 5% at the beginning of 2009. The CPI increased 10% over the course of 2009. What will be your coupon payment in 2010? 9) _______ A) $55 B) $50 C) $45 D)$60 5) A credit market instrument that pays the owner the face value of the security at the maturity date and nothing prior to then is called a 5) ______ A) discount bond. B) simple loan....
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This note was uploaded on 09/07/2011 for the course FIN 353 taught by Professor Cobus during the Spring '08 term at S.F. State.
 Spring '08
 cobus
 Interest, Interest Rate

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