EC 223 Midterm mc questions

If you expect the inflation rate to be 15% next year and a one-year bond has a yield to maturity of 7%, then the real interest rate on this bond is _________. A) -15% B) -8% C) 22% D) 7%

B) -8%

If the expected path of 1-year interest rates over the next 5 years is 1%, 2%, 3%, 4%, and 5%, the expectations theory predicts that the bond with the highest interest rate today is the one with a maturity of A) 2 years B) 5 years C) 4 years D) 3 years

B) 5 years

In the 1990s Japan had the lowest interest rates in the world due to a combination of _________ A) Deflation and expansion B) Deflation and recession C) Inflation and recession D) Inflation and expansion

B) Deflation and recession

The ________ of the term structure of interest rates states that the interest rate on a long-term bond will equal the average of short-term interest rates that individuals expect to occur over the life of the long-term bond, and investors have no preference for short-term bonds relative to long-term bonds A) Segmented markets theory B) Expectations theory C) Liquidity premium theory D) Separable markets theory

B) Expectations theory

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 A) Expectations theory B) Liquidity premium theory C) Separable markets theory D) Segmented markets theory

B) Liquidity premium theory

Which of the following instruments are traded in a money market? A) Corporate bonds B) Treasury bills C) Provincial government bonds D) Government agency securities

B) Treasury bills

In a barter economy the number of prices in an economy with N goods is _________ A) N(N/2) - 1 B) [N (N - 1)]/2 C) N(N/2) D) 2N

B) [N (N - 1)]/2

The conversion of a barter economy to one that uses the money __________ A) increases efficiency by reducing the need to exchange goods and services B) increases efficiency by reducing transactions costs C) does not increase economic efficiency D) increases efficiency by reducing the need to specialize

B) increases efficiency by reducing transactions costs

During hyperinflations, ____________ A) middle-class savers benefit as prices rise B) money no longer function as a good store of value and people may resort to barter transactions on a much larger scale C) Money's value remains fixed to the price level; that is, if prices double so does the value of money D) the value of money rises rapidly

B) money no longer function as a good store of value and people may resort to barter transactions on a much larger scale

A corporation acquires new funds only when its securities are sold in the _________ A) secondary market by a commercial bank B) primary market by an investment bank C) secondary market by a stock exchange broker D) secondary market by an investment bank

B) primary market by an investment bank

For a 3-year simple loan of $10,000 at 10%, the amount to be repaid is: A) $10,300 B) $13,000 C) $13,310 D) $10,030

C) $13,310

A consol paying $20 annually when the interest rate is 5% has a price of _________ A) $800 B) $100 C) $400 D) $200

C) $400

The yield to maturity for perpetuity is a useful approximation for the yield to maturity on long-term coupon bonds. It is called the _________ when approximating the yield for a coupon bond A) Star yield B) Future yield C) Current yield D) Discount yield

C) Current yield

Contractual savings institutions include _________. A) Commercial banks B) Money market mutual funds C) Life insurance companies D) Mutual savings banks

C) Life insurance companies

Everything else constant, a stronger Canadian dollar will mean that ________. A) Japanese cars become more expensive B) Vacationing in England becomes more expensive C) Vacationing in England becomes less expensive D) French cheese becomes more expensive

C) Vacationing in England becomes less expensive

Which of the following can be described as direct finance? A) You buy shares in mutual funds B) You buy shares of common stock in the secondary market C) You borrow $2500 from a friend D) You take out a mortgage from your local bank

C) You borrow $2500 from a friend

If the price of bonds is set _________ the equilibrium price, the quantity of bonds demanded exceeds the quantity of bonds supplied, a condition called excess ___________ A) above; demand B) above; supply C) below; demand D) below; supply

C) below; demand

Every financial market has the following characteristic: A) it allows loans to be made B) it allows common stock to be traded C) it channels funds from lender-savers to borrower-spenders D) it determines the level of interest rates

C) it channels funds from lender-savers to borrower-spenders

Long-term debt has a maturity that is ________ A) less than a year B) between one and ten years C) ten years or longer D) between 5 and 10 years

C) ten years or longer

When we say that money is a stock variable, we mean that _______ A) we must attach a time period to the measure B) it is sold in the equity market C) the quantity of money is measured at a given point in time D) money never loses purchasing power

C) the quantity of money is measured at a given point in time

The price of a consol equals the coupon payment: A) Plus the interest rate B) Minus the interest rate C) Times the interest rate D) Divided by the interest rate

D) Divided by the interest rate

The primary assets of money market mutual funds are ________ A) Bonds B) Stocks C) Deposits D) Money market instruments

D) Money market instruments

Which of the following can be described as involving indirect finance? A) You purchase bonds issued by General Electric through your broker B) You borrow $10,000 from your parents to help pay for college tuition C) You purchase stock in RIM through your stock broker D) You purchase a Canadian government bond in an over-the-counter market

D) You purchase a Canadian government bond in an over-the-counter market

Patrick places his pocket change into his savings bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a __________ A) unit of specialization B) medium of exchange C) unit of account D) store of value

D) store of value

A movement along the bond demand or supply curve occurs when _________ changes A) Bond price B) Income C) Expected return D) Wealth

A) Bond price

Treasury bills are considered the safest of all money market instruments because there is no risk of __________ A) Default B) Demarcation C) Defeat D) Desertion

A) Default

A bond that is bought at a price below its face value and the face value is repaid at a maturity date is called a _________ A) Discount bond B) Coupon bond C) Simple loan D) Fixed-payment loan

A) Discount bond

Changes in stock prices _________ A) affect firms' decisions to sell stock to finance investment spending B) are unimportant to decision makers C) do not affect people's wealth and their willingness to spend D) are predictable

A) affect firms' decisions to sell stock to finance investment spending

As a store of value, money _________ A) is a way of saving for future purchases B) must be currency C) cannot be a durable asset D) does not earn interest

A) is a way of saving for future purchases