Question

3.A plot of the interest rates on default-free government bonds with different terms to maturity is called

a yield curve

an interest-rate curve

a default-free curve

a risk-structure curve

4.Which of the following statements accurately describes the two measures M1 and M2 of the money supply?

M2 is the narrowest measure the Fed reports

The two measures do not move together, so they cannot be used interchangeably by policymakers

The two measures' movements closely parallel each other, even on a month-to-month basis

Short-run movements in the money supply are extremely reliable

5.Information plays an important role in asset pricing because it allows the buyer to more accurately judge

liquidity

risk

policy

capital

6.Corporate bonds are not as liquid as government bonds because

corporate bonds are not callable

fewer corporate bonds for any one corporation are traded, making them more costly to sell

the corporate bond rating must be calculated each time they are traded.

corporate bonds cannot be resold

7.Which of the following can be described as involving direct finance?

A pension fund manager buys a short-term corporate security in the secondary market.

A corporation issues new shares of stock.

An insurance company buys shares of common stock in the over-the-counter markets.

People buy shares in a mutual fund.

8.The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank.

fiscal; superior

monetary; superior

fiscal; central

monetary; central

9.Government regulations designed to reduce the moral hazard problem include

light sentences for those who commit the fraud of hiding and stealing profits

state verification subsidies

laws that force firms to adhere to standard accounting principles

state licensing restrictions

10.Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions, everything else held constant.

increase; increase

decrease; decrease

increase; decrease

decrease; increase

11.Which of the following is a TRUE statement?

The average price of goods and services in an economy is called the aggregate price level.

The inflation rate is measured as the rate of change in the federal government budget deficit.

The aggregate price level is measured as the rate of change in the inflation rate.

Money or the money supply is defined as Federal Reserve notes

12.Which of the following can be described as direct finance?

You take out a mortgage from your local bank

You borrow $2500 from a friend.

You buy shares of common stock in the secondary market.

You buy shares in a mutual fund.

13.A stockholder's ownership of a company's stock gives her the right to

vote and be the primary claimant of all cash flows

vote and be the residual claimant of all cash flows

manage and assume responsibility for all liabilities

vote and assume responsibility for all liabilities

14.In the one-period valuation model, the value of a share of stock today depends upon

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

only the present value of the future dividends

the actual value of the dividends and expected sales price received in one year

the future value of dividends and the actual sales price

15.Which of the following statements are TRUE?

As their relative riskiness increases, the expected return on corporate bonds increases relative to the expected return on default-free bonds.

A corporate bond's return becomes less uncertain as default risk increases

The expected return on corporate bonds decreases as default risk increases

A decrease in default risk on corporate bonds lowers the demand for these bonds, but increases the demand for default-free bonds

16.Banks and other financial institutions engage in financial intermediation, whicH

involves borrowing from investors and lending to savers.

has no effect on economic performance.

can hurt the performance of the economy

can benefit economic performance

17.Which of the following statements is TRUE?

The demand for a bond declines when it becomes less liquid, decreasing the interest rate spread between it and relatively more liquid bonds.

The corporate bond market is the most liquid bond market.

A liquid asset is one that can be quickly and cheaply converted into cash.

The differences in bond interest rates reflect differences in default risk only.

18.An example of the problem of ________ is when a corporation uses the funds raised from selling bonds to fund corporate expansion to pay for Caribbean cruises for all of its employees and their families.

credit risk

moral hazard

risk sharing

adverse selection

19.When we describe stock prices as following a random walk, we mean that future changes in stock prices are

decreasing

increasing

constant

unpredictable

20.When I purchase ________, I own a portion of a firm and have the right to vote on issues important to the firm and to elect its directors.

bonds

bills

stock

notes

21.It is possible that when the money supply rises, interest rates may ________ if the ________ effect is more than offset by changes in income, the price level, and expected inflation.

rise; liquidity

fall; liquidity

fall; risk

rise; risk

22.In the generalized dividend model, if the expected sales price is in the distant future

it is less important than dividends but still affects the current stock price

it does not affect the current stock price

) it is more important than dividends in determining the current stock price

it is equally important with dividends in determining the current stock price

23.When using rational expectations, forecast errors will, on average, be ________ and ________ be predicted ahead of time.

zero; cannot

positive; can

positive; cannot

negative; can

24.A continuing increase in the growth of the money supply is likely followed by(1 Điểm)

a depression.

no change in the economy.

a recession.

an increase in the price level.

25.Every financial market has the following characteristic(1 Điểm)

It allows common stock to be traded.

It channels funds from lenders-savers to borrowers-spenders.

It determines the level of interest rates

It allows loans to be made.

26.Financial markets promote greater economic efficiency by channeling funds from ________ to ________.(1 Điểm)

investors; savers

savers; borrowers

borrowers; savers

savers; lenders

27.If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio?(1 Điểm)

a U.S. Treasury bond

a corporate bond with a rating of Aaa

a municipal bond

a corporate bond with a rating of Baa

28.Which of the following is NOT a financial institution?(1 Điểm)

a credit union

a pension fund

a life insurance company

a business college

29.A fall in the level of prices(1 Điểm)

has an uncertain effect on the value of money

does not affect the value of money

reduces the value of money

increases the value of money

30.Economies of scale enable financial institutions to(1 Điểm)

reduce transactions costs.

avoid adverse selection problems.

reduce moral hazard

avoid the asymmetric information problem

31.There is a ________ association between inflation and the growth rate of money ________.(1 Điểm)

positive; supply

negative; supply

positive; demand

negative; demand

32.If the Fed wants to permanently lower interest rates, then it should raise the rate of money growth if(1 Điểm)

there is fast adjustment of expected inflation

there is slow adjustment of expected inflation.

the liquidity effect is larger than the other effects.

the liquidity effect is smaller than the expected inflation effect

33.When the price of a bond is ________ the equilibrium price, there is an excess demand for bonds and price will ________.(1 Điểm)

below; rise

below; fall

above; fall

above; rise

34.Typically, borrowers have superior information relative to lenders about the potential returns and risks associated with an investment project. The difference in information is called(1 Điểm)

moral selection.

adverse hazard

asymmetric information

risk sharing

35.The opportunity cost of holding money is(1 Điểm)

the level of income

the price level

the interest rate

the discount rate

36.A situation in which the quantity of bonds supplied exceeds the quantity of bonds demanded is called a condition of excess supply; because people want to sell ________ bonds than others want to buy, the price of bonds will ________.(1 Điểm)

more; fall

more; rise

fewer; fall

fewer; rise

37.A ________ pays the owner a fixed coupon payment every year until the maturity date, when the ________ value is repaid.(1 Điểm)

discount bond; discount

coupon bond; face

coupon bond; discount

discount bond; face

38.The yield to maturity for a one-year discount bond equals the increase in price over the year, divided by the(1 Điểm)

coupon rate

interest rate.

initial price

face value.

39.The components of the U.S. M1 money supply are demand and checkable deposits plus(1 Điểm)

currency

currency plus savings deposits

currency plus travelers checks

currency plus travelers checks plus money market deposits

40.Adverse selection is a problem associated with equity and debt contracts arising from(1 Điểm)

the lender's inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults

the lender's inability to restrict the borrower from changing his behavior once given a loan.

the lender's relative lack of information about the borrower's potential returns and risks of his investment activities.

the borrower's lack of incentive to seek a loan for highly risky investments.

Answer 1

So many questions, my goodness.

I have addressed the first four. Please post the balance questions separately.

3.A plot of the interest rates on default-free government bonds with different terms to maturity is called

The correct answer is the first option i.e. option a yield curve

This is the way yield curve is obtained in an economy.

-------------------------------------------

4.Which of the following statements accurately describes the two measures M1 and M2 of the money supply?

The correct answer is the second option: The two measures do not move together, so they cannot be used interchangeably by policymakers

M1 and M2 behave separately. They don't move along side and hence are not a substitute for each other.

----------------------------------------

5.Information plays an important role in asset pricing because it allows the buyer to more accurately judge

The correct answer is the second option: risk

Information helps buyer understand the risk better.

--------------------------------------------

6.Corporate bonds are not as liquid as government bonds because

The correct answer is the second option: fewer corporate bonds for any one corporation are traded, making them more costly to sell