REE 4204 Exam 1 Questions With Correct Answers

REE 4204 Exam 1 Questions With Correct Answers A yield curve shows the yields on bonds over time. True False No answer text provided. No answer text provided. - ANSWER False The market segmentation theory by its nature dictates that short-term rates must always be less than long-term rates. T/F - ANSWER False Since finance is concerned with the valuation of assets, it must explicitly consider the time value of money. T/F - ANSWER True A downward sloping yield curve shows that, at this point in time, long-term rates are higher than short-term rates. T/F - ANSWER False For most investments, cash flow and net profit can be used interchangeably in asset valuation. T/F - ANSWER False The market segmentation theory suggests that there is more than one market for the same security. T/F - ANSWER false In general inflation is a monetary phenomenon resulting from an increase in the money supply as opposed to resulting from an increase in general price levels. T/F - ANSWER True The price of a bond, besides being determined by the market-required rate, also moves inversely to this rate. T/F - ANSWER True Commercial banks are overseen by the Office of Thrift Supervision. T/F - ANSWER False The secondary mortgage market is the market where second (junior) mortgages are created. T/F - ANSWER false Real estate investment trusts (REITs) specialize in investing in real property and mortgages on real property. T/F - ANSWER True 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. T/F - ANSWER False Since the nominal interest rate can be observed in the market, a precise measure of future inflation can be determined. T/F - ANSWER False The yield observed on a riskless bond in a non-inflationary environment would be the real rate of interest. T/F - ANSWER True Default risk is the risk that a bond issuer will be unable to repay the principal and interest on the debt. T/F - ANSWER True Under the expectations theory, an upward sloping yield curve means that investors expect market rates to rise in the future. T/F - ANSWER true In today's mortgage market, due to the short-term nature of mortgages, most real estate financing takes place in the money markets. T/F - ANSWER false A primary market transaction always involves the original issuer of the security T/F - ANSWER True According to the liquidity premium theory, investors are willing to pay a price premium for securities with shorter maturities. T/F - 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%. T/F - ANSWER false In using the discounted cash flow model, the valuation of an asset depends on the expected amount, timing, and risk associated with the project's cash flows. T/F - ANSWER True It is impossible for the cash flow on a project to be positive if the taxable income is negative. T/F - ANSWER False Agents never have incentives to pursue behavior which is detrimental to their principals. T/F - ANSWER False