Midterm 1

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1.  15. Roles served by financial markets include the following, except: 
A.
B.
C.
D.
2.  13. A share of Microsoft stock would best be described as which of the following? 
A.
B.
C.
D.
3.  12. Asymmetric information in financial markets is a potential problem usually resulting from: 
A.
B.
C.
D.
4.  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.
5.  7. The high transaction costs associated with a barter system refers to: 
A.
B.
C.
D.
6.  31. If a bond's rating improves it should cause: 
A.
B.
C.
D.
7.  11. Many financial instruments are standardized because: 
A.
B.
C.
D.
8.  10. M1 has decreased in its usefulness in understanding inflation due to: 
A.
B.
C.
D.
9.  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.
10.  5. The unit of account characteristic of money: 
A.
B.
C.
D.
11.  28. Interest-rate risk would not matter to which of the following bondholders? 
A.
B.
C.
D.
12.  33. If a local government eliminates the tax exemption on municipal bonds, we'd expect to see: 
A.
B.
C.
D.
13.  3. Studying money and banking through five core principles is helpful because: 
A.
B.
C.
D.
14.  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.
15.  20. The lower the interest rate, i: 
A.
B.
C.
D.
16.  23. Which of the following statements is most accurate? 
A.
B.
C.
D.
17.  19. The rule of 72 says that at 6% interest $100 should become $200 in about: 
A.
B.
C.
D.
18.  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.
19.  32. The risk spread is: 
A.
B.
C.
D.
20.  22. As inflation increases, for any fixed nominal interest rate, the real interest rate: 
A.
B.
C.
D.
21.  16. Debt instruments that have maturities less than one year are traded in: 
A.
B.
C.
D.
22.  6. The store of value characteristic of money refers to the fact that: 
A.
B.
C.
D.
23.  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.
24.  4. Identify which item is not one of the six parts of the financial system. 
A.
B.
C.
D.
25.  9. The money aggregate M2 includes: 
A.
B.
C.
D.
26.  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.
27.  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.
28.  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.
29.  2. Banks usually offer higher rates of interest to people willing to keep their funds in the bank longer because:   
A.
B.
C.
D.
30.  21. The price of a coupon bond is determined by: 
A.
B.
C.
D.
31.  14. Financial instruments used primarily as stores of value include each of the following, except: 
A.
B.
C.
D.
32.  8. An advantage that money has over other assets is that it: 
A.
B.
C.
D.
33.  24. When the price of a bond is below the face value, the yield to maturity: 
A.
B.
C.
D.
34.  1. The statement "risk requires compensation" implies that people: 
A.
B.
C.
D.
35.  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.
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