Question 1

Which one of the following features applies to a U.S.Treasury bill?

Accepted Answer

A) U.S. agency debt 
B) pure discount security 
C) taxable at the state level 
D) semi-annual interest payments 
E) annual interest payments 
A) U.S. agency debt 
B) pure discount security 
C) taxable at the state level 
D) semi-annual interest payments 
E) annual interest payments

Question 2

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates?
I.liquidity premium
II.real rate
III.interest rate risk premium
IV.inflation premium

Accepted Answer

A) I and II only 
B) II and III only 
C) III and IV only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and II only 
B) II and III only 
C) III and IV only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 3

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Accepted Answer

A) Freddie Mac 
B) Ginnie Mae 
C) T-note 
D) T-bill 
E) T-bond 
A) Freddie Mac 
B) Ginnie Mae 
C) T-note 
D) T-bill 
E) T-bond

Question 4

Which one of the following best describes the Fisher hypothesis?

Accepted Answer

A) long-term interest rates are based on current inflation rates 
B) nominal interest rates are inversely related to real rates 
C) interest rates tend to be higher than inflation rates 
D) nominal interest rates tend to be relatively constant over time 
E) future interest rates must be higher than current interest rates 
A) long-term interest rates are based on current inflation rates 
B) nominal interest rates are inversely related to real rates 
C) interest rates tend to be higher than inflation rates 
D) nominal interest rates tend to be relatively constant over time 
E) future interest rates must be higher than current interest rates

Question 5

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Accepted Answer

A) $2,998.09 
B) $3,009.16 
C) $3,105.02 
D) $3,128.10 
E) $3,133.40 
A) $2,998.09 
B) $3,009.16 
C) $3,105.02 
D) $3,128.10 
E) $3,133.40

Question 6

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

Accepted Answer

A) volatile 
B) flat 
C) downward sloping 
D) upward sloping 
E) vertical 
A) volatile 
B) flat 
C) downward sloping 
D) upward sloping 
E) vertical

Question 7

Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?

Accepted Answer

A) lower the tax rate 
B) lower the discount rate 
C) increase the call rate 
D) increase the tax rate 
E) increase the discount rate 
A) lower the tax rate 
B) lower the discount rate 
C) increase the call rate 
D) increase the tax rate 
E) increase the discount rate

Question 8

Which one of the following describes a banker's acceptance?

Accepted Answer

A) agreement to loan money in exchange for an agreement by the borrower to offer an asset as collateral 
B) written agreement to loan funds in the future once the loan terms have been accepted 
C) postdated check with payment guaranteed by a bank 
D) agreement by a bank to provide short-term funds for the construction phase of a project 
E) the sale of a security by a bank accompanied by an agreement to repurchase the security the following day 
A) agreement to loan money in exchange for an agreement by the borrower to offer an asset as collateral 
B) written agreement to loan funds in the future once the loan terms have been accepted 
C) postdated check with payment guaranteed by a bank 
D) agreement by a bank to provide short-term funds for the construction phase of a project 
E) the sale of a security by a bank accompanied by an agreement to repurchase the security the following day

Question 9

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Accepted Answer

A) expectations theory 
B) forward rate theory 
C) market hypothesis 
D) maturity preference theory 
E) Fisher hypothesis 
A) expectations theory 
B) forward rate theory 
C) market hypothesis 
D) maturity preference theory 
E) Fisher hypothesis

Question 10

Which one of the following statements is correct?

Accepted Answer

A) The yield curve relates time to maturity to interest rates on zero-coupon bonds. 
B) The yield curve is based on Treasury bill yields. 
C) The term structure of interest rates is based on default-free, pure discount securities. 
D) The term structure of interest rates is based on default-free, coupon bonds. 
E) The yield curve ignores default risk while the term structure includes a default risk premium. 
A) The yield curve relates time to maturity to interest rates on zero-coupon bonds. 
B) The yield curve is based on Treasury bill yields. 
C) The term structure of interest rates is based on default-free, pure discount securities. 
D) The term structure of interest rates is based on default-free, coupon bonds. 
E) The yield curve ignores default risk while the term structure includes a default risk premium.

Question 11

A $5,000 face value STRIPS matures in 7 years and is currently quoted at a price of 64.238.What is the yield-to-maturity?

Accepted Answer

A) 3.21 percent 
B) 3.38 percent 
C) 4.87 percent 
D) 6.42 percent 
E) 6.76 percent 
A) 3.21 percent 
B) 3.38 percent 
C) 4.87 percent 
D) 6.42 percent 
E) 6.76 percent

Question 12

A 90-day Treasury bill has a bank discount yield of 4.2 percent.What is the effective annual rate?

Accepted Answer

A) 4.22 percent 
B) 4.25 percent 
C) 4.28 percent 
D) 4.32 percent 
E) 4.37 percent 
A) 4.22 percent 
B) 4.25 percent 
C) 4.28 percent 
D) 4.32 percent 
E) 4.37 percent

Question 13

The approximate nominal interest rate is computed as the real rate:

Accepted Answer

A) minus the risk-free rate. 
B) minus the inflation rate. 
C) plus the risk-free rate. 
D) plus the inflation rate. 
E) divided by the inflation rate. 
A) minus the risk-free rate. 
B) minus the inflation rate. 
C) plus the risk-free rate. 
D) plus the inflation rate. 
E) divided by the inflation rate.

