BMC EVALUATION EXAM 2025/2026 QUESTIONS AND
SOLUTIONS MARKED A+
✔✔Which would you prefer? - ✔✔A 4% annual yield on a credit risk-free 10-year
government bond from the mythical country of Utopia.
✔✔Which would you prefer? - ✔✔A 5% annual yield on an investment in 10-year U.S.
government bonds
✔✔What is the primary reason for U.S. government bond yields to ripple through the
bond market? - ✔✔The large government bond market competes for investors attention
via yields
✔✔A rise in which of the following measures would typically send a government bond
price up? - ✔✔Creditworthiness
✔✔How do investors compare bonds? - ✔✔by comparing the yields of single bonds
✔✔Which of the following countries shown makes the greatest relative use of short-term
government financing? - ✔✔Norway
✔✔Which of the following is the strongest driver of inflation? - ✔✔wartime activities
✔✔This chart shows the output gap in the US from 1949 to 1973. What was the output
gap in 1973? - ✔✔+3.0%
✔✔Here is a chart from the ILBE function displaying US 10-year inflation expectations
as of early 2017.... - ✔✔0.0239% above
✔✔Investors who fear rising inflation may buy Treasury Inflation Protected Securities
(TIPS). How do TIPS shield lenders from inflation? - ✔✔By compensating investors for
inflation
✔✔What is the Federal Reserve's favorite inflation gauge? - ✔✔Core PCE
✔✔Here is the output gap in the US in early 1975. What was likely the fed interest rate
policy? - ✔✔To cut interest rates
✔✔Why does the yield curve naturally slope upwards? - ✔✔To compensate leaders for
the greater risk of long-term loans compared to short-term loans
, ✔✔Why did the corporate spread significantly widen during the 2008 market crash? -
✔✔Corporate bond issuers go bankrupt more frequently then governments, as they do
no have a tax base to fall back on in hard times
✔✔What impact will a tightening of the corporate spread most likely have on a
company?` - ✔✔A tendency to expand the borrowing capacity of the company.
✔✔What are the three main transmission mechanisms by which the yield curve affects
the economy? - ✔✔Corporate impact, global impact, consumer impact.
✔✔What is the 10-year to 3-month term premium of the following yield curve? -
✔✔2.398%
✔✔The purchase of which of the following products is most affected by interest rates? -
✔✔A house
✔✔What is the primary driver of the left-hand end of the yield curve? - ✔✔Central bank
interest rates
✔✔Which yield curve is most likely linked to a booming economy - ✔✔B
✔✔Why does the yield curve tend to invert shortly before a recession? - ✔✔An inverted
yield curve means that bond traders are predicting interest rate cuts, and interest rate
cuts happen in response to a recession.
✔✔The two yield curves in the chart are from September 10, 2001 (yellow) and October
10, 2001 (green)...... - ✔✔Cut interest rates
✔✔Why do companies do IPOs? - ✔✔IPOs incentivize entrepreneurs to innovate as
IPOs provide a way for entrepreneurs to monetize their work.
✔✔Why do company manager-owners smile when they ring the stock exchange bell at
their IPO? - ✔✔an IPO crystallizes the value of the manager-owners stake.
✔✔The Dow Jones industrial average index has an unusual weighting methodology.
Unlike the S&P 500, it is weighted by share price..... - ✔✔Goldman Sachs
✔✔Here is a chart of the index value for the S&P 500 and the United Kingdom's main
equity index the FTSE 100, from the end of 2008 to early 2015..... - ✔✔The S&P 500
✔✔in 1999, James Glassman and Kevin Hassett published a book called "Dow
36,000".... - ✔✔The sum of the share prices of all 30 Dow Jones Members will triple
SOLUTIONS MARKED A+
✔✔Which would you prefer? - ✔✔A 4% annual yield on a credit risk-free 10-year
government bond from the mythical country of Utopia.
✔✔Which would you prefer? - ✔✔A 5% annual yield on an investment in 10-year U.S.
government bonds
✔✔What is the primary reason for U.S. government bond yields to ripple through the
bond market? - ✔✔The large government bond market competes for investors attention
via yields
✔✔A rise in which of the following measures would typically send a government bond
price up? - ✔✔Creditworthiness
✔✔How do investors compare bonds? - ✔✔by comparing the yields of single bonds
✔✔Which of the following countries shown makes the greatest relative use of short-term
government financing? - ✔✔Norway
✔✔Which of the following is the strongest driver of inflation? - ✔✔wartime activities
✔✔This chart shows the output gap in the US from 1949 to 1973. What was the output
gap in 1973? - ✔✔+3.0%
✔✔Here is a chart from the ILBE function displaying US 10-year inflation expectations
as of early 2017.... - ✔✔0.0239% above
✔✔Investors who fear rising inflation may buy Treasury Inflation Protected Securities
(TIPS). How do TIPS shield lenders from inflation? - ✔✔By compensating investors for
inflation
✔✔What is the Federal Reserve's favorite inflation gauge? - ✔✔Core PCE
✔✔Here is the output gap in the US in early 1975. What was likely the fed interest rate
policy? - ✔✔To cut interest rates
✔✔Why does the yield curve naturally slope upwards? - ✔✔To compensate leaders for
the greater risk of long-term loans compared to short-term loans
, ✔✔Why did the corporate spread significantly widen during the 2008 market crash? -
✔✔Corporate bond issuers go bankrupt more frequently then governments, as they do
no have a tax base to fall back on in hard times
✔✔What impact will a tightening of the corporate spread most likely have on a
company?` - ✔✔A tendency to expand the borrowing capacity of the company.
✔✔What are the three main transmission mechanisms by which the yield curve affects
the economy? - ✔✔Corporate impact, global impact, consumer impact.
✔✔What is the 10-year to 3-month term premium of the following yield curve? -
✔✔2.398%
✔✔The purchase of which of the following products is most affected by interest rates? -
✔✔A house
✔✔What is the primary driver of the left-hand end of the yield curve? - ✔✔Central bank
interest rates
✔✔Which yield curve is most likely linked to a booming economy - ✔✔B
✔✔Why does the yield curve tend to invert shortly before a recession? - ✔✔An inverted
yield curve means that bond traders are predicting interest rate cuts, and interest rate
cuts happen in response to a recession.
✔✔The two yield curves in the chart are from September 10, 2001 (yellow) and October
10, 2001 (green)...... - ✔✔Cut interest rates
✔✔Why do companies do IPOs? - ✔✔IPOs incentivize entrepreneurs to innovate as
IPOs provide a way for entrepreneurs to monetize their work.
✔✔Why do company manager-owners smile when they ring the stock exchange bell at
their IPO? - ✔✔an IPO crystallizes the value of the manager-owners stake.
✔✔The Dow Jones industrial average index has an unusual weighting methodology.
Unlike the S&P 500, it is weighted by share price..... - ✔✔Goldman Sachs
✔✔Here is a chart of the index value for the S&P 500 and the United Kingdom's main
equity index the FTSE 100, from the end of 2008 to early 2015..... - ✔✔The S&P 500
✔✔in 1999, James Glassman and Kevin Hassett published a book called "Dow
36,000".... - ✔✔The sum of the share prices of all 30 Dow Jones Members will triple
