FINANCE 301 FINAL-MILLS EXAM
QUESTIONS & ACTUAL CORRECT
ANSWERS PASSED
True or false- In a loan participation agreement, normally all of the participating banks
are exposed to credit (default) risk - Correct Answer ✔✔ True
The main use of bank funds is for - Correct Answer ✔✔ loans
Transaction deposits do not include - Correct Answer ✔✔ NCDs
According to pure expectations theory, short-term rates will exceed long-term rates
whenever market participants expect short-term rates to increase in the future - Correct
Answer ✔✔ false
Investors can sell exchange-traded funds short.
a. True
b. False - Correct Answer ✔✔ true
Because money market funds contain instruments with short-term maturities, their
market values are not very sensitive to movements in market interest rates. - Correct
Answer ✔✔ True
Hedge funds are more heavily regulated than mutual funds - Correct Answer ✔✔ false
focus on a group of companies sharing a particular characteristic - Correct Answer ✔✔
specialty
When an investor purchases a six month (182 day) t-bill with a $10,000 par value for
$9,700 the t-bill discount is ______ percent - Correct Answer ✔✔ ______
Freeman Corp., a large corporation, plans to issue 45-day commercial paper with a par
value of $3,000,000. Freeman expects to sell the commercial paper for $2,947,000.
Freeman's annualized cost of borrowing is estimated to be ____ percent. - Correct
Answer ✔✔ ____
True or false: A bonds price decreases when its yeild to maturity falls - Correct Answer
✔✔ False
True or false: A stop-loss order is a particular type of limit order whereby the investor
specifies a selling price that is below the current market price of the stock - Correct
Answer ✔✔ True
, A____ from broker requires the investor to put up additional collateral - Correct Answer
✔✔ margin call
_____ is/are least likely to be used as a method of reducing interest rate risk - Correct
Answer ✔✔ stock options
____________ is not a method used to assess interest rate risk - Correct Answer ✔✔
Efficiency analysis
According to pure expectations theory, what is the expected 1 year yield two years from
now? (includes chart) - Correct Answer ✔✔ ________
assume that a stock is priced at $50 and pays an annual dividend of $2 per share. an
investor purchases a stock on margin paying $25 per share, and borrowing the
remainder from a brokerage firm at 9 percent annual interest. if after one year the stock
is priced at $65.25 per share, the return on the stock is - Correct Answer ✔✔ ------
At any given point in time, households would demand a ____ quantity of loanable funds
at ______ rates of interest. - Correct Answer ✔✔ greater: lower
If the economy weakens, there is _________ pressure on interest rates. If the Federal
Reserve increases the money supply there is ______ pressure on interest rates
(assume that inflationary expectations are not affected). - Correct Answer ✔✔
downward;downward
According to the fisher effect, expectations of higher inflation cause savers to require a
______ on savings. - Correct Answer ✔✔ higher nominal interest rate
as a result of favorable economic conditions, there is a ______ demand for loanable
funds, causing a ______ shift in the demand curve - Correct Answer ✔✔ increased,
outward
The required return to implement a given business project will be _______ if interest
rates are lower. this implies that businesses will demand a _______ quantity of loanable
funds when interest rates are lower - Correct Answer ✔✔ lower, greater
A 20-year-old annual coupon bond has a par value of $1000 and an 8% coupon rate. if
the bonds sells for $1175 what is the yeild to maturity? - Correct Answer ✔✔ -----
A downward sloping yeild curve indicates that treasury securities with _______
maturities offer ______ annualized yeilds - Correct Answer ✔✔ longer; lower
shorter; higher
The higher a bond rating, the lower the perceived credit risk - Correct Answer ✔✔ true
QUESTIONS & ACTUAL CORRECT
ANSWERS PASSED
True or false- In a loan participation agreement, normally all of the participating banks
are exposed to credit (default) risk - Correct Answer ✔✔ True
The main use of bank funds is for - Correct Answer ✔✔ loans
Transaction deposits do not include - Correct Answer ✔✔ NCDs
According to pure expectations theory, short-term rates will exceed long-term rates
whenever market participants expect short-term rates to increase in the future - Correct
Answer ✔✔ false
Investors can sell exchange-traded funds short.
a. True
b. False - Correct Answer ✔✔ true
Because money market funds contain instruments with short-term maturities, their
market values are not very sensitive to movements in market interest rates. - Correct
Answer ✔✔ True
Hedge funds are more heavily regulated than mutual funds - Correct Answer ✔✔ false
focus on a group of companies sharing a particular characteristic - Correct Answer ✔✔
specialty
When an investor purchases a six month (182 day) t-bill with a $10,000 par value for
$9,700 the t-bill discount is ______ percent - Correct Answer ✔✔ ______
Freeman Corp., a large corporation, plans to issue 45-day commercial paper with a par
value of $3,000,000. Freeman expects to sell the commercial paper for $2,947,000.
Freeman's annualized cost of borrowing is estimated to be ____ percent. - Correct
Answer ✔✔ ____
True or false: A bonds price decreases when its yeild to maturity falls - Correct Answer
✔✔ False
True or false: A stop-loss order is a particular type of limit order whereby the investor
specifies a selling price that is below the current market price of the stock - Correct
Answer ✔✔ True
, A____ from broker requires the investor to put up additional collateral - Correct Answer
✔✔ margin call
_____ is/are least likely to be used as a method of reducing interest rate risk - Correct
Answer ✔✔ stock options
____________ is not a method used to assess interest rate risk - Correct Answer ✔✔
Efficiency analysis
According to pure expectations theory, what is the expected 1 year yield two years from
now? (includes chart) - Correct Answer ✔✔ ________
assume that a stock is priced at $50 and pays an annual dividend of $2 per share. an
investor purchases a stock on margin paying $25 per share, and borrowing the
remainder from a brokerage firm at 9 percent annual interest. if after one year the stock
is priced at $65.25 per share, the return on the stock is - Correct Answer ✔✔ ------
At any given point in time, households would demand a ____ quantity of loanable funds
at ______ rates of interest. - Correct Answer ✔✔ greater: lower
If the economy weakens, there is _________ pressure on interest rates. If the Federal
Reserve increases the money supply there is ______ pressure on interest rates
(assume that inflationary expectations are not affected). - Correct Answer ✔✔
downward;downward
According to the fisher effect, expectations of higher inflation cause savers to require a
______ on savings. - Correct Answer ✔✔ higher nominal interest rate
as a result of favorable economic conditions, there is a ______ demand for loanable
funds, causing a ______ shift in the demand curve - Correct Answer ✔✔ increased,
outward
The required return to implement a given business project will be _______ if interest
rates are lower. this implies that businesses will demand a _______ quantity of loanable
funds when interest rates are lower - Correct Answer ✔✔ lower, greater
A 20-year-old annual coupon bond has a par value of $1000 and an 8% coupon rate. if
the bonds sells for $1175 what is the yeild to maturity? - Correct Answer ✔✔ -----
A downward sloping yeild curve indicates that treasury securities with _______
maturities offer ______ annualized yeilds - Correct Answer ✔✔ longer; lower
shorter; higher
The higher a bond rating, the lower the perceived credit risk - Correct Answer ✔✔ true
