Question 1

All of the following are factors that influence interest rates for individual securities EXCEPT:

Accepted Answer

A) the security's term to maturity. 
B) inflation. 
C) special provisions regarding the use of funds raised by a particular security issuer. 
D) the home mortgage rate. 
A) the security's term to maturity. 
B) inflation. 
C) special provisions regarding the use of funds raised by a particular security issuer. 
D) the home mortgage rate.

Question 2

Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates over the following three years (i.e., years 2, 3 and 4 respectively) are as follows: 1R1 = 5 percent, E(2r1) = 6 percent, E(3r1) = 7.5 percent E(4r1) = 7.85 percent
Using the unbiased expectations theory, calculate the current (long-term) rates for three-year- and four-year-maturity Treasury securities.

Accepted Answer

A) One-year: 6.16 percent; Two-year: 6.58 percent 
B) One-year: 6.16 percent; Two-year: 6.78 percent 
C) One-year: 6.25 percent; Two-year: 6.45 percent 
D) One-year: 5.95 percent; Two-year: 6.45 percent 
A) One-year: 6.16 percent; Two-year: 6.58 percent 
B) One-year: 6.16 percent; Two-year: 6.78 percent 
C) One-year: 6.25 percent; Two-year: 6.45 percent 
D) One-year: 5.95 percent; Two-year: 6.45 percent

Question 3

Which of the following statements is correct?

Accepted Answer

A) An IPO is an example of a primary market transaction. 
B) Money markets are subject to wider price fluctuations and are therefore more risky than capital market instruments. 
C) A direct transfer of funds is more efficient than utilizing financial institutions. 
D) The market segmentation theory argues that the different investors have different risk preferences which determine the shape of the yield curve. 
A) An IPO is an example of a primary market transaction. 
B) Money markets are subject to wider price fluctuations and are therefore more risky than capital market instruments. 
C) A direct transfer of funds is more efficient than utilizing financial institutions. 
D) The market segmentation theory argues that the different investors have different risk preferences which determine the shape of the yield curve.

Question 4

The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.75 percent, on 20-year Treasury bonds is 7.25 percent, and on a 20-year corporate bond is 8.50 percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond, what is the current rate on a 10-year corporate bond.

Accepted Answer

A) 7.50 percent 
B) 8.00 percent 
C) 8.50 percent 
D) 8.75 percent 
A) 7.50 percent 
B) 8.00 percent 
C) 8.50 percent 
D) 8.75 percent

All of the following are factors that influence interest rates for individual securities EXCEPT:

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters

Exam 6: Understanding Financial Markets and Institutions

All of the following are factors that influence interest rates for individual securities EXCEPT:

Which of the following statements is correct?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Valuing Bonds

Valuing Stocks

Characterizing Risk and Return

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters