Econ Final

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ of bonds and the bond price will ________. A) supply; fall B) demand; fall C) supply; rise D) demand; rise

D

If there is an excess supply of money, individuals BLANK bonds, which will cause interest rates to BLANK A) sell; rise B) sell; fall C) buy; rise D) buy; fall

D

What is the return in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) on a 4 percent perpetuity that initially sells for $7300 and sells for $4822 next year?

-29.95

A consol paying $45 annually when the interest rate is 4 percent has a price (rounded to the nearest whole dollar) of

1125

With an interest rate of 6 percent, the present value of $123 received one year from today is approximately (in dollars, rounded to the nearest two decimals)

116.04

If a $11600 coupon bond has a coupon rate of 10 percent, then the coupon payment every year (rounded to the nearest whole dollar) is

1160

If the nominal rate of interest is 11.96 percent, and the expected inflation rate is -1.38 percent, the ex ante real rate of interest in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) is

13.34

If the nominal rate of interest is 11.34 percent, and the expected inflation rate is -2.43 percent, the ex ante real rate of interest in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) is

13.77

For a 10-year simple loan of $10400 at 5 percent, the amount to be repaid (rounded to the nearest whole dollar) is

16941

What is the return in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) on a 9 percent perpetuity that initially sells for $5620 and sells for $5418 next year?

5.41

If a $14000 face-value discount bond maturing in one year is selling for $777 less than its face value, then its yield to maturity in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) is

5.88

A consol paying $30 annually when the interest rate is 6 percent has a price (rounded to the nearest whole dollar) of

500

If a $3600 coupon bond has a coupon rate of 16 percent, then the coupon payment every year (rounded to the nearest whole dollar) is

576

If a $10000 face-value discount bond maturing in one year is selling for $611 less than its face value, then its yield to maturity in percentage points (rounded to the nearest hundredth of a percent, or the nearest basis point) is

6.51

With an interest rate of 8 percent, the present value of $70 received one year from today is approximately (in dollars, rounded to the nearest two decimals)

64.81

For a 9-year simple loan of $6200 at 5 percent, the amount to be repaid (rounded to the nearest whole dollar) is

9618

A credit market instrument that requires the borrower to make the same payment every period until the maturity date is known as a A) fixed-payment loan. B) simple loan. C) discount bond. D) coupon bond.

A

An expectation may fail to be rational if A) relevant information is available but ignored at the time the forecast is made. B) relevant information was not available at the time the forecast is made. C) information was available to insiders only. D) information changes after the forecast is made.

A

Another way to state the efficient markets hypothesis is: in an efficient market A) unexploited profit opportunities will be quickly eliminated. B) every financial market participant must be well informed about securities. C) all prices can be accurately predicted. D) unexploited profit opportunities will never exist.

A

Everything else held constant, when bonds become less widely traded, and as a consequence the market becomes less liquid, the demand curve for bonds shifts to the ________ and the interest rate ________. A) left; rises B) right; rises C) right; falls D) left; falls

A

Holding many risky assets and thus reducing the overall risk an investor faces is called A) diversification. B) foolishness. C) capitalization. D) risk acceptance.

A

If a forecast made using all available information is NOT perfectly accurate, then it is A) still a rational expectation. B) a second-best expectation. C) an adaptive expectation. D) not a rational expectation.

A

If future changes in stock prices are unpredictable, then we say that the stock prices follow a A) random walk. B) generalized walk. C) meandering path. D) straight and narrow path.

A

If the expected return on bonds increases, all else equal, the demand for bonds increases, the price of bonds BLANK and the interest rate BLANK A. increases; decreases B. increases; increases C. decreases; decreases D. decreases; increases

A

If the nominal rate of interest is 9.78 percent, and the expected inflation rate is -0.76 percent, the ex ante real rate of interest in percentage points is A) 10.54% B) 9.02% C) 17.38% D) 2.18%

A

The Fed's support of the Depository Institutions Deregulation and Monetary Control Act of 1980 stemmed in part from its A) concern over declining Fed membership B) belief that depositors had to become more knowledgeable of banking operations C) belief that interest rate ceilings were too high D) belief that all banking regulations should be eliminated

A

The ________ states that the nominal interest rate equals the real interest rate plus the expected rate of inflation. A) Fisher equation B) Keynesian equation C) Monetarist equation D) Marshall equation

A

The efficient markets hypothesis implies that future changes in exchange rates should for all practical purposes be A) unpredictable. B) set by each country. C) increasing. D) pegged to a standard such as the U.S. dollar or the Euro.

A

The oldest central bank, having been founded in 1694, is the A) Bank of England. B) Deutsche Bundesbank. C) Bank of Japan. D) Federal Reserve System.

A

The yield to maturity for a 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) current yield B) discount yield C) future yield D) star yield

A

To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the process of A) discounting the future. B) deflation. C) par value. D) face value.

A

What makes the Federal Reserve so unique compared to other central banks around the world is its A) decentralized structure B) centralized structure C) monetary policy functions D) regulatory functions

A

What makes the Federal Reserve so unique compared to other central banks around the world is its A) decentralized structure. B) monetary policy functions. C) centralized structure. D) regulatory functions.

A

When stock prices become more volatile, the ________ curve for gold shifts right and gold prices ________, everything else held constant. A) demand; increase B) supply; increase C) supply; decrease D) demand; decrease

A

When the government has a surplus, as occurred in the late 1990s, the ________ curve of bonds shifts to the ________, everything else held constant. A) supply; left B) demand; left C) supply; right D) demand; right

A

When the growth rate of the money supply increases, interest rates end up being permanently lower if A) the liquidity effect is larger than the other effects. B) the expected inflation effect is larger than the liquidity effect. C) there is slow adjustment of expected inflation. D) there is fast adjustment of expected inflation.

A

Which of the following is NOT included in the measure of M1? A) savings deposits B) NOW accounts C) demand deposits D) currency

A

According to the efficient markets hypothesis, the current price of a financial security A) is the discounted net present value of future interest payments. B) fully reflects all available relevant information. C) is determined by the lowest successful bidder. D) is a result of none of the above.

B

An equal decrease in all bond interest rates A) increases the price of a five-year bond more than the price of a ten-year bond. B) increases the price of a ten-year bond more than the price of a five-year bond. C) decreases the price of a five-year bond more than the price of a ten-year bond. D) decreases the price of a ten-year bond more than the price of a five-year bond.

B

Currency includes A) paper money and checks. B) paper money and coins. C) paper money, coins, and checks. D) paper money, coins, checks, and savings deposits.

B

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today ________ and the demand curve shifts to the ________. A) falls; left B) rises; right C) rises; left D) falls; right

B

Higher government deficits ________ the supply of bonds and shift the supply curve to the ________, everything else held constant. A) decrease; right B) increase; right C) decrease; left D) increase; left

B

If an individual moves money from a small-denomination time deposit to a demand deposit account A) M1 increases and M2 decreases. B) M1 increases and M2 stays the same. C) M1 stays the same and M2 stays the same. D) M1 stays the same and M2 increases.

B

If the interest rate on a bond is below the equilibrium interest rate, there is an excess ________ of bonds and the bond price will ________. A) demand; rise B) supply; fall C) supply; rise D) demand; fall

B

In the generalized dividend model, the current stock price is the sum of A) the present value of the future sales price. B) the present value of the future dividend stream. C) the present value of the future dividend stream plus the actual future sales price. D) the actual value of the future dividend stream.

B

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

B

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) future value B) present value C) interest D) deflation

B

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as A) the rate of deflation. B) the real interest rate. C) the rate of inflation. D) the nominal interest rate.

B

The interest rate that describes how well a lender has done in real terms after the fact is called the A) ex ante nominal interest rate. B) ex post real interest rate. C) ex post nominal interest rate. D) ex ante real interest rate.

B

The opportunity cost of holding money is A) the level of income. B) the interest rate. C) the price level. D) the discount rate.

B

The payments system is A) used by your employer to determine salary increases. B) the method of conducting transactions in the economy. C) an illegal method of rewarding contracts. D) used by union officials to set salary caps.

B

The research document given to the Federal Open Market Committee that contains information on the state of the economy in each Federal Reserve district is called the A) green book. B) beige book. C) black book. D) blue book.

B

The riskiness of an asset's returns due to changes in interest rates is A) asset risk. B) interest-rate risk. C) exchange-rate risk. D) price risk.

B

There is ________ for any bond whose time to maturity matches the holding period. A) yield-to-maturity risk B) no interest-rate risk C) rate-of-return risk D) a large interest-rate risk

B

What is the return in percentage points on a 3 percent perpetuity that initially sells for $5138 and sells for $6231 next year? A) 21.27% B) 24.27% C) 18.27% D) 2.47%

B

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

B

Which of the following are generally TRUE of bonds? A) Prices and returns for short-term bonds are more volatile than those for longer-term bonds. B) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period. C) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change. D) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods.

B

Which of the following provides the greatest real gain to the lender? A) The interest rate is 13 percent and the expected inflation is 15 percent B) The interest rate is 4 percent and the expected inflation rate is 1 percent C) The interest rate is 9 percent and the expected inflation rate is 7 percent D) The interest rate is 25 percent and the expected inflation rate is 50 percent

B

Which of the following sequences accurately describes the evolution of the payments system? A) barter, coins made of precious metals, checks, paper currency, electronic funds transfers B) barter, coins made of precious metals, paper currency, checks, electronic funds transfers C) barter, checks, paper currency, electronic funds transfers D) barter, checks, paper currency, coins made of precious metals, electronic funds transfers

B

According to the efficient markets hypothesis, purchasing the reports of financial analysts A) is likely to increase one's returns by an average of about 2 to 3%. B) is likely to increase one's returns by an average of 10%. C) is not likely to be an effective strategy for increasing financial returns. D) is likely to increase one's returns by about 3 to 5%.

C

All bonds that will not be held to maturity have interest rate risk which occurs because of the change in the price of the bond as a result of A) default of the borrower. B) changes in the asset's maturity date. C) interest-rate changes. D) changes in the coupon rate.

C

Assuming the same coupon rate and maturity length, the difference between the yield on a Treasury Inflation Indexed Security and the yield on a nonindexed Treasury security (called the TIPS spread) provides insight into A) the nominal interest rate. B) the nominal exchange rate. C) the expected inflation rate. D) the real interest rate.

C

Discovery of new gold in Alaska will ________ the ________ of gold, ________ its price, everything else held constant. A) decrease; demand; decreasing B) decrease; supply; increasing C) increase; supply; decreasing D) increase; demand; increasing

C

During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) rises; left C) rises; right D) falls; left

C

Everything else held constant, when households save less, wealth and the demand for bonds ________ and the bond demand curve shifts ________. A) increase; left B) increase; right C) decrease; left D) decrease; right

C

If a $4700 coupon bond has a coupon rate of 17 percent, the coupon payment ever year is A) $276 B) 329 C) 799 D) 2,764

C

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________. A) supply; fall B) supply; rise C) demand; rise D) demand; fall

C

If the interest rate on a bond is blow the equilibrium interest rate, there is an excess BLANK of bonds and the bond price will BLANK A. supply; fall B. demand; fall C. demand; rise D. supply; rise

C

If there is an excess supply of money A) individuals sell bonds, causing the interest rate to rise. B) individuals sell bonds, causing the interest rate to fall. C) individuals buy bonds, causing interest rates to fall. D) individuals buy bonds, causing interest rates to rise.

C

If you move money from a small-denomination time deposit to a demand deposit account A) M1 increases and M2 decreases B) M1 stays the same and M2 stays the same C) M1 increases and M2 stays the same D) M1 stays the same and M2 increases

C

In the bond market, bond demanders are the BLANK and bond suppliers are the BLANK A. borrowers; lenders B. borrowers; advancers C. lenders; borrowers D. lenders; advancers

C

In the loanable funds framework, the ________ curve of bonds is equivalent to the ________ curve of loanable funds. A) supply; equilibrium B) demand; demand C) demand; supply D) supply; supply

C

In the loanable funds framework, the ________ is measured on the vertical axis. A) quantity of loanable funds B) quantity of bonds C) interest rate D) price of bonds

C

The BLANK the returns on two securities move together, the BLANK benefit there is from diversification. A) more; more B) less; less C) less; more D) more; greater

C

The Federal Open Market Committee usually meets ________ times a year. A) four B) six C) eight D) twelve

C

The Federal Reserve Bank of ________ houses the open market desk. A) Chicago B) Boston C) New York D) San Francisco

C

The ________ is defined as the payments to the owner plus the change in a security's value expressed as a fraction of the security's purchase price. A) yield rate B) yield to maturity C) rate of return D) current yield

C

The financial panic of 1907 resulted in such widespread bank failures and substantial losses to depositors that the American public finally became convinced that A) the First Bank of the United States had failed to serve as a lender of last resort. B) the Second Bank of the United States had failed to serve as a lender of last resort. C) a central bank was needed to prevent future panics. D) the Federal Reserve System had failed to serve as a lender of last resort.

C

The interest rate on Treasury Inflation Indexed Securities can be roughly interpreted as A) the nominal interest rate. B) the rate of deflation. C) the real interest rate. D) the rate of inflation.

C

The interest rate that describes how well a lender has done in real terms after the fact is called the A) ex ante nominal interest rate. B) ex ante real interest rate. C) ex post real interest rate. D) ex post nominal interest rate.

C

The riskiness of an asset is measured by A) risk is impossible to measure. B) the magnitude of its return. C) the standard deviation of its return. D) the absolute value of any change in the asset's price.

C

To an economist, ________ is anything that is generally accepted in payment for goods and services or in the repayment of debt. A) wealth B) income C) money D) credit

C

When the interest rate on a bond is ________ the equilibrium interest rate, in the bond market there is excess ________ and the interest rate will ________. A) below; supply; fall B) above; supply; rise C) above; demand; fall D) above; demand; rise

C

Which of the following are generally TRUE of bonds? A) Prices and returns for short-term bonds are more volatile than those for longer-term bonds. B) A rise in interest rates is associated with a fall in bond prices, resulting in capital gains on bonds whose terms to maturity are longer than the holding periods. C) A bond's return equals the yield to maturity when the time to maturity is the same as the holding period. D) The longer a bond's maturity, the smaller is the size of the price change associated with an interest rate change.

C

Which of the following statements comparing the European System of Central Banks and the Federal Reserve System is TRUE? A) The European Central Bank has similar power over the National Central Banks when compared to the level of power the Board of Governors has over the Federal Reserve Banks. B) Just like the Federal Reserve System, monetary operations are centralized in the European System of Central Banks with the European Central Bank. C) The budgets of the Federal Reserve Banks are controlled by the Board of Governors, while the National Central Banks control their own budgets and the budget of the European Central Bank. D) The European Central Bank's involvement in supervision and regulation of financial institutions is comparable to the Board of Governors' involvement.

C

While legislation enacted in 1998 granted the Bank of Japan new powers and greater autonomy, its critics contend that its independence is A) too great because it need not pursue a policy of price stability even if that is the popular will of the people. B) too great since the Ministry of Finance no longer has veto power over the bank's budget. C) limited by the Ministry of Finance's veto power over a portion of its budget. D) limited since the Ministry of Finance can dismiss senior bank officials.

C

Another way to state the efficient markets hypothesis is: in an efficient market A) every financial market participant must be well informed about securities. B) unexploited profit opportunities will never exist. C) all prices can be accurately predicted. D) unexploited profit opportunities will be quickly eliminated.

D

Because inflation in Germany after World War I sometimes exceeded 1,000 % per month, one can conclude that the German economy suffered from A) superdeflation. B) deflation. C) disinflation. D) hyperinflation.

D

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________. A) falls; falls B) rises; falls C) falls; rises D) rises; rises

D

Goal independence is the ability of ________ to set monetary policy ________. A) Congress; goals B) the central bank; instruments C) Congress; instruments D) the central bank; goals

D

In Keynes's liquidity preference framework, individuals are assumed to hold their wealth in two forms A) money and gold. B) stocks and bonds. C) real assets and financial assets. D) money and bonds.

D

In the Keynesian liquidity preference framework, an increase in the interest rate causes the demand curve for money to ________, everything else held constant. A) shift right B) invert C) shift left D) stay where it is

D

In which of the following situations would you prefer to be the borrower? A) The interest rate is 13 percent and the expected inflation rate is 15 percent. B) The interest rate is 4 percent and the expected inflation rate is 1 percent. C) The interest rate is 9 percent and the expected inflation rate is 7 percent. D) The interest rate is 25 percent and the expected inflation rate is 50 percent.

D

The bond supply and demand framework is easier to use when analyzing the effects of changes in ________, while the liquidity preference framework provides a simpler analysis of the effects from changes in income, the price level, and the supply of ________. A) government budget deficits; money B) government budget deficits; bonds C) expected inflation; bonds D) expected inflation; money

D

The efficient markets hypothesis indicates that investors A) let too many unexploited profit opportunities go by if they adopt a "buy and hold" strategy. B) do better if they purchase loaded mutual funds. C) can use the advice of technical analysts to outperform the market. D) do better on average if they adopt a "buy and hold" strategy.

D

The public's fear of centralized power and distrust of moneyed interests led to the demise of the first two experiments in central banking, otherwise known as A) the First Central Bank of the United States and the Second Central Bank of the United States. B) the First Bank of the United States and the Central Bank of the United States. C) the First Bank of North America and the Second Bank of North America. D) the First Bank of the United States and the Second Bank of the United States.

D

When gold prices become more volatile, the ________ curve for gold shifts to the ________; ________ the price of gold. A) demand; right; decreasing B) supply; left; increasing C) supply; right; increasing D) demand; left; decreasing

D

When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________. A) above; fall B) below; fall C) above; rise D) below; rise

D

________ is a flow of earnings per unit of time. A) Money B) Currency C) Wealth D) Income

D

________ is the relative ease and speed with which an asset can be converted into a medium of exchange. A) Efficiency B) Specialization C) Deflation D) Liquidity

D