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345 2012 MT with answers

fall exactl y 1 a b c i suppose your imes

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Unformatted text preview: ) c .) I' --~. Suppose your im·es tment advisor offers you a choice of two \·cry similar perpN11iries. A and B, \\'hich he states have identical yields to maturity . Howeyer. you observe that the price for security A is ~ubstantially higher than that or B. This must imply that: A has g reater default risk than B b l A's coupon is greater than 13's c.) B's coupon is grc<Jter than 1 's \ d l the bond market is inefficient a ) 24. ln the three sector consumption-only model. a decline in incomes in both periods for all agents will cause lenders to demand bonds. borrowers to s upply bonds. a nd the price level to __ _ _ __ a.) more. more. fall h ) less. less. rise c ) more, less. rise d .) less . less. remain constant 25. In the three-sector model with consumption alone. an increase in second-period income (first period income constant) for all agents will cause the supply of bonds to _ . the equilibrium interest rate to <J nd the price level to _ _ _ rise, rise, change amb iguously fall, rise, change ambiguously c. l rise, rise. rise d l fall....
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