Econ 3303 EXAM 2 QUESTIONS WITH
CORRECT ANSWERS
1) According to the segmented markets theory of the term structure -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-C) the interest rate for each maturity bond is
| | | | | | | | | |
determined by supply and demand for that | | | | | |
maturity bond. |
2) If stock prices are expected to drop dramatically, then, other things
| | | | | | | | | | | |
equal, the demand for
| | |
stocks will ________ and that of Treasury bills will ________. - CORRECT
| | | | | | | | | | |
ANSWER✔✔-A) increase; decrease
| | |
3) A consol paying $20 annually when the interest rate is 5 percent has a
| | | | | | | | | | | | | |
price of - CORRECT ANSWER✔✔-B) $200
| | | | | |
4) The spread between the interest rates on bonds with default risk and
| | | | | | | | | | | | |
default-free bonds is | |
called the - CORRECT ANSWER✔✔-B) junk margin.
| | | | | |
5) In the figure above, the price of bonds would fall from P2 to P1 if -
| | | | | | | | | | | | | | | | |
CORRECT ANSWER✔✔-B) inflation is expected to decrease in the future.
| | | | | | | | |
, 6) Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12,
| | | | | | | | | | | | | | |
and g is 10% or 0.10, then
| | | | | |
the current stock price is - CORRECT ANSWER✔✔-A) $20.
| | | | | | | |
7) According to the expectations theory of the term structure, the
| | | | | | | | | | |
interest rate on a long-term
| | | |
bond will equal the ________ of the short-term interest rates that
| | | | | | | | | | |
people expect to occur over
| | | |
the life of the long-term bond. - CORRECT ANSWER✔✔-B) average
| | | | | | | | |
8) The ________ is the final amount that will be paid to the holder of a
| | | | | | | | | | | | | | | |
coupon bond. - CORRECT ANSWER✔✔-A) coupon value
| | | | | |
9) Economists consider the ________ to be the most accurate measure
| | | | | | | | | | |
of interest rates. - CORRECT ANSWER✔✔-B) current yield.
| | | | | | |
10) A ________ yield curve predicts a future increase in inflation -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-C) flat | |
11) If 1-year interest rates for the next three years are expected to be 4,
| | | | | | | | | | | | | | |
2, and 3 percent, and the
| | | | |
CORRECT ANSWERS
1) According to the segmented markets theory of the term structure -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-C) the interest rate for each maturity bond is
| | | | | | | | | |
determined by supply and demand for that | | | | | |
maturity bond. |
2) If stock prices are expected to drop dramatically, then, other things
| | | | | | | | | | | |
equal, the demand for
| | |
stocks will ________ and that of Treasury bills will ________. - CORRECT
| | | | | | | | | | |
ANSWER✔✔-A) increase; decrease
| | |
3) A consol paying $20 annually when the interest rate is 5 percent has a
| | | | | | | | | | | | | |
price of - CORRECT ANSWER✔✔-B) $200
| | | | | |
4) The spread between the interest rates on bonds with default risk and
| | | | | | | | | | | | |
default-free bonds is | |
called the - CORRECT ANSWER✔✔-B) junk margin.
| | | | | |
5) In the figure above, the price of bonds would fall from P2 to P1 if -
| | | | | | | | | | | | | | | | |
CORRECT ANSWER✔✔-B) inflation is expected to decrease in the future.
| | | | | | | | |
, 6) Using the Gordon growth formula, if D1 is $2.00, ke is 12% or 0.12,
| | | | | | | | | | | | | | |
and g is 10% or 0.10, then
| | | | | |
the current stock price is - CORRECT ANSWER✔✔-A) $20.
| | | | | | | |
7) According to the expectations theory of the term structure, the
| | | | | | | | | | |
interest rate on a long-term
| | | |
bond will equal the ________ of the short-term interest rates that
| | | | | | | | | | |
people expect to occur over
| | | |
the life of the long-term bond. - CORRECT ANSWER✔✔-B) average
| | | | | | | | |
8) The ________ is the final amount that will be paid to the holder of a
| | | | | | | | | | | | | | | |
coupon bond. - CORRECT ANSWER✔✔-A) coupon value
| | | | | |
9) Economists consider the ________ to be the most accurate measure
| | | | | | | | | | |
of interest rates. - CORRECT ANSWER✔✔-B) current yield.
| | | | | | |
10) A ________ yield curve predicts a future increase in inflation -
| | | | | | | | | | | |
CORRECT ANSWER✔✔-C) flat | |
11) If 1-year interest rates for the next three years are expected to be 4,
| | | | | | | | | | | | | | |
2, and 3 percent, and the
| | | | |
