Answers to Economics 315
Quiz 1 60 points
EVEN NUMBERED QUIZZES
Multiple Choice: (3 points each)
A bonds price is always equal to
the present value of the bonds future payments
the price that sets the bonds yield-to-maturity equ
Answers to Study Questions for January 28 Class
What is the primary purpose of financial markets?
Financial markets allow people, businesses, and governments to borrow money from
people, businesses, and governments who want to lend money. Financial mar
Answer to Study Questions from January 19 Class
What is meant by the risk-premium for corporate bonds? What happens to the
risk-premium when the economy is in recession? Why?
The risk-premium is the higher interest rate that bond buyers receive as
Answers to Study Questions for January 21 Class
What are the main differences between corporate bonds and corporate stocks?
A stock is a share of ownership in the company whereas a bond is debt (borrowing)
issued by the company. Bonds make pre-determin
Stock Market Investing Questions and Answers
When people ask me about investing in the stock market, they usually ask two questions: When
is a good time to invest and what stocks should I buy. These are the wrong questions to ask.
You should ask yourself:
Answers to Study Questions for February 9 Class
1. Why might a low level of bank capital make a bank more vulnerable to an increase in the
default rate on its loans?
Bank capital serves as a cushion against bank losses, as might occur if there were a larg
Answers Study Questions for Feb 4 Class
What are the assets and liabilities of a bank? Is bank capital and asset or a liability? Why?
Why might a low level of bank capital make a bank more vulnerable to an increase in the default
rate on its loans?
Answers to Study Questions for February 11 Class
1. What is the difference between a fixed rate asset and a variable rate asset? Give an
example. Repeat for fixed rate and variable rate liabilities?
A fixed rate asset is one that earns a constant interest
Answers to Study Questions for February 16 Class
1. What features of banking make the industry susceptible to financial crisis?
a. Banks rely on other peoples money (depositors) for funds but do not hold much of these
funds in the bank, choosing instead t
Answers to Selected Study Questions for January 7 Class
What is meant by the term present value?
Present value is the value today of money received at some future time.
If someone has a high discount rate, what does that say about how that person
Answer to Study Questions for January 12 Class
1. What role do interest rates play in the U.S. economy?
The interest rate represents the cost of borrowing money or the return on lending money. One
role that the interest rate plays is to create balance bet
Answers to Study Questions for January 14 Class
What are the key determinants of the demand for any individual asset?
Wealth, expected return (vs. other assets), risk (vs. other assets), and liquidity (vs. other
Who are the demanders of bond
Answers to Selected Review Questions from January 5 Class
Using basic supply and demand analysis, how would each of the following affect market
price and market quantity?
Increase in demand
An increase in demand is depicted by a rightward shift of t