This preview shows pages 1–3. Sign up to view the full content.
1.
Which of the following is NOT one of the four fundamental factors influencing
the cost of money?
a. Production opportunities
b. The number of publicly traded companies
c. Time preferences for consumption
d. Risk
e. Inflation

2.
What is the price paid to borrow debt capital called?
a. Interest rate
b. Dividendc. Capital gains
c. Capital gains

3.
In equilibrium, all borrowers should expect to pay the same interest rate. True or
False?
True
False

4.
If inflation during the last 12 months was 3% and the interest rate during that period
was 5%, what was the real rate of interest?
a. 1%
b. 2%
c. 3%
d. 4%
e. 5%
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
5.
The interest rate on a Tbond includes a default risk premium, a liquidity premium,
and a maturity risk premium. True or False?
True
False

6.
Assume that the real riskfree rate is r* = 2.5% and the average expected inflation
rate is 3% for each future year. The DRP and LP for Bond X are 1% each, and the
applicable MRP is 1.5%. What is Bond X's interest rate?
a. 4.5%
b. 6.0%
c. 7.5%
d. 9.0%
e. 10.5%

7.
Because expected inflation has always been anticipated to increase, there has never
This is the end of the preview. Sign up
to
access the rest of the document.
 Spring '11
 Hunsader

Click to edit the document details