Cooke 303

If 1-year interest rates for the next three years are expected to be 1, 1, and 1 percent, and the 3-year term premium is 1 percent, than the 3-year bond rate will be 1 percent. 2 percent. 3 percent. 4 percent.

2 percent

________ is used to make purchases while ________ is the total collection of pieces of property that serve to store value. Money; income Wealth; income Money; wealth Income; money

Money; wealth

The purpose of the disclosure requirements of the Securities and Exchange Commission is to improve monetary control. protect investors against financial losses. increase the information available to investors. prevent bank panics.

increase the information available to investors.

A movement along the bond demand or supply curve occurs when ________ changes. wealth bond price income expected return

bond price

When I purchase a corporate ________, I am lending the corporation funds for a specific time. When I purchase a corporation's ________, I become an owner in the corporation. bond; stock stock; debt security stock; bond bond; debt security

bond; stock

Budget deficits are important because deficits always cause interest rates to fall. always cause prices to fall. can result in higher rates of monetary growth. cause bank failures.

can result in higher rates of monetary growth.

Equity and debt instruments with maturities greater than one year are called ________ market instruments. federal money capital benchmark

capital

A smart card is the equivalent of savings deposits. savings bonds. certificates of deposit. cash.

cash

the primary assets of a pension fund are corporate bonds and stock. mortgages. consumer and business loans. money market instruments.

corporate bonds and stock.

Students studying money, banking, and financial markets will learn nothing of practical value. stock market tips. how to time the market. critical thinking skills that will be useful in all careers.

critical thinking skills that will be useful in all careers

Holding the expected return on bonds constant, an increase in the expected return on common stocks would ________ the demand for bonds, shifting the demand curve to the ________. decrease; right decrease; left increase; left increase; right

decrease; left

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200? 9 percent 10 percent 11 percent 12 percent

10 percent

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is 5 percent. 10 percent. 12.5 percent. 15 percent.

10 percent.

I purchase a 10 percent coupon bond. Based on my purchase price, I calculate a yield to maturity of 8 percent. If I hold this bond to maturity, then my return on this asset is 10 percent. 8 percent. 12 percent. there is not enough information to determine the return.

8 percent

U.S. dollar deposits in foreign banks outside the U.S. or in foreign branches of U.S. banks are called foreign dollars. Atlantic dollars. Eurodollars. outside dollars.

Eurodollars

Which of the following are TRUE of fixed payment loans? Commercial loans to businesses are often of this type. Installment loans and mortgages are frequently of the fixed payment type. The borrower pays interest periodically and the principal at the maturity date. The borrower repays both the principal and interest at the maturity date.

Installment loans and mortgages are frequently of the fixed payment type.

________ and ________ may provide an explanation for stock market bubbles. Underconfidence; social contagion Underconfidence; social isolationism Overconfidence; social isolationism Overconfidence; social contagion

Overconfidence; social contagion

Which of the following securities has the lowest interest rate? investment-grade bonds junk bonds corporate Baa bonds U.S. Treasury bonds

U.S. Treasury bonds

Forty or so dealers establish a "market" in these securities by standing ready to buy and sell them. common stocks secondary stocks surplus stocks U.S. government bonds

U.S. government bonds

The efficient markets hypothesis predicts that stock prices follow a "random walk." The implication of this hypothesis for investing in stocks is following the advice of technical analysts. turning over your stock portfolio each month, selecting stocks by throwing darts at the stock page. a "buy and hold strategy" of holding stocks to avoid brokerage commissions. a "churning strategy" of buying and selling often to catch market swings

a "buy and hold strategy" of holding stocks to avoid brokerage commissions.

Which of the following is NOT a form of e-money? a smart card a stored-value card a credit card a debit card

a credit card

If the yield curve is flat for short maturities and then slopes downward for longer maturities, the liquidity premium theory (assuming a mild preference for shorter-term bonds) indicates that the market is predicting constant short-term interest rates in the near future and a decline further out in the future. a rise in short-term interest rates in the near future and a decline further out in the future. a decline in short-term interest rates in the near future and a rise further out in the future. a decline in short-term interest rates in the near future and an even steeper decline further out in the future.

a decline in short-term interest rates in the near future and an even steeper decline further out in the future.

the small-firm effect refers to the low returns after adjusting for risk earned by small firms. abnormally high returns earned by small firms. returns equal to large firms earned by small firms. negative returns earned by small firms.

abnormally high returns earned by small firms.

A stock's price will fall if there is an increase in the future sales price. an increase in the required rate of return. a decrease in perceived risk. current dividends are high.

an increase in the required rate of return.

