Money and Banking Exam 1

If a $1,000 face value coupon bond has a coupon rate of 5.25 percent, then the coupon payment every year is: a) $52.50 b) $5.25 c) $525.00 d) $5,250

a) $52.50

If $22,050 is the amount payable in two years for a $20,000 simple loan made today, the interest rate is: a) 5 percent b) 10 percent c) 22 percent d) 25 percent

a) 5 percent

A coupon bond that has no maturity date and no repayment of principal is called a: a) consol b) treasury bond c) treasury bill d) treasury note

a) consol

Which of the following instruments are traded in a capital market? a) corporate bonds b) U.S. treasury bills c) negotiable bank CDs d) commercial paper

a) corporate bonds

The dollar amount of the yearly coupon payment expressed as a percentage of the face value of the bond is called the bond's: a) coupon rate b) maturity rate c) face value rate d) payment rate

a) coupon rate

Which of the following is included in both M1 and M2? a) currency b) savings deposits c) small-denomination time deposits d) money market deposit accounts

a) currency

Other things being equal, an increase in the time to the promised future payment ______ the present value of the payment. a) decreases b) increases c) has no effect on d) is irrelevant to

a) decreases

In the Gordon growth model, a decrease in the required rate of return on equity: a) increases the current stock price b) increases the future stock price c) reduces the future stock price d) reduces the current stock price

a) increases the current stock price

All of the following are necessary criteria for a commodity to function as money except: a) it must deteriorate quickly b) it must be divisible c) it must be easy to carry d) it must be widely accepted

a) it must deteriorate quickly

Hyeon purchasing movie tickets with her debit card is an example of the ________ function of money. a) medium of exchange b) unit of account c) store of value d) specialization

a) medium of exchange

The global financial crisis lead to a decline in stock prices because: a) of a lowered expected dividend growth rate b) of a lowered required return on investment in equity c) higher expected future stock prices d) higher current dividends

a) of a lowered expected dividend growth rate

The concept of _______ is based on the common-sense notion that a dollar paid to you in the future is less valuable to you than a dollar today. a) present value b) future value c) interest d) deflation

a) present value

The sum of the current yield and the rate of capital gain is called the: a) rate of return b) discount yield c) perpetuity d) par value

a) rate of return

A credit market instrument that provides the borrower with an amount of funds that must be repaid at the maturity date along with an interest payment is known as a: a) simple loan b) fixed-payment loan c) coupon bond d) discount bond

a) simple loan

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

a) the present value of both the dividends and the expected sales price

If a security pays $55 in one year and $133 in three years, its present value is $150 if the interest rate is: a) 5 percent b) 10 percent c) 12.5 percent d) 25 percent

b) 10 percent

If Apple sells a bond in London and it is denominated in dollars, the bond is a: a) foreign bond b) Eurobond c) British bond d) currency bond

b) Eurobond

All of the following are examples of coupon bonds except: a) Corporate bonds b) U.S. treasury bills c) U.S. treasury notes d) U.S. treasury bonds

b) U.S. treasury bills

When of the following $1,000 face-value securities has the highest yield to maturity? a) a 9 percent coupon bond selling for $1,000 b) a 11 percent coupon bond selling for $1,000 c) a 10 percent coupon bond selling for $1,000 d) a 10 percent coupon bond selling for $1,100

b) a 11 percent coupon bond selling for $1,000

Which of the following is not a form of e-money? a) a debit card b) it credit card c) a stored-value card d) a smart card

b) a credit card

Which of the following is a depository institution? a) a life insurance company b) a credit union c) a pension fund d) a mutual fund

b) a credit union

If bad credit risks are the ones who most actively seek loans and, therefore, receive them from financial intermediaries, then financial intermediaries face the problem of: a) moral hazard b) adverse selection c) free-riding d) costly state verification

b) adverse selection

Which of the following instruments are traded in a money market? a) bank commercial loans b) commercial paper c) state and local government bonds d) residential mortgages

b) commercial paper

Which of the following are not contractual savings institutions? a) life insurance companies b) credit unions c) pension funds d) state and local government retirement funds

