Chapter-05-Sample - FINC 3700 Markets and Institutions...

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FINC 3700 Markets and Institutions Summer 2010 Thommesen Chapter 05 Sample Test Questions MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A steep upward sloping yield curve indicates that short-term interest rates are expected to A) neither rise nor fall, but that long-term rates are expected to rise moderately. B) rise moderately in the near future. C) remain relatively unchanged, but that long-term rates are expected to fall. D) neither rise nor fall in the near future. 2) If the yield curve slope is flat, the liquidity premium theory indicates that the market is predicting A) constant short-term interest rates in the near future and further out in the future. B) a mild rise in short-term interest rates in the near future and a mild decline further out in the future. C) constant short-term interest rates in the near future and a mild decline further out in the future. D) a mild decline in short-term interest rates in the near future and a continuing mild decline further out in the future. 3) If income tax rates rise, then A) the interest rate on municipal bonds will rise. B) the prices of Treasury bonds will rise. C) the prices of municipal bonds will fall. D) the interest rate on Treasury bonds will rise. 4) (I) If a corporate bond becomes less liquid, the demand for the bond will fall, causing the interest rate to rise. (II) If a corporate bond becomes less liquid, the demand for Treasury bonds does not change. A) (I) is false, (II) true. B) (I) is true, (II) false. C) Both are true. D) Both are false. 5) If municipal bonds were to lose their tax-free status, then the demand for Treasury bonds would shift _________, and the interest rate on Treasury bonds would _________ A) rightward; fall. B) leftward; rise. C) leftward; fall. D) rightward; rise. 6) Which of the following statements are true? A) Because coupon payments on municipal bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets. B) Interest rates on municipal bonds will be higher than on comparable bonds without the tax exemption.
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This note was uploaded on 03/22/2012 for the course FINA 210 taught by Professor Dakroub during the Spring '12 term at American University in Cairo.

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Chapter-05-Sample - FINC 3700 Markets and Institutions...

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