When stock prices fall a business firm will be more likely to sell stock to finance investment spending. an individual's wealth may decrease but their willingness to spend is not affected. an individual's wealth may decrease and their willingness to spend may decrease. an individual's wealth is not affected nor is their willingness to spend.

an individual's wealth may decrease and their willingness to spend may decrease.

As a means of payment, coins have the major drawback that they are hard to counterfeit. are heavy and hard to transport. are not the most liquid assets. must be backed by gold.

are heavy and hard to transport.

According to rational expectations theory, forecast errors of expectations tend to be persistently high or low. are more likely to be positive than negative. are more likely to be negative than positive. are unpredictable.

are unpredictable.

The duration of a portfolio of securities is the weighted ________ of the durations of the individual securities, with the weights reflecting the proportion of the portfolio invested in each security. average maximum minimum median

average

The primary liabilities of a commercial bank are mortgages. deposits. bonds. commercial paper.

deposits

High interest rates might ________ purchasing a house or car but at the same time high interest rates might ________ saving. encourage; discourage discourage; discourage encourage; encourage discourage; encourage

discourage; encourage

If investors expect interest rates to fall significantly in the future, the yield curve will be inverted. This means that the yield curve has a ________ slope. downward slight upward flat steep upward

downward

An important characteristic of the modern payments system has been the rapidly increasing use of commodity monies. fiat money. checks and decreasing use of currency. electronic fund transfers

electronic fund transfers.

The reduction of brokerage commissions for trading common stocks that occurred in 1975 caused the demand for bonds to ________ and the demand curve to shift to the ________. fall; right rise; left fall; left rise; right

fall; left

The present value of an expected future payment ________ as the interest rate increases. falls is unaffected rises is constant

falls

Holding everything else constant, if the price of a Bitcoin becomes less volatile, the demand for bonds ________, the price of bonds ________, and the interest rate ________. rises; falls; rises rises; rises; rises falls; falls; falls falls; falls; rises

falls; falls; rises

In a one-period valuation model, a decrease in the required return on investments in equity causes a(n) ________ in the ________ price of a stock. decrease; current decrease; expected sales increase; expected sales increase; current

increase; current

If the probability of a bond default increases because corporations begin to suffer large losses, then the default risk on corporate bonds will ________ and the expected return on these bonds will ________, everything else held constant. decrease; decrease increase; increase increase; decrease decrease; increase

increase; decrease

An increase in an asset's expected return relative to that of an alternative asset, holding everything else constant, ________ the quantity demanded of the asset. has no effect on decreases erases increases

increases

As their relative riskiness ________, the expected return on corporate bonds ________ relative to the expected return on default-free bonds, everything else held constant. increases; decreases increases; increases decreases; does not change decreases; decreases

increases; decreases

The figure above illustrates the effect of an increased rate of money supply growth at time period T 0. From the figure, one can conclude that the Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. *there's a graph that goes with this

liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation.

Of the four effects on interest rates from an increase in the money supply, the initial effect is, generally, the price level effect. expected inflation effect. liquidity effect. income effect.

liquidity effect.

A particularly attractive feature of the ________ is that it tells you what the market is predicting about future short-term interest rates by just looking at the slope of the yield curve. segmented markets theory separable markets theory liquidity premium theory expectations theory

liquidity premium theory

the Obama administration increased the tax on the top income tax bracket from 35% to 39%. Supply and demand analysis predicts the impact of this change was a ________ interest rate on municipal bonds and a ________ interest rate on Treasury bonds, all else the same. lower; higher higher; higher lower; lower higher; lower

lower; higher

Of money's three functions, the one that distinguishes money from other assets is its function as a standard of deferred payment. medium of exchange. unit of account. store of value.

medium of exchange.

Which of the following are investment intermediaries? state and local government retirement funds life insurance companies mutual funds pension funds

mutual funds

In order to reduce risk and increase the safety of financial institutions, commercial banks and other depository institutions are prohibited from owning common stock. making personal loans. making real estate loans. owning municipal bonds.

owning common stock.

When talking about a coupon bond, face value and ________ mean the same thing. amortized value coupon value par value discount value

par value

Holding all other factors constant, the quantity demanded of an asset is positively related to the risk of its returns relative to alternative assets. positively related to wealth. negatively related to its liquidity relative to alternative assets. negatively related to its expected return relative to alternative assets.

positively related to wealth.

Increased uncertainty resulting from the global financial crisis ________ the required return on investment in equity. raised decreased had no impact on lowered

raised

The ________ interest rate more accurately reflects the true cost of borrowing. discount market nominal real

real

Financial markets promote greater economic efficiency by channeling funds from ________ to ________. savers; borrowers investors; savers borrowers; savers savers; lenders

savers; borrowers

Which of the following is NOT included in the monetary aggregate M2? savings bonds checking deposits traveler's checks currency

savings bonds

A restriction on bank activities that was repealed in 1999 was the prohibition of the payment of interest on checking deposits. minimum down payments on loans to purchase securities. restrictions on credit terms. separation of commercial banking from the securities industries.

separation of commercial banking from the securities industries

f a market participant believes that a stock price is irrationally high, they may try to borrow stock from brokers to sell in the market and then make a profit by buying the stock back again after the stock falls in price. This practice is called double dealing. short selling. long marketing. undermining.

short selling.

Which of the following is NOT included in the M1 measure of money but is included in the M2 measure of money? currency traveler's checks demand deposits small-denomination time deposits

small-denomination time deposits

An example of economies of scale in the provision of financial services is spreading the cost of writing a standardized contract over many borrowers. investing in a diversified collection of assets. hiring more support staff so that customers don't have to wait so long for assistance. providing depositors with a variety of savings certificates.

spreading the cost of writing a standardized contract over many borrowers

When the price of a bond is above the equilibrium price, there is an excess ________ bonds and price will ________. supply of; rise demand for; fall supply of; fall demand for; rise

supply of; fall

The risk of a well-diversified portfolio depends only on the ________ risk of the assets in the portfolio. systematic investment portfolio nonsystemati

systematic

Comparing a discount bond and a coupon bond with the same maturity the effective maturity cannot be calculated for a discount bond. the coupon bond has the greater effective maturity. the effective maturity cannot be calculated for a coupon bond. the discount bond has the greater effective maturity.

the discount bond has the greater effective maturity.

Evidence in support of the efficient markets hypothesis includes excessive volatility. the small-firm effect. the January effect. the failure of technical analysis to outperform the market.

the failure of technical analysis to outperform the market.

Prior to almost all recessions since 1950, there has been a drop in the money stock. inflation. the growth rate of the money stock. interest rates.

the growth rate of the money stock.

Everything else held constant, if the tax-exempt status of municipal bonds were eliminated, then the interest rate on municipal bonds would equal the rate on Treasury bonds. the interest rates on municipal, Treasury, and corporate bonds would all increase. the interest rates on municipal bonds would still be less than the interest rate on Treasury bonds. the interest rate on municipal bonds would exceed the rate on Treasury bonds.

the interest rate on municipal bonds would exceed the rate on Treasury bonds.

The gross domestic product is the the market value of all intermediate goods and services produced in an economy in a year. the market value of all final goods and services produced in an economy in a year. the value of all goods and services sold to other nations in a year. the value of all wealth in an economy.

the market value of all final goods and services produced in an economy in a year.

In the one-period valuation model, the value of a share of stock today depends upon the actual value of the dividends and expected sales price received in one year. the present value of both the dividends and the expected sales price. only the present value of the future dividends. the future value of dividends and the actual sales price.

the present value of both the dividends and the expected sales price.

Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time period the rate of money growth declined. the government budget deficit (expressed as a percentage of GNP) trended downward. the aggregate price level declined quite dramatically. the rate of money growth increased.

the rate of money growth declined.

All but the most primitive societies use money as a medium of exchange, implying that inflation is not a concern. barter exchange is economically efficient. barter exchange cannot work outside the family. the use of money is economically efficient.

the use of money is economically efficient

Evidence from the United States and other foreign countries indicates that countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant. money growth is clearly unrelated to inflation. there is a strong positive association between inflation and growth rate of money over long periods of time. there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon."

there is a strong positive association between inflation and growth rate of money over long periods of time.

An electronic payments system has not completely replaced the paper payments system because of all of the following reasons EXCEPT expensive equipment is necessary to set up the system. transportation costs. security concerns. privacy concerns

transportation costs.

According to the expectations theory of the term structure the interest rate on long-term bonds will exceed the average of short-term interest rates that people expect to occur over the life of the long-term bonds, because of their preference for short-term securities. buyers of bonds prefer short-term to long-term bonds. interest rates on bonds of different maturities move together over time. buyers require an additional incentive to hold long-term bonds.

you got this one wrong silly

A discount bond is also called a ________ because the owner does not receive periodic payments. municipal bond consol corporate bond zero-coupon bond

zero-coupon bond