REE 4204 Sirmans Exam UPDATED
ACTUAL QUESTIONS AND CORRECT
ANSWERS
In general, inflation is a monetary phenomenon resulting from an increase in money supply as
opposed to resulting from an increase in general price levels. - CORRECT ANSWER True
According to the liquidity premium theory, investors are willing to pay a price premium for securities
with shorter maturities. - CORRECT ANSWER True
For most investments, cash flow and net profit can be used interchangeably in asset valuation. -
CORRECT ANSWER False
Commercial banks are overseen by the Office of Thrift Supervision. - CORRECT ANSWER
False
Since finance is concerned with the valuation of assets, it must explicitly consider the time value of
money. - CORRECT ANSWER True
Real Estate investment Trusts (REITs) specialize in investing in real property and mortgages on real
property. - CORRECT ANSWER True
The secondary mortgage market is the market where second (junior) mortgages are created. -
CORRECT ANSWER False
Since the nominal interest rate can be observed in the market, a precise measure of future inflation can
be determined. - CORRECT ANSWER False
A yield curve shows the yields on bonds over time. - CORRECT ANSWER False
In today's mortgage market, due to the short-term nature of mortgages, most real estate financing
takes place in the money markets. - CORRECT ANSWER False
, The benefit to the investor of the call provision in a callable bond increases as the market interest rate
falls further below the rate offered on the bond. - CORRECT ANSWER False
The market segmentation theory suggests that there is more than one market for the same security. -
CORRECT ANSWER False
A downward sloping yield curve shows that, at this point in time, long-term rates are higher than
short-term rates. - CORRECT ANSWER False
The price of a bond, besides being determined by the market-required rate, also moves inversely to
this rate. - CORRECT ANSWER True
Under the expectations theory, observed rates on current one-year and two-year bonds of 4% and 6%,
respectively, indicate that the one-year bond rate one year from now will be between 4% and 6%. -
CORRECT ANSWER False
8%
Under the expectations theory, an upwards sloping yield curve means that investors expect market
rates to rise in the future. - CORRECT ANSWER True
The market segmentation theory by its nature dictates that short term rates must always be less than
long term rates. - CORRECT ANSWER False
Default risk is the risk that a bond issuer will be unable to repay the principal and interest on the debt.
- CORRECT ANSWER True
The yield observed on a riskless bond in a non-inflationary environment would be the real rate if
interest. - CORRECT ANSWER True
A primary market transaction always involves the original issuer of the security. - CORRECT
ANSWER True
ACTUAL QUESTIONS AND CORRECT
ANSWERS
In general, inflation is a monetary phenomenon resulting from an increase in money supply as
opposed to resulting from an increase in general price levels. - CORRECT ANSWER True
According to the liquidity premium theory, investors are willing to pay a price premium for securities
with shorter maturities. - CORRECT ANSWER True
For most investments, cash flow and net profit can be used interchangeably in asset valuation. -
CORRECT ANSWER False
Commercial banks are overseen by the Office of Thrift Supervision. - CORRECT ANSWER
False
Since finance is concerned with the valuation of assets, it must explicitly consider the time value of
money. - CORRECT ANSWER True
Real Estate investment Trusts (REITs) specialize in investing in real property and mortgages on real
property. - CORRECT ANSWER True
The secondary mortgage market is the market where second (junior) mortgages are created. -
CORRECT ANSWER False
Since the nominal interest rate can be observed in the market, a precise measure of future inflation can
be determined. - CORRECT ANSWER False
A yield curve shows the yields on bonds over time. - CORRECT ANSWER False
In today's mortgage market, due to the short-term nature of mortgages, most real estate financing
takes place in the money markets. - CORRECT ANSWER False
, The benefit to the investor of the call provision in a callable bond increases as the market interest rate
falls further below the rate offered on the bond. - CORRECT ANSWER False
The market segmentation theory suggests that there is more than one market for the same security. -
CORRECT ANSWER False
A downward sloping yield curve shows that, at this point in time, long-term rates are higher than
short-term rates. - CORRECT ANSWER False
The price of a bond, besides being determined by the market-required rate, also moves inversely to
this rate. - CORRECT ANSWER True
Under the expectations theory, observed rates on current one-year and two-year bonds of 4% and 6%,
respectively, indicate that the one-year bond rate one year from now will be between 4% and 6%. -
CORRECT ANSWER False
8%
Under the expectations theory, an upwards sloping yield curve means that investors expect market
rates to rise in the future. - CORRECT ANSWER True
The market segmentation theory by its nature dictates that short term rates must always be less than
long term rates. - CORRECT ANSWER False
Default risk is the risk that a bond issuer will be unable to repay the principal and interest on the debt.
- CORRECT ANSWER True
The yield observed on a riskless bond in a non-inflationary environment would be the real rate if
interest. - CORRECT ANSWER True
A primary market transaction always involves the original issuer of the security. - CORRECT
ANSWER True
