Question

Question 50.5 pts

Which of the following is NOT a major advantage of direct finance?

Group of answer choices

Direct finance allows borrowers to diversify sources of funds.

potentially reduced cost for borrowers.

Direct finance reduces search and transactions costs.

Direct finance allows greater flexibility in funding types.

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Question 60.5 pts

Calculate the effective annual interest rate if your bank quotes you 10% per annum, compounded quarterly.

Group of answer choices

2.50%

14.01%

10%

10.38%

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Question 70.5 pts

If you borrow $100 000 for 90 days with simple interest of 6.2% per annum, what is the total amount of interest paid on the loan?

Group of answer choices

$15 287.67

$6200.00

$620.00

$1528.77

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Question 80.5 pts

When a yield curve has a negative slope:

Group of answer choices

long-term yields are higher than short-term yields.

short-term yields are higher than long-term yields.

the inflation rate is expected to rise.

the money market is expecting default by issuers of bank bills.

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Answer 1

Answer-

Q 50 )

The correct Option is c.
The Direct finance does not reduce search and transaction costs.
The other options a,b and d which are Direct finance allows borrowers to diversify sources of funds, potentially reduced cost for borrowers and allows greater flexibility in funding types are all advantages.

Q 60 )

Interest rate = 10 %
Effective annual rate when compounded quarterly
= [ 1 + ( 10 % / 4) ]4 - 1
= [ 1 + ( 0.10 / 4) ]4 - 1
= [ 1 + 0.025 ]4  - 1
= ( 1.025)4  - 1
= 1.1038 - 1
= 0.1038
= 10.38 %

Therefore the last Option 10.38 % is correct.

Q 70 )

The interest rate = PNR
P = $ 100000
N = 90 days = 90 / 365
R = 6.2 % = 0.062

Interest rate = PNR
Interest rate = $ 100000 x 90 / 365 x 0.062 = $ 1528.77

Therefore the last option $ 1528.77 is correct.

Q 80 )

The second Option is correct. The yield curve has a negative slope when the short term yields are higher than long term bond yields. The negative or inverted yield curve is a result when long term bond returns fall below short term bond returns.

The other options are incorrect.
The Option 1 states the opposite and is incorrect.
The Option 3 is incorrect as inflation rate is expected to fall but not rise.
The Option 4 is incorrect