final 330 Questions with complete
solution 2025/2026
Which of the following is the most likely effect of an increase in income tax rates? - correct answer
✔Decrease in the supply of loanable funds.
Which of the following is the least likely effect of an increase in income tax rates? - correct answer
✔Decrease in the interest rates.
Which of the following describes the relationship between nominal interest rate and real risk-free rate?
- correct answer ✔Fisher effect
Which of the following describes the relationship between maturity and yield to maturity? - correct
answer ✔term structure
According to the liquidity premium theory of interest rates: - correct answer ✔long-term spot rates are
higher than the average of current and expected future short-term rates.
According to the market segmentation theory of interest rates: - correct answer ✔investors prefer
certain maturities and will not normally switch out of those maturities.
1-year 2-year 3-year 4-year Spot rate 2.50%2.00%1.70%1.30%
What is the 2-year yield two years in the future? - correct answer ✔0.6%
(1.3% x 4 - 2% x 2) / 2 = 0.6%
1-year 2-year 3-year 4-year Spot rate 2.50%2.00%1.70%1.30%
The yield curve implies that the market expects short-term interest rate in the coming four years to: -
correct answer ✔fall
,The yield curve is downward sloping, so the future interest rate is expected to fall.
1-year2-year3-year4-year Spot rate 2.50%2.00%1.70%1.80%
The yield curve implies that the market expects short-term interest rate in the coming four years to: -
correct answer ✔Fall and then rise
The yield curve is downward sloping, so the future interest rate is expected to fall.
1-year2-year3-year4-year Spot rate: 1.80%2.10%2.40%2.50%
What is the 1-year yield two years in the future? - correct answer ✔3%
2.4% x 3 - 2.1% x 2 = 3%
1-year2-year3-year4-year Spot rate. 1.80%2.10%2.40%2.50%
Suppose investors require a liquidity risk premium of 0.6%, what is the 1-year yield two years in the
future? - correct answer ✔2.4%
2.4% x 3 - 2.1% x 2 - 0.6%= 2.4%
1-year2-year3-year4-year Spot rate. 1.80%2.10%2.40%2.50%
Suppose investors require a liquidity risk premium of 0.6%, what is the 1-year yield one year in the
future? - correct answer ✔1.8%
2.1% x 2 - 1.8% - 0.6%= 1.8%
Bond. Maturity. Liquidity Default Risk YTM A. 2 High Low. 3.50%. B. 8. High. High. 5.00% C. 2. Low. High.
5.50% D. 8. Low. High. 6.00%
Based on the table above, what is the default risk premium? - correct answer ✔1%
From C and D, maturity risk premium = 6.0% - 5.5% = 0.5%
From A and B, default risk premium = (5.0% - 3.5%) - 0.5% = 1%
, Bond. Maturity. Liquidity. Default Risk. YTM. A 2 High Low 3.50% B 2 High High 4.50% C 8 High Low
5.50% D 8 Low High 7.00%
Based on the table above, what is the liquidity risk premium? - correct answer ✔0.5%
(7% - 5.5%) - (4.5% - 3.5%) = 0.5%
Bond. Maturity. Liquidity. Default Risk. YTM. A 2 High Low 3.50% B 2 High High 4.50% C 8 High Low
5.50% D 8 Low High 7.00%
Based on the table above, what is the maturity risk premium? - correct answer ✔2%
From C and A, maturity premium is 5.5% - 3.5% = 2%
Bond. Maturity. Liquidity. Default Risk. YTM. A Short High Low 2.40% B Short High High 3.10% C Long
High High 3.50% D Long Low High 4.50% E Long High Low ??
What is the YTM of bond E? - correct answer ✔2.8%
From B and C, maturity risk premium = 3.5% - 3.1% = 0.4%
From A and E, YTM of E = 2.4% + 0.4% = 2.8%
Bond. Maturity. Liquidity. Default Risk. YTM. A Short High Low 2.40% B Short High High 3.00% C Long
High High 3.80% D Long Low High 4.50%
What are the maturity risk premium, liquidity risk premium, and default risk premium? - correct answer
✔0.8%, 0.7%, 0.6%
From A and B, default premium = 3.0% - 2.4% = 0.6%
From B and C, maturity premium = 3.8% - 3.0% = 0.8%
From C and D, liquidity premium = 4.5% - 3.8% = 0.7%
You want to buy 4 percent more goods and services in the future. During the investment period, prices
are expected to rise by 3 percent. Which of the following is true? - correct answer ✔The expected
inflation rate is 3%.
solution 2025/2026
Which of the following is the most likely effect of an increase in income tax rates? - correct answer
✔Decrease in the supply of loanable funds.
