EXAM 1 REE 4204 SIRMANS | 112 QUESTIONS AND
ANSWERS | 2025/2026 UPDATE | WITH COMPLETE
SOLUTION
In general, inflation is a monetary phenomenon resulting from an increase in
money supply as opposed to resulting from an increase in general price levels.
Answer - True
According to the liquidity premium theory, investors are willing to pay a price
premium for securities with shorter maturities. Answer - True
For most investments, cash flow and net profit can be used interchangeably in
asset valuation. Answer - False
Commercial banks are overseen by the Office of Thrift Supervision. Answer -
False
Since finance is concerned with the valuation of assets, it must explicitly
consider the time value of money. Answer - True
Real Estate investment Trusts (REITs) specialize in investing in real property and
mortgages on real property. Answer - True
,The secondary mortgage market is the market where second (junior)
mortgages are created. Answer - False
Since the nominal interest rate can be observed in the market, a precise
measure of future inflation can be determined. Answer - False
A yield curve shows the yields on bonds over time. Answer - False
In today's mortgage market, due to the short-term nature of mortgages, most
real estate financing takes place in the money markets. Answer - False
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.
Answer - False
The market segmentation theory suggests that there is more than one market
for the same security. Answer - False
A downward sloping yield curve shows that, at this point in time, long-term
rates are higher than short-term rates. Answer - False
The price of a bond, besides being determined by the market-required rate,
also moves inversely to this rate. 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%. Answer - False
8%
, Under the expectations theory, an upwards sloping yield curve means that
investors expect market rates to rise in the future. Answer - True
The market segmentation theory by its nature dictates that short term rates
must always be less than long term rates. Answer - False
Default risk is the risk that a bond issuer will be unable to repay the principal
and interest on the debt. Answer - True
The yield observed on a riskless bond in a non-inflationary environment would
be the real rate if interest. Answer - True
A primary market transaction always involves the original issuer of the security.
Answer - True
The term "toxic mortgage debt" in the 2000s referred to mortgages on
properties
contaminated by hazardous waste. 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.
Answer - True
Negative financial leverage occurs when the cost of debt is greater than the
equity yield
on the investment. Answer - Quiz = False But I think it's True
ANSWERS | 2025/2026 UPDATE | WITH COMPLETE
SOLUTION
In general, inflation is a monetary phenomenon resulting from an increase in
money supply as opposed to resulting from an increase in general price levels.
Answer - True
According to the liquidity premium theory, investors are willing to pay a price
premium for securities with shorter maturities. Answer - True
For most investments, cash flow and net profit can be used interchangeably in
asset valuation. Answer - False
Commercial banks are overseen by the Office of Thrift Supervision. Answer -
False
Since finance is concerned with the valuation of assets, it must explicitly
consider the time value of money. Answer - True
Real Estate investment Trusts (REITs) specialize in investing in real property and
mortgages on real property. Answer - True
,The secondary mortgage market is the market where second (junior)
mortgages are created. Answer - False
Since the nominal interest rate can be observed in the market, a precise
measure of future inflation can be determined. Answer - False
A yield curve shows the yields on bonds over time. Answer - False
In today's mortgage market, due to the short-term nature of mortgages, most
real estate financing takes place in the money markets. Answer - False
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.
Answer - False
The market segmentation theory suggests that there is more than one market
for the same security. Answer - False
A downward sloping yield curve shows that, at this point in time, long-term
rates are higher than short-term rates. Answer - False
The price of a bond, besides being determined by the market-required rate,
also moves inversely to this rate. 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%. Answer - False
8%
, Under the expectations theory, an upwards sloping yield curve means that
investors expect market rates to rise in the future. Answer - True
The market segmentation theory by its nature dictates that short term rates
must always be less than long term rates. Answer - False
Default risk is the risk that a bond issuer will be unable to repay the principal
and interest on the debt. Answer - True
The yield observed on a riskless bond in a non-inflationary environment would
be the real rate if interest. Answer - True
A primary market transaction always involves the original issuer of the security.
Answer - True
The term "toxic mortgage debt" in the 2000s referred to mortgages on
properties
contaminated by hazardous waste. 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.
Answer - True
Negative financial leverage occurs when the cost of debt is greater than the
equity yield
on the investment. Answer - Quiz = False But I think it's True
