Exam Name MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question What is the return on a 5 percent coupon bond that initially sells for 1 000 and sells for 900 next year 1 1 A 10 percent 5 percent 10 percent 5 percent 2 2 long term short term short term long term short term short term long term long term 3 3 A C A B C D 4 4 A falls supply B C D B D Prices and returns for bonds are more volatile than those for bonds everything else held constant In which of the following situations would you prefer to be the borrower The interest rate is 9 percent and the expected inflation rate is 7 percent The interest rate is 25 percent and the expected inflation rate is 50 percent The interest rate is 4 percent and the expected inflation rate is 1 percent The interest rate is 13 percent and the expected inflation rate is 15 percent The supply curve for bonds has the usual upward slope indicating that as the price ceteris paribus the increases 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 Everything else held constant when stock prices become less volatile the demand curve for bonds shifts to the and the interest rate When the expected inflation rate increases the real cost of borrowing and bond supply everything else held constant rises supply C falls quantity supplied rises quantity supplied 5 5 rises right A rises left falls left falls right 6 6 left falls left rises right rises right falls 7 A 7 increases decreases A increases increases C decreases increases B D B C D B C D B When the expected inflation rate increases the demand for bonds the supply of bonds and the interest rate everything else held constant Everything else held constant when the inflation rate is expected to rise interest rates will this result has been termed the When an economy grows out of a recession normally the demand for bonds and the supply of bonds everything else held constant decreases decreases 8 A C 8 increases decreases falls decreases decreases falls increases increases rises decreases increases rises 9 9 A rise Keynes effect fall Fisher effect C fall Keynes effect rise Fisher effect 10 10 decreases increases decreases decreases increases decreases increases increases A C 1 D A 2 D B D B D B D 3 4 5 6 7 8 9 B D A B C D D D 10
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