345 2012 MT with answers

345 2012 MT with answers

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March 2012 Departmmt of Economics UNIVERSITY OF BRlTlSH COLUMBIA ECO"' 345 Midterm G. ~ewman Name Student No., ____ _ _ _ (last name first) 2hrs. TOTAL POI;\TS: 75 Section A: Multiple Choice: (30 x 1.5 points= 45) I. Suppose that. at time t, the earnings or an asset you currently hold arc expected to per.nlJincntly rise at time t+2 and remain at the higher level indefinitely. Then. giYen your initial purchase price, the yield to maturity of this asset must _ __ _ a)) rise b) fall c.) remain constant d.) change ambiguously Suppose that you diet not own this asset. All agents forecast correctly the funH-c earnings increase at time t-1. If you bought the asset at timet. you would su. tain ___ when you sold it. · •'' ' a.) a capital gain h l a capital loss c l neither a gain or a loss J. Suppose that at timet + I, it became known that the Central Bank was to start raisin~ interest ;; rates for the next two or three years. Jfyou bought the asset at timet (as above). a1;d sold it at time t- 2. you would most likely rccci\·e a: <~ J capital loss b) capital gain c.) could be either 4. 'vVhcn interest rates are expected to fall in the future. this of a bond and a current holder of a bond: . a. ) benefits, benefits h) benefits. hurts c J hurts. benefits d .) hurts. hurts _a prospccti\·e purchaser
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5. In Phase 1 of the stock market model, an a\·eragc ne11· fm11 would have expected camings than current reported earnings and an average oJd ftm1 would haYe expected - - - - earnings_ than current reportcd earnings. n.) greater. less b l less, greater c) equal to , less d) Jess equal to ' ' -- e) less, less 6. At the very beginning of Phase IV of our stock market model, financial incentives to beat earnings expectations arc , and average stock prices arc almost certainly · 7. As \Ne move later on in Phase l V, our model imp! ics that the bottom of the stock marker occurs the bottom of the actual earnings cycle:. a) Before b.)A ti er c.) At the same time as R. After a burst of growth. the growth rate of eamings y falls to I ~din it s;ly for an economy. As time goes on. the proportion of new firms a would t and eventually stock market prices wou ld peak actlJal earning.s uu. a l Rise. before b.) Fall. at the same time as ..: l Not change. after d) Fall, af'tc; e.) Not change. at the same rime as ~
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