Question 1

Which of these is NOT a participant in the shadow banking system?

Accepted Answer

A)  structured investment vehicles (SIVs) 
B)  special purpose vehicles (SPVs) 
C)  limited-purpose finance companies 
D)  credit unions 
A)  structured investment vehicles (SIVs) 
B)  special purpose vehicles (SPVs) 
C)  limited-purpose finance companies 
D)  credit unions

Question 2

Which of the following is the risk that an asset's sale price will be lower than its purchase price?

Accepted Answer

A)  default risk 
B)  liquidity risk 
C)  price risk 
D)  trading risk 
A)  default risk 
B)  liquidity risk 
C)  price risk 
D)  trading risk

Question 3

Which of these statements is true?

Accepted Answer

A)  The higher the default risk, the higher the interest rate that securities buyers will demand. 
B)  The lower the default risk, the higher the interest rate that securities buyers will demand. 
C)  The higher the default risk, the lower the interest rate that securities buyers will demand. 
D)  The default risk does not impact the interest rate that securities buyers will demand. 
A)  The higher the default risk, the higher the interest rate that securities buyers will demand. 
B)  The lower the default risk, the higher the interest rate that securities buyers will demand. 
C)  The higher the default risk, the lower the interest rate that securities buyers will demand. 
D)  The default risk does not impact the interest rate that securities buyers will demand.

Question 4

Based on economists' forecasts and analysis,one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows:   Using the liquidity premium theory,what should be the current rate on four-year Treasury securities?

Accepted Answer

A)  6.59 percent 
B)  6.75 percent 
C)  6.82 percent 
D)  7.13 percent 
A)  6.59 percent 
B)  6.75 percent 
C)  6.82 percent 
D)  7.13 percent

Question 5

A recent edition of The Wall Street Journal reported interest rates of 3.10 percent,3.50 percent,3.75 percent,and 3.95 percent for three-year,four-year,five-year,and six-year Treasury security yields,respectively,According to the unbiased expectation theory of the term structure of interest rates,what are the expected one-year rates for year 6?

Accepted Answer

A)  3.575 percent 
B)  3.95 percent 
C)  4.96 percent 
D)  5.33 percent 
A)  3.575 percent 
B)  3.95 percent 
C)  4.96 percent 
D)  5.33 percent

Question 6

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 7

Which of these is the interest rate that is actually observed in financial markets?

Accepted Answer

A)  nominal interest rates 
B)  real interest rates 
C)  real risk-free rate 
D)  market premium 
A)  nominal interest rates 
B)  real interest rates 
C)  real risk-free rate 
D)  market premium

Question 8

The real interest rate is

Accepted Answer

A)  the rate charged to the corporations with the best credit rating or least amount of default risk. 
B)  the rate that a security would pay if no inflation were expected over its holding period. 
C)  the rate that a security would pay if the security had no maturity risk. 
A)  the rate charged to the corporations with the best credit rating or least amount of default risk. 
B)  the rate that a security would pay if no inflation were expected over its holding period. 
C)  the rate that a security would pay if the security had no maturity risk.

Question 9

Which of the following are suppliers of loanable funds?

Accepted Answer

A)  households 
B)  government units 
C)  foreign investors 
D)  All of these choices are correct. 
A)  households 
B)  government units 
C)  foreign investors 
D)  All of these choices are correct.

Question 10

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 11

One-year interest rates are 3 percent.The market expects one-year rates to be 5 percent one year from now.The market also expects one-year rates to be 7 percent two years from now.Assume that the unbiased expectations theory holds.Which of the following is correct?

Accepted Answer

A)  The yield curve is downward sloping. 
B)  The yield curve is flat. 
C)  The yield curve is upward sloping. 
D)  We need the maturity risk premiums to be able to answer this question. 
A)  The yield curve is downward sloping. 
B)  The yield curve is flat. 
C)  The yield curve is upward sloping. 
D)  We need the maturity risk premiums to be able to answer this question.

Question 12

Which of the following statements is correct?

Accepted Answer

A)  A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-maturity. 
B)  Real interest rates are generally lower than nominal interest rates. 
C)  Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value. 
D)  All of these choices are correct. 
A)  A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-maturity. 
B)  Real interest rates are generally lower than nominal interest rates. 
C)  Liquidity risk is the risk that a security may be difficult to sell on short notice for its true value. 
D)  All of these choices are correct.

Question 13

One-year Treasury bills currently earn 4.5 percent.You expect that one year from now,one-year Treasury bill rates will increase to 6.65 percent.The liquidity premium on two-year securities is 0.05 percent.If the liquidity theory is correct,what should the current rate be on two-year Treasury securities?

Accepted Answer

A)  5.24 percent 
B)  5.59 percent 
C)  5.65 percent 
D)  5.95 percent 
A)  5.24 percent 
B)  5.59 percent 
C)  5.65 percent 
D)  5.95 percent

Question 14

All of the following are common shapes for the yield curve EXCEPT

Accepted Answer

A)  elliptical. 
B)  upward-sloping. 
C)  flat. 
D)  inverted. 
A)  elliptical. 
B)  upward-sloping. 
C)  flat. 
D)  inverted.

Which of these is NOT a participant in the shadow banking system?

Which of the following is the risk that an asset's sale price will be lower than its purchase price?

Which of these statements is true?

Based on economists' forecasts and analysis,one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory,what should be the current rate on four-year Treasury securities?

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

Which of these is the interest rate that is actually observed in financial markets?

The real interest rate is

Which of the following are suppliers of loanable funds?

Which of the following statements is correct?

One-year interest rates are 3 percent.The market expects one-year rates to be 5 percent one year from now.The market also expects one-year rates to be 7 percent two years from now.Assume that the unbiased expectations theory holds.Which of the following is correct?

Which of the following statements is correct?

All of the following are common shapes for the yield curve EXCEPT

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

Which of these is NOT a participant in the shadow banking system?

Which of the following is the risk that an asset's sale price will be lower than its purchase price?

Which of these statements is true?

Based on economists' forecasts and analysis,one-year Treasury bill rates and liquidity premiums for the next four years are expected to be as follows: Using the liquidity premium theory,what should be the current rate on four-year Treasury securities?

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

Which of these is the interest rate that is actually observed in financial markets?

The real interest rate is

Which of the following are suppliers of loanable funds?

Which of the following statements is correct?

One-year interest rates are 3 percent.The market expects one-year rates to be 5 percent one year from now.The market also expects one-year rates to be 7 percent two years from now.Assume that the unbiased expectations theory holds.Which of the following is correct?

Which of the following statements is correct?

All of the following are common shapes for the yield curve EXCEPT

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