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Unformatted text preview: FIN 301 Version A Practice Questions for Midterm 1 Exam 1. You need $41,627 for the down payment on a new home. You currently have $18,905 in a bank account which pays 12.52% compounded semi-annually. What is the earliest you will be able to purchase the new house? a) 13 years b) 5.23 years c) 7 years d) 14 years e) 6.5 years 2. If the yield curve on U.S. Treasuries is downward sloping, what is the yield to maturity on a 10-year U.S. Treasury coupon bond, relative to that on a 1-year U.S. T-bond? a) The yield on the 10-year bond is less than the yield on a 1-year bond. b) The yield on a 10-year bond will always be higher than the yield on a 1-year bond because of maturity premiums. c) It is impossible to tell without knowing the coupon rates of the bonds. d) The yields to maturity on the two bonds are equal. e) It is impossible to tell without knowing the relative risks of the two bonds. 3. The key participants in financial transactions are individuals, businesses, and governments. Individuals are net _________ of funds, and businesses are net _________ of funds. a) demanders; suppliers. b) users: providers. c) suppliers; demanders. d) purchasers: sellers. e) None of the answers above is correct. FIN 301 Practice Questions for Mid-Term 2 Exam page 1 4. Which of the following statements is most correct? a) The maturity premiums embedded in the interest rates on U.S. Treasury securities are due primarily to the fact that the probability of default is higher on long-term bonds than on short-terms bonds. b) The liquidity preference theory of the term structure of interest rates states that borrowers generally prefer to borrow on a long-term basis while savers generally prefer to lend on a short-term basis, and that as a result, the yield curve is normally upward sloping. c) If the maturity risk premium were zero and the rate of inflation were expected to decrease in the future, then the yield curve for U.S. Treasury securities would, other things held constant, have an upward slope. d) More than one of the above statements is correct. e) None of the above statements are correct. 5. Which of the following statements about the time value of money is/are true?: I. Present value of a lump-sum is typically less than its future value. II. All else equal , the future value of a lump-sum decreases as the interest (discount) rate increases. III. EAR is greater than APR with annual compounding. a) I only b) I and III c) II only d) III only e) I and II 6. The CPI was 100 at the end of 2006, 105 at the end of 2007, and 120 at the end of 2008. If the average return on Treasury Bills was 6% in 2007 and 7% in 2008, what was the real rate of return on Treasury Bills in 2008?...
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This document was uploaded on 10/26/2011 for the course BLS 342 at Miami University.
- Fall '08