Which of the following is the least likely effect of an increase in income tax rates? - correct answer
✔Decrease in the interest rates.
Which of the following describes the relationship between nominal interest rate and real risk-free rate?
- correct answer ✔Fisher effect
Which of the following describes the relationship between maturity and yield to maturity? - correct
answer ✔term structure
According to the liquidity premium theory of interest rates: - correct answer ✔long-term spot rates are
higher than the average of current and expected future short-term rates.
According to the market segmentation theory of interest rates: - correct answer ✔investors prefer
certain maturities and will not normally switch out of those maturities.
1-year 2-year 3-year 4-year Spot rate 2.50%2.00%1.70%1.30%
What is the 2-year yield two years in the future? - correct answer ✔0.6%
(1.3% x 4 - 2% x 2) / 2 = 0.6%
1-year 2-year 3-year 4-year Spot rate 2.50%2.00%1.70%1.30%
The yield curve implies that the market expects short-term interest rate in the coming four years to: -
correct answer ✔fall
,The yield curve is downward sloping, so the future interest rate is expected to fall.
1-year2-year3-year4-year Spot rate 2.50%2.00%1.70%1.80%
The yield curve implies that the market expects short-term interest rate in the coming four years to: -
correct answer ✔Fall and then rise
The yield curve is downward sloping, so the future interest rate is expected to fall.
1-year2-year3-year4-year Spot rate: 1.80%2.10%2.40%2.50%
What is the 1-year yield two years in the future? - correct answer ✔3%
2.4% x 3 - 2.1% x 2 = 3%
1-year2-year3-year4-year Spot rate. 1.80%2.10%2.40%2.50%
Suppose investors require a liquidity risk premium of 0.6%, what is the 1-year yield two years in the
future? - correct answer ✔2.4%
2.4% x 3 - 2.1% x 2 - 0.6%= 2.4%
1-year2-year3-year4-year Spot rate. 1.80%2.10%2.40%2.50%
Suppose investors require a liquidity risk premium of 0.6%, what is the 1-year yield one year in the
future? - correct answer ✔1.8%
2.1% x 2 - 1.8% - 0.6%= 1.8%
Bond. Maturity. Liquidity Default Risk YTM A. 2 High Low. 3.50%. B. 8. High. High. 5.00% C. 2. Low. High.
5.50% D. 8. Low. High. 6.00%
Based on the table above, what is the default risk premium? - correct answer ✔1%
From C and D, maturity risk premium = 6.0% - 5.5% = 0.5%
From A and B, default risk premium = (5.0% - 3.5%) - 0.5% = 1%
, Bond. Maturity. Liquidity. Default Risk. YTM. A 2 High Low 3.50% B 2 High High 4.50% C 8 High Low
5.50% D 8 Low High 7.00%
Based on the table above, what is the liquidity risk premium? - correct answer ✔0.5%
(7% - 5.5%) - (4.5% - 3.5%) = 0.5%
Bond. Maturity. Liquidity. Default Risk. YTM. A 2 High Low 3.50% B 2 High High 4.50% C 8 High Low
5.50% D 8 Low High 7.00%
Based on the table above, what is the maturity risk premium? - correct answer ✔2%
From C and A, maturity premium is 5.5% - 3.5% = 2%
Bond. Maturity. Liquidity. Default Risk. YTM. A Short High Low 2.40% B Short High High 3.10% C Long
High High 3.50% D Long Low High 4.50% E Long High Low ??
What is the YTM of bond E? - correct answer ✔2.8%
From B and C, maturity risk premium = 3.5% - 3.1% = 0.4%
From A and E, YTM of E = 2.4% + 0.4% = 2.8%
Bond. Maturity. Liquidity. Default Risk. YTM. A Short High Low 2.40% B Short High High 3.00% C Long
High High 3.80% D Long Low High 4.50%
What are the maturity risk premium, liquidity risk premium, and default risk premium? - correct answer
✔0.8%, 0.7%, 0.6%
From A and B, default premium = 3.0% - 2.4% = 0.6%
From B and C, maturity premium = 3.8% - 3.0% = 0.8%
From C and D, liquidity premium = 4.5% - 3.8% = 0.7%
You want to buy 4 percent more goods and services in the future. During the investment period, prices
are expected to rise by 3 percent. Which of the following is true? - correct answer ✔The expected
inflation rate is 3%.