Question 14

Which one of the following statements is correct concerning large-denomination certificates of deposit?

Accepted Answer

A) The security can be sold to another investor. 
B) The face amount is equal to $10,000 or more. 
C) The security is a bank time deposit. 
D) The security is a form of a commercial check. 
E) The security is issued by the U.S. Treasury. 
A) The security can be sold to another investor. 
B) The face amount is equal to $10,000 or more. 
C) The security is a bank time deposit. 
D) The security is a form of a commercial check. 
E) The security is issued by the U.S. Treasury.

Question 15

Identify and describe five interest rates that directly apply to the money market.

Accepted Answer

1. Federal Funds Rate: This is the inter

Question 16

A $1,000 face value,120-day bond is quoted at a bank discount yield of 3.38 percent.What is the current bond price?

Accepted Answer

A) $957.60 
B) $960.09 
C) $974.18 
D) $982.02 
E) $988.73 
A) $957.60 
B) $960.09 
C) $974.18 
D) $982.02 
E) $988.73

Question 17

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

Accepted Answer

A) market rate theory 
B) market yield theory 
C) Fisher hypothesis 
D) expectations theory 
E) rational rate hypothesis 
A) market rate theory 
B) market yield theory 
C) Fisher hypothesis 
D) expectations theory 
E) rational rate hypothesis

Question 18

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

Accepted Answer

A) 3.62 percent 
B) 3.67 percent 
C) 3.71 percent 
D) 3.75 percent 
E) 3.88 percent 
A) 3.62 percent 
B) 3.67 percent 
C) 3.71 percent 
D) 3.75 percent 
E) 3.88 percent

Question 19

Which one of the following statements is correct?

Accepted Answer

A) All real interest rates will be positive as long as the inflation rate is positive. 
B) Real rates must exceed inflation rates. 
C) Short-term interest rates are affected by future inflation expectations. 
D) Treasury bill returns tend to vary in direct relation to inflation rates. 
E) The Fisher hypothesis advocates that real interest rates follow inflation rates. 
A) All real interest rates will be positive as long as the inflation rate is positive. 
B) Real rates must exceed inflation rates. 
C) Short-term interest rates are affected by future inflation expectations. 
D) Treasury bill returns tend to vary in direct relation to inflation rates. 
E) The Fisher hypothesis advocates that real interest rates follow inflation rates.

Question 20

Which one of the following terms applies to a rate that serves as an indicator of future trends?

Accepted Answer

A) bellwether 
B) prime 
C) call 
D) discount 
E) nominal 
A) bellwether 
B) prime 
C) call 
D) discount 
E) nominal

Which one of the following features applies to a U.S.Treasury bill?

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates? I.liquidity premium II.real rate III.interest rate risk premium IV.inflation premium

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Which one of the following best describes the Fisher hypothesis?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?

Which one of the following describes a banker's acceptance?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Which one of the following statements is correct?

A $5,000 face value STRIPS matures in 7 years and is currently quoted at a price of 64.238.What is the yield-to-maturity?

A 90-day Treasury bill has a bank discount yield of 4.2 percent.What is the effective annual rate?

The approximate nominal interest rate is computed as the real rate:

Which one of the following statements is correct concerning large-denomination certificates of deposit?

Identify and describe five interest rates that directly apply to the money market.

A $1,000 face value,120-day bond is quoted at a bank discount yield of 3.38 percent.What is the current bond price?

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

Which one of the following statements is correct?

Which one of the following terms applies to a rate that serves as an indicator of future trends?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 9: Interest Rates

Which one of the following features applies to a U.S.Treasury bill?

Which of the following comprise the nominal interest rate on default-free securities according to the modern view of the term structure of interest rates? I.liquidity premium II.real rate III.interest rate risk premium IV.inflation premium

Which one of the following is a short-term debt instrument issued by the U.S.Treasury?

Which one of the following best describes the Fisher hypothesis?

What is the current value of a $5,000 face value STRIPS with 6 years to maturity and a yield to maturity of 8.1 percent?

Based on expectations theory,the term structure of interest rates will be _____ anytime investors believe that interest rates will be higher in the future than they are today.

Which one of the following actions is the Federal Reserve most likely to take if it is concerned about a slowing economy?

Which one of the following describes a banker's acceptance?

Which one of the following proposes that lenders must be financially rewarded for loaning funds on a long-term versus a short-term basis?

Which one of the following statements is correct?

A $5,000 face value STRIPS matures in 7 years and is currently quoted at a price of 64.238.What is the yield-to-maturity?

A 90-day Treasury bill has a bank discount yield of 4.2 percent.What is the effective annual rate?

The approximate nominal interest rate is computed as the real rate:

Which one of the following statements is correct concerning large-denomination certificates of deposit?

Identify and describe five interest rates that directly apply to the money market.

A $1,000 face value,120-day bond is quoted at a bank discount yield of 3.38 percent.What is the current bond price?

Which one of the following theories states that the term structure of interest rates reveals the financial market's projections of future interest rates?

What is the one year interest rate one year from now if the current one-year interest rate is 2.55 percent and the two-year interest rate is 3.15 percent? Assume the rates are effective annual rates.

Which one of the following statements is correct?

Which one of the following terms applies to a rate that serves as an indicator of future trends?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters