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Midterm 1

35 Questions  I  By Stlepin
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1.  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.
2.  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.
3.  4. Identify which item is not one of the six parts of the financial system. 
A.
B.
C.
D.
4.  15. Roles served by financial markets include the following, except: 
A.
B.
C.
D.
5.  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.
6.  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.
7.  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.
8.  21. The price of a coupon bond is determined by: 
A.
B.
C.
D.
9.  33. If a local government eliminates the tax exemption on municipal bonds, we'd expect to see: 
A.
B.
C.
D.
10.  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.
11.  12. Asymmetric information in financial markets is a potential problem usually resulting from: 
A.
B.
C.
D.
12.  32. The risk spread is: 
A.
B.
C.
D.
13.  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.
14.  28. Interest-rate risk would not matter to which of the following bondholders? 
A.
B.
C.
D.
15.  1. The statement "risk requires compensation" implies that people: 
A.
B.
C.
D.
16.  7. The high transaction costs associated with a barter system refers to: 
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.  22. As inflation increases, for any fixed nominal interest rate, the real interest rate: 
A.
B.
C.
D.
19.  16. Debt instruments that have maturities less than one year are traded in: 
A.
B.
C.
D.
20.  9. The money aggregate M2 includes: 
A.
B.
C.
D.
21.  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.
22.  11. Many financial instruments are standardized because: 
A.
B.
C.
D.
23.  2. Banks usually offer higher rates of interest to people willing to keep their funds in the bank longer because:   
A.
B.
C.
D.
24.  3. Studying money and banking through five core principles is helpful because: 
A.
B.
C.
D.
25.  6. The store of value characteristic of money refers to the fact that: 
A.
B.
C.
D.
26.  8. An advantage that money has over other assets is that it: 
A.
B.
C.
D.
27.  19. The rule of 72 says that at 6% interest $100 should become $200 in about: 
A.
B.
C.
D.
28.  14. Financial instruments used primarily as stores of value include each of the following, except: 
A.
B.
C.
D.
29.  24. When the price of a bond is below the face value, the yield to maturity: 
A.
B.
C.
D.
30.  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.
31.  5. The unit of account characteristic of money: 
A.
B.
C.
D.
32.  20. The lower the interest rate, i: 
A.
B.
C.
D.
33.  10. M1 has decreased in its usefulness in understanding inflation due to: 
A.
B.
C.
D.
34.  23. Which of the following statements is most accurate? 
A.
B.
C.
D.
35.  31. If a bond's rating improves it should cause: 
A.
B.
C.
D.
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