CFIN /
EXAM
/ //
2 /
QUESTIONS WITH CORRECT ANSWERS
/ // // //
The //"nominal //rate //of //interest" //is //defined //as //the //sum //if //the //nominal //risk-
free //rate //of //return //and //the //expected //inflation //rate. //T/F //- //verified //answer(s)-✔✔F
If //the //federal //reserve //tightens //the //money //supply, //other //things //held //constant, //short-
term /
/interest /
/rates /
/will /
/be /
/pushed /
/upward, /
/and //this //increase //probably //will //be //greater //than //the //increase //in //rates //in //the //long-
term //market. //T/F //- //verified //answer(s)-✔✔T
The //term //structure //is //defined //as //the //relationship //between //interest //rates //and //the //similar
//securities. //T/F //- //verified //answer(s)-✔✔T
During /
/or /
/near /
/peaks /
/of /
/business /
/activity //, /
/yield /
,/curves /
/that /
/are /
/flat /
/or /
/downward //sloping //(possibly //with //humps) //often //are //prevalent. //T/F //- //verified //answer(s)-
✔✔T
The //"expectation /
/theory" /
/postulates /
/that /
/the //"term /
/structure" /
/of /
/interest /
/rates //is //based //on //expectations //regarding //future //inflation //rates. //T/F //- //verified //answer(s)-
✔✔T
The /
/real /
/rate /
/of /
/interest /
/is /
/composed /
/of //
a/
/risk /
/free /
/rate //of //interest //plus //a //premium //that //reflects //the //riskiness //of //the //security. //T/F //- //verified
//answer(s)-✔✔F
The /
/yield /
, /curve //is //downward //sloping, //or //inverted, //if //the //long //term //rates //are //high //than //the //short-
term //rates. //- //verified //answer(s)-✔✔F
The /
/liquidity /
/preference /
/theory /
/states /
/that /
/each /
/borrower /
/and /
/lender /
/has //
a/
/preferred /
/maturity /
/and //that //the //slope //of //the //yield //curve //depends //on //supply //and //demand //for //funds //in //the
//long-term //market //relative //to //the //short-term //market. //T/F //- //verified //answer(s)-
✔✔F, //That //is //the //Market //Segmentation //Theory
If /
/you /
/have /
/information /
/that //
a //recession //is //ending //and //the //economy //is //about //to //enter //a //boom, //and //your //firm //needs
//to //borrow //money, //it //should //probably //issue //a //long-term //rather //than //short-
term //debt. //T/F //- //verified //answer(s)-✔✔T
The /
/two /
/reasons /
/most /
/expert /
EXAM
/ //
2 /
QUESTIONS WITH CORRECT ANSWERS
/ // // //
The //"nominal //rate //of //interest" //is //defined //as //the //sum //if //the //nominal //risk-
free //rate //of //return //and //the //expected //inflation //rate. //T/F //- //verified //answer(s)-✔✔F
If //the //federal //reserve //tightens //the //money //supply, //other //things //held //constant, //short-
term /
/interest /
/rates /
/will /
/be /
/pushed /
/upward, /
/and //this //increase //probably //will //be //greater //than //the //increase //in //rates //in //the //long-
term //market. //T/F //- //verified //answer(s)-✔✔T
The //term //structure //is //defined //as //the //relationship //between //interest //rates //and //the //similar
//securities. //T/F //- //verified //answer(s)-✔✔T
During /
/or /
/near /
/peaks /
/of /
/business /
/activity //, /
/yield /
,/curves /
/that /
/are /
/flat /
/or /
/downward //sloping //(possibly //with //humps) //often //are //prevalent. //T/F //- //verified //answer(s)-
✔✔T
The //"expectation /
/theory" /
/postulates /
/that /
/the //"term /
/structure" /
/of /
/interest /
/rates //is //based //on //expectations //regarding //future //inflation //rates. //T/F //- //verified //answer(s)-
✔✔T
The /
/real /
/rate /
/of /
/interest /
/is /
/composed /
/of //
a/
/risk /
/free /
/rate //of //interest //plus //a //premium //that //reflects //the //riskiness //of //the //security. //T/F //- //verified
//answer(s)-✔✔F
The /
/yield /
, /curve //is //downward //sloping, //or //inverted, //if //the //long //term //rates //are //high //than //the //short-
term //rates. //- //verified //answer(s)-✔✔F
The /
/liquidity /
/preference /
/theory /
/states /
/that /
/each /
/borrower /
/and /
/lender /
/has //
a/
/preferred /
/maturity /
/and //that //the //slope //of //the //yield //curve //depends //on //supply //and //demand //for //funds //in //the
//long-term //market //relative //to //the //short-term //market. //T/F //- //verified //answer(s)-
✔✔F, //That //is //the //Market //Segmentation //Theory
If /
/you /
/have /
/information /
/that //
a //recession //is //ending //and //the //economy //is //about //to //enter //a //boom, //and //your //firm //needs
//to //borrow //money, //it //should //probably //issue //a //long-term //rather //than //short-
term //debt. //T/F //- //verified //answer(s)-✔✔T
The /
/two /
/reasons /
/most /
/expert /
