Exam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 1 A consol bond that makes 120 coupon payments and is selling for 1200 has yield to maturity of A 12 percent B 10 percent C 7 percent D 5 percent 2 The return on a 6 percent coupon bond that initially sells for 1 000 at par and sells for 950 next year is A 0 percent B 1 percent C 5 percent D 5 percent 3 The is below the coupon rate when the bond price is its par value A yield to maturity above B yield to maturity equal to C current yield below D yield to maturity below 4 If you expect the inflation rate to be 15 percent next year and a one year bond has a yield to maturity of 7 percent then the real interest rate on this bond is A 7 percent B 22 percent C 15 percent D 8 percent 5 If expected inflation declines by 2 what should happen to nominal interest rates according to the Fisher effect A rise by 2 B double in size C be cut in half D fall by 2 6 Everything else held constant if interest rates are expected to fall in the future the demand for long term bonds today and the demand curve shifts to the A rises left B falls left C falls right D rises right 7 If the interest rates on all bonds rise from 5 to 6 percent over the course of the year which bond would you prefer to have been holding A A bond with one year to maturity B A bond with twenty years to maturity C A bond with five years to maturity D A bond with ten years to maturity 8 U S Treasury securities A have been defaulted on several time in U S history B have a large default risk premium C are considered default risk free instruments D are considered risk free because their prices never change 9 In the bond market the bond demanders are the and the bond suppliers are the A borrowers lenders B lenders borrowers C borrowers advancers D lenders advancers 10 An important financial institution that assists in the initial sale of securities in the primary market is the A investment bank B commercial bank C brokerage house D stock exchange 11 With an interest rate of 6 percent the present value of 100 next year is approximately A 106 B 100 C 94 D 92 12 Which of the following is a depository institution A A finance company C A pension fund B A life insurance company D A commercial bank 13 You would be less willing to purchase U S Treasury bonds other things equal if A you inherit 1 million from your Uncle Harry B stock prices are expected to fall C gold becomes more liquid D you expect interest rates to fall in the future 14 The reduction in transactions costs per dollar of investment as the size of transactions increases is A economies of trade B discounting C diversification D economies of scale 15 The economist Irving Fisher after whom the Fisher effect is named explained why interest rates as the expected rate of inflation everything else held constant A rise stabilizes B fall stabilizes C rise increases D fall increases 16 Equity and debt instruments with maturities greater than one year are called market instruments A money B benchmark C federal D capital 17 When the interest rate is low there are greater incentives to and fewer incentives to A real borrow lend B real lend borrow C nominal lend borrow D market lend borrow 18 Which of the following bonds would you prefer to be buying A A 10 000 face value security with a 10 percent coupon selling for 11 000 B A 10 000 face value security with a 7 percent coupon selling for 10 000 C A 10 000 face value security with a 9 percent coupon selling for 10 000 D A 10 000 face value security with a 10 percent coupon selling for 9 000 19 Increasing transactions costs of selling an asset make the asset A less liquid B more liquid C more moneylike D more valuable 20 A financial market in which previously issued securities can be resold is called a market A secondary B used securities C primary D tertiary 21 Suppose that your marginal federal income tax rate is 30 and the yield on a thirty year corporate bond is 10 You would be indifferent between buying this corporate bond and buying a thirty year municipal bond issued within your state ignoring differences in liquidity risk and costs of information if the municipal bond has a yield of A 9 5 B 6 5 C 7 0 D 10 0 22 Everything else held constant when the government has higher budget deficits A the supply curve for bonds shifts to the right and the interest rate rises B the supply curve for bonds shifts to the right and the interest rate falls C the demand curve for bonds shifts to the left and the interest rate falls D the demand curve for bonds shifts to the left and the interest rate rises 23 A 100 face value Treasury Bill that matures in one year and is selling for 98 has yield to maturity of A 2 00 B 0 6 C 2 04 D 9 80 24 Currently a three month Treasury bill has a yield of 5 while the yield on a ten year Treasury bond is 4 7 What is the risk premium of the typical A rated ten year corporate bond with a yield of 5 5 A 1 17 B 0 8 C 0 5 D 5 5 25 Everything else held constant a decrease in marginal tax rates would likely have the effect of the demand for municipal bonds and the demand for U S government bonds A increasing increasing B decreasing decreasing C decreasing increasing D increasing decreasing 26 Paper currency that has been declared legal tender but is not convertible into coins or precious metals is called money A fiat B commodity C electronic D funny 27 An increase in the liquidity of corporate bonds will the price of corporate bonds and the yield of Treasury bonds everything else held constant A increase reduce B reduce increase C reduce reduce D increase increase 28 Prices and returns for bonds are more volatile than those for bonds everything else held constant A short term long term B long term short term C short term short term D long term long term 29 Which of the following is not included in the M1 measure of money but is included in the M2 measure of money A Currency B Small denomination time deposits C Demand deposits D Traveler s checks 30 The bond demand curve is sloping indicating a n relationship between the price and quantity demanded of bonds A upward inverse B downward direct C upward direct D downward inverse 31 If an individual moves money from …