b) credit unions

A credit market instrument that requires the borrowers to make the same payment every period until the maturity date is known as a: a) simple loan b) fixed-payment loan c) coupon bond d) discount bond

b) fixed-payment loan

Bonds that are sold in a foreign country and are denominated in the country's currency in which they are sold are known as: a) Euro bonds b) foreign bonds c) equity bonds d) currency bonds

b) foreign bonds

The yield to maturity is _______ than the _______ rate when the bond price is _______ its face value. a) greater; coupon; above b) greater; coupon; below c) greater; perpetuity; above d) less; perpetuity; below

b) greater; coupon; above

A financial market in which only short-term debt instruments are traded is called the _______ market. a) bond b) money c) capital d) stock

b) money

A discount bond: a) pays the bondholder a fixed amount every period and the face value at maturity b) pays the bondholder the face value at maturity c) pays all interest and the face value at maturity d) pays the face value at maturity plus any capital gain

b) pays the bondholder the face value at maturity

In which of the following situations would you prefer to be the lender? a) the interest rate is 10 percent and the expected inflation rate is 7 percent b) the interest rate is 5 percent and the expected inflation rate is 1 percent c) the interest rate is 11 percent and the expected inflation rate is 9 percent d) the interest rate is 23 percent and the expected inflation rate is 25 percent

b) the interest rate is 5 percent and the expected inflation rate is 1 percent

Hyeon realizes that the living cost at Tokyo is less expensive than Manhattan after she converts the Japanese Yen into USD. This is an example of the ________ function of money. a) medium of exchange b) unit of account c) store of value d) standard deferred compensation

b) unit of account

A console paying $20 annually when the interest rate is 5 percent has a price of: a) $100 b) $200 c) $400 d) $800

c) $400

If an individual moves money from currency to a demand deposit account,: a) M1 decreases and M2 stays the same b) M1 stays the same and M2 increases c) M1 stays the same and M2 stays the same d) M1 increases and M2 stays the same

c) M1 stays the same and M2 stays the same

_________ work in the secondary markets matching buyers with sellers of securities. a) dealers b) underwriters c) brokers d) claimants

c) brokers

A ________ pays the owner a fixed coupon payment every period until the maturity date, when the _______ value is repaid. a) coupon bond; discount b) discount bond; discount c) coupon bond; face d) discount bond; face

c) coupon bond; face

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) simple loan b) fixed-payment loan c) discount bond d) coupon bond

c) discount bond

Which of the following statements best explains how the use of money in an economy increases economic efficiency? a) money increases economic efficiency because it is costless to produce b) money increases economic efficiency because it discourages specialization c) money increases economic efficiency because it decreases transaction costs d) money cannot have an effect on economic efficiency

c) money increases economic efficiency because it decreases transaction costs

When the _______ interest rate is low, there are greater incentives to ________ and fewer incentives to ________. a) nominal; lend; borrow b) real; lend; borrow c) real; borrow; lend d) market; lend; borrow

c) real; borrow; lend

For a 3-year simple loan of $10,000 at 10 percent, the amount to be repaid is: a) $10,030 b) $10,300 c) $13,000 d) $13,310

d) $13,310

A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to maturity of: a) 3 percent b) 20 percent c) 25 percent d) 33.3 percent

d) 33.3 percent

With _________ finance, borrowers obtain funds from lenders by selling them securities in the financial markets. a) active b) determined c) indirect d) direct

d) direct

If the price level doubles, the value of money: a) doubles b) more than doubles c) rises but does not double, due to diminishing returns d) falls by 50 percent

d) falls by 50 percent

Because borrowers, once they have a loan, are more likely to invest in high-risk investment project, banks face the: a) adverse selection problem b) lemon problem c) adverse credit risk problem d) moral hazard problem

d) moral hazard problem

The price of a coupon bond and the yield to maturity are ________ related; that is, as the price of the bond ________, the yield to maturity ________. a) negatively; rises; rises b) negatively; rises; falls c) positively; falls; falls d) positively; falls; rises

d) positively; falls; rises

An important financial institution that assist in the initial sale of securities in the primary market is the: a) commercial bank b) stock exchange c) investment bank d) brokerage house

investment bank