Exam 2: The Financial Markets and Interest Rates

During the period 1984 to 2008,the average yield on 3-Month U.S.Treasury bills was 4.76%,the average inflation rate was 2.97%,the average yield on 30-year Treasury bonds was 6.89%,and the average return on 30-year Aaa-Rated Corporate Bonds was 7.73%.The real risk-free short-term interest rate is

A corporation sells securities to an investment banking firm on January 1^st.The next day an international oil crisis causes stock prices to drop dramatically.The corporation is immune from the drop in price of its stock due to which function of the investment banking firm?

An actively traded,AAA-rated,Intel Corporation bond,maturing in 2015,provides an expected yield of 8%.The AAA-rated bond of a local Chicago-based company,not actively traded on any exchange,maturing in 2015,provides an expected yield to investors of 10%.The difference in expected yields is primarily due to A) inflation premium. B) default risk premium. C) maturity risk premium. D) liquidity premium.

What was the average annual rate of return on 3-month U.S.Treasury bills during the period 1984 to 2008?

Over the period 1926 to 2008 the standard deviation of returns has been the greatest for which of the following:

Capital market instruments include

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

The risk premium would be greater for an investment in an oil and gas exploration in unproven fields than an investment in preferred stock because

Three ways that savings can be transferred through the financial markets to those in need of funds include direct transfers,indirect transfers using the investment banker,and indirect transfers using the financial intermediary.

One advantage of being listed on the NYSE is that all trades are made in an auction setting with face-to-face trading between individuals on the floor of the stock exchange.

Investors expect to receive the highest returns from government-issued securities because the government will not default on securities that it has issued.

The stock market with the most stringent listing requirements is the

An investor buys a 20-year Bbb-rated corporate bond with a nominal annual rate of return of 10%.The average inflation rate is expected to be 2%.The default risk premium is expected to be 5% and the maturity premium is 4%.Calculate the real rate of interest.

Flotation costs are typically greater in the secondary market than in the primary market.

Which of the following statements is most correct concerning flotation costs?

Which of the following securities will likely have the highest maturity risk premium?

What is the term for a graphical representation of the relationship between interest rates and the maturities of debt securities?

Examine the securities below and identify the security with the highest liquidity premium,the highest default risk premium,and the highest maturity premium. a.30-Year U.S.Government Treasury Bond maturing in 2025 b.25-Year Bbb-rated Corporate Bond maturing in 2030,actively traded on the New York Exchange c.10-Year Aaa-rated Corporate Bond maturing in 2020,thinly traded on a regional exchange d.3-Month U.S.Treasury Bill

John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation common stock.This transaction occurs in the

Transactions in the futures markets involve current payments for goods which will be delivered at some future agreed upon date.