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Midterm 1

35 Questions  I  By Stlepin
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1.  27. Suppose there is a decrease in the price at which a bondholder sells her bond. In this case, the holding period return will: 
A.
B.
C.
D.
2.  11. Many financial instruments are standardized because: 
A.
B.
C.
D.
3.  15. Roles served by financial markets include the following, except: 
A.
B.
C.
D.
4.  10. M1 has decreased in its usefulness in understanding inflation due to: 
A.
B.
C.
D.
5.  17. Suppose Mary receives an $8,000 loan from First National Bank. Mary repays $8,480 to First National Bank at the end of one year. Assuming the simple calculation of interest, the interest rate on Mary's loan was: 
A.
B.
C.
D.
6.  1. The statement "risk requires compensation" implies that people: 
A.
B.
C.
D.
7.  9. The money aggregate M2 includes: 
A.
B.
C.
D.
8.  7. The high transaction costs associated with a barter system refers to: 
A.
B.
C.
D.
9.  16. Debt instruments that have maturities less than one year are traded in: 
A.
B.
C.
D.
10.  21. The price of a coupon bond is determined by: 
A.
B.
C.
D.
11.  14. Financial instruments used primarily as stores of value include each of the following, except: 
A.
B.
C.
D.
12.  20. The lower the interest rate, i: 
A.
B.
C.
D.
13.  22. As inflation increases, for any fixed nominal interest rate, the real interest rate: 
A.
B.
C.
D.
14.  31. If a bond's rating improves it should cause: 
A.
B.
C.
D.
15.  6. The store of value characteristic of money refers to the fact that: 
A.
B.
C.
D.
16.  19. The rule of 72 says that at 6% interest $100 should become $200 in about: 
A.
B.
C.
D.
17.  13. A share of Microsoft stock would best be described as which of the following? 
A.
B.
C.
D.
18.  34.  Suppose the tax rate is 25% and the taxable Treasury bond yield is 8%. If a municipal bond with the same maturity has an yield of 7.5%, what is the risk spread on the municapal bond?  
A.
B.
C.
D.
19.  32. The risk spread is: 
A.
B.
C.
D.
20.  25. A $1000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has: 
A.
B.
C.
D.
21.  4. Identify which item is not one of the six parts of the financial system. 
A.
B.
C.
D.
22.  12. Asymmetric information in financial markets is a potential problem usually resulting from: 
A.
B.
C.
D.
23.  24. When the price of a bond is below the face value, the yield to maturity: 
A.
B.
C.
D.
24.  25. A $1000 face value bond purchased for $965.00, with an annual coupon of $60, and 20 years to maturity has: 
A.
B.
C.
D.
25.  30. If the risk on foreign government bonds increases relative to U.S. government bonds, the price of U.S. government bonds should: 
A.
B.
C.
D.
26.  26. A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980 has: 
A.
B.
C.
D.
27.  28. Interest-rate risk would not matter to which of the following bondholders? 
A.
B.
C.
D.
28.  29. The impact of a decrease in expected inflation in the bond market will have a relatively large effect on the prices of bonds prices because: 
A.
B.
C.
D.
29.  33. If a local government eliminates the tax exemption on municipal bonds, we'd expect to see: 
A.
B.
C.
D.
30.  3. Studying money and banking through five core principles is helpful because: 
A.
B.
C.
D.
31.  2. Banks usually offer higher rates of interest to people willing to keep their funds in the bank longer because:   
A.
B.
C.
D.
32.  5. The unit of account characteristic of money: 
A.
B.
C.
D.
33.  23. Which of the following statements is most accurate? 
A.
B.
C.
D.
34.  18. A lender is promised a $100 payment (including interest) one year from today. If the lender has a 6% opportunity cost of money, he/she should be willing to accept what amount today? 
A.
B.
C.
D.
35.  8. An advantage that money has over other assets is that it: 
A.
B.
C.
D.
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