COMM 220 Analysis of Markets – Midterm exam
2/ Mock #2 2025 Concordia University
MULTIPLE CHOICE QUESTIONS
1. For Sofia, what is the risk premium associated with an investment opportunity where there is a 25%
chance of earning S1,200 and an 75% chance of earning S3,600. Sofia’s utility function is U =√10𝐼
a. 0
b. 90.23
c. 112.26
d. 120.58
2. Which of the following is true concerning the distinction between interest rates and returns?
a. The rate of return on a bond will not necessarily equal to the interest rate on that bond.
b. The rate of return will be greater than the interest rate when the price of the bond falls between time
t and time t + 1.
c. The return can be expressed as the sum of the discount yield and the rate of capital gains
d. The rate of return on a bond always equals to the initial yield to maturity at the time of purchasing
the bond.
3. One way of describing the solution that high net worth provides to the moral hazard problem is to say
that it
a. makes the debt contract incentive compatible
b. collateralizes the debt contract
c. removes all of the risk in the debt contract
d. state verifies the debt contract
4. The principal-agent problem
a. explains why direct finance is more important than indirect finance as a source of business finance
b. occurs when managers have more incentive to maximize profits than the stockholders owners do
c. in financial markets helps to explain why equity is a relatively important source of finance for
Canadian business
d. would not arise if the owners of the firm had complete information about the activities of the
managers
5. Of the following sources of external financing for Canadian nonfinancial businesses, the least
important is
a. stocks
b. bank loans
c. non-bank loans
d. bonds
, 6. Financial intermediaries provide customers with liquidity services. Liquidity service .
Select one:
a. are another term for asset transformation
b. make it easier for customers to conduct transactions
c. allow customers to have a cup of coffee while waiting in the lobby
d. are a result of the asymmetric information problem
7. If the liquidity of Blackberry bond goes down, ceteris paribus, then the demand for Air Canada
bond would .
Select one:
a. stay unchanged
b. not enough information to determine
c. go down
d. go up
8. The yield to maturity is than the coupon rate when the bond price is sold at the .
Select one:
a. less; discount
b. less; premium
c. greater; PAR value
d. greater; premium
9. Which of the following is NOT a function or service provided by secondary markets?
Select one:
a. Providing liquidity to owners of existing financial instruments
b. Matching lenders (savers) with borrowers in need of funds
c. Determining the price of the security that the issuing firms sells in the primary market
d. Providing information to borrowers and lenders about expectations and attitudes of the economic
climate
10. If interest rate is smaller than the equilibrium interest rate, then there is in supply of
bond, therefore the bond price will
Select one:
a. surplus; decrease
b. shortage; increase
c. surplus; increase
d. shortage; decrease
2/ Mock #2 2025 Concordia University
MULTIPLE CHOICE QUESTIONS
1. For Sofia, what is the risk premium associated with an investment opportunity where there is a 25%
chance of earning S1,200 and an 75% chance of earning S3,600. Sofia’s utility function is U =√10𝐼
a. 0
b. 90.23
c. 112.26
d. 120.58
2. Which of the following is true concerning the distinction between interest rates and returns?
a. The rate of return on a bond will not necessarily equal to the interest rate on that bond.
b. The rate of return will be greater than the interest rate when the price of the bond falls between time
t and time t + 1.
c. The return can be expressed as the sum of the discount yield and the rate of capital gains
d. The rate of return on a bond always equals to the initial yield to maturity at the time of purchasing
the bond.
3. One way of describing the solution that high net worth provides to the moral hazard problem is to say
that it
a. makes the debt contract incentive compatible
b. collateralizes the debt contract
c. removes all of the risk in the debt contract
d. state verifies the debt contract
4. The principal-agent problem
a. explains why direct finance is more important than indirect finance as a source of business finance
b. occurs when managers have more incentive to maximize profits than the stockholders owners do
c. in financial markets helps to explain why equity is a relatively important source of finance for
Canadian business
d. would not arise if the owners of the firm had complete information about the activities of the
managers
5. Of the following sources of external financing for Canadian nonfinancial businesses, the least
important is
a. stocks
b. bank loans
c. non-bank loans
d. bonds
, 6. Financial intermediaries provide customers with liquidity services. Liquidity service .
Select one:
a. are another term for asset transformation
b. make it easier for customers to conduct transactions
c. allow customers to have a cup of coffee while waiting in the lobby
d. are a result of the asymmetric information problem
7. If the liquidity of Blackberry bond goes down, ceteris paribus, then the demand for Air Canada
bond would .
Select one:
a. stay unchanged
b. not enough information to determine
c. go down
d. go up
8. The yield to maturity is than the coupon rate when the bond price is sold at the .
Select one:
a. less; discount
b. less; premium
c. greater; PAR value
d. greater; premium
9. Which of the following is NOT a function or service provided by secondary markets?
Select one:
a. Providing liquidity to owners of existing financial instruments
b. Matching lenders (savers) with borrowers in need of funds
c. Determining the price of the security that the issuing firms sells in the primary market
d. Providing information to borrowers and lenders about expectations and attitudes of the economic
climate
10. If interest rate is smaller than the equilibrium interest rate, then there is in supply of
bond, therefore the bond price will
Select one:
a. surplus; decrease
b. shortage; increase
c. surplus; increase
d. shortage; decrease
