Money, Banking and Financial Markets 5th Edition

Chapter 1 An Introduction to Money and the Financial System Problems 1. List the financial transactions you have engaged in over the past week. How might each one have been carried out 50 years ago? (LO1) each one have been carried out 50 years ago? (LO1) each one have been carried out 50

Chapter 10 Foreign Exchange Conceptual and Analytical Problems 1. If the U.S. dollar-British pound exchange rate is $1.50 per pound, and the U.S. dollar-euro rate is $0.90 per euro: (LO1) a. What is the pound-per-euro rate? a. What is the pound-per-euro rate? a. What is the pound-per-euro rate? b. How could you profit if the pound-per-euro rate

16. *Suppose government officials in a small open economy decided they wanted their currency to weaken in order to boost exports. What kind of foreign exchange market intervention would they have to make to cause their currency to depreciate? What would happen to domestic interest rates in that country if

Chapter 11 The Economics of Financial Intermediation Conceptual and Analytical Problems 1. Describe the problem of asymmetric information that an employer faces in hiring a new employee. What solutions can you think of? Does the problem persist after the person has been hired? If so, how and what can be done about it?

Data Exploration 1. Financial intermediaries connect savers and borrowers. Examine growth in intermediation from the following perspectives. (LO1) a. Plot the ratio of total credit market debt owed (FRED code: TCMDO) to population (FRED code: POP). (Hint: Because credit market debt is expressed in billions and population in thousands, multiply TCMDO by

Chapter 12 Depository Institutions: Banks and Bank Management Conceptual and Analytical Problems 1. Explain how a bank manager uses Core Principles 1, 2 and 3 (Time Has Value, Risk Requires Compensation, and Information Is the Basis for Decisions) to select assets and issue liabilities consistent with shareholder preferences. (LO1) Answer: The manager evaluates

4. Suppose a bank faces a gap of -20 between its interest-sensitive assets and its interest-sensitive liabilities. What would happen to bank profits if interest rates were to fall by 1 percentage point? You should report your answer in terms of the change in profit per $100 in assets. (LO2)

Chapter 13 Financial Industry Structure Conceptual and Analytical Problems 1 For many years you have been using your local, small-town bank. One day you hear that the bank is about to be purchased by Bank of America. From your vantage point that the bank is about to be purchased by Bank of America.

Chapter 14 Regulating the Financial System Conceptual and Analytical Problems 1. Explain how a bank run can turn into a bank panic. (LO1) Answer: Bank runs occur when people fear that their bank has become insolvent. Depositors rush to their bank to withdraw their funds. Depositors at other banks become concerned about their own

Chapter 15 Central Banks in the World Today Conceptual Problems 1. In 1900, there were 18 central banks in the world; today, there are about 185. Why does nearly every country in the world now have a central bank? (LO1) Answer: A central bank plays a vital role in any nations economy. By

Chapter 16 The Structure of Central Banks: The Federal Reserve and the European Central Bank Conceptual and Analytical Problems 1. What are the Federal Reserves goals and who established them? How are Fed officials held accountable for meeting them? Explain why the Chair is most officials held accountable for meeting them? Explain why the

1. Do you think, in the interest of transparency, the Chair of the Federal Reserve Board should explain in detail the subtleties surrounding policy decisions? Why Board should explain in detail the subtleties surrounding policy decisions? Why Board should explain in detail the subtleties surrounding policy decisions? Why or why

Chapter 18 Monetary Policy: Stabilizing the Domestic Economy Conceptual and Analytical Problems 1. Explain how the Federal Reserve would implement a rise in the target range for the federal funds rate? How does its action influence the market federal funds rate? (LO1) Answer: The Federal Reserve would increase the interest rate on excess reserves

17. The central bank of a country facing economic and financial market difficulties asks for your advice. The bank cut its policy interest rate to the effective lower bound, but it wasnt enough to stabilize the economy. Drawing on the actions taken by the Federal Reserve advice. The bank cut

Chapter 19 Exchange-Rate Policy and the Central Bank Conceptual and Analytical Problems 1. Explain the mechanics of a speculative attack on the currency of a country with a fixed exchange-rate regime. (LO3, LO4) Answer: Assume that Country A has a fixed exchange rate, and that its central bank holds a specific volume of

1. If the Federal Reserve decides to sterilize the foreign exchange market intervention described in Problem 15, show the impact on the Feds balance sheet. What would the overall impact be on the monetary base? What would be the impact, if any, on the exchange rate? You in Problem 15, show

Chapter 2 Money and the Payments System Conceptual and Analytical Problems 1. Describe at least three ways you could pay for your morning cup of coffee. What are the advantages and disadvantages of each? (LO2) Answer: You could use money, a check, or a debit card. Answer: You could use money, a check, or a

Chapter 20 Money Growth, Money Demand, and Modern Monetary Policy Conceptual and Analytical Problems 1. Why is inflation higher than money growth in high-inflation countries and lower than money growth in low-inflation countries? (LO1) Answer: At very high levels of inflation, the velocity of money rises dramatically as people rush to spend their

1. Which of the following factors would increase the portfolio demand for money? Explain your choices. (LO3) a. A new website allows you to liquidate your stock holdings quickly and cheaply. b. You expect future interest rates to rise.c. A financial crisis is looming. b. You expect future interest rates to rise.c.

Chapter 21 Output, Inflation and Monetary Policy Conceptual and Analytical Problems 1. Explain the determinants of potential growth. (LO1) Answer: Growth of potential output depends on the growth rate of the capital stock, the growth rate of the labor force, and the rate of technological improvement. the growth rate of the labor force,

1. For each of the following economies, select the terminflation, deflation, or disinflationthat best describes what the economy is experiencing. (LO1) March April May Annual percent change in the consumer price index Economy A -1.5% -1.5% -1.5% Economy B 3.2% 2.3% 0.8% Economy C 1.5% 1.5% 1.5% Answer: Economy A is experiencing deflation, as the price level

Chapter 22 Understanding Business Cycle Fluctuations Conceptual and Analytical Problems 1. Define the term stabilization policy and describe how it can be used to reduce the volatility of economic growth and inflation. Do stabilization policies improve everyone's welfare? (LO2) Answer: Stabilization policies are monetary or fiscal policies designed to stabilize inflation and output. Both monetary

3. *Monetary policymakers observe an increase in output in the economy and believe it is a result of an increase in potential output. If they were correct, what would the appropriate policy response be to maintain the existing inflation target? If they were incorrect and the increase in output resulted

Chapter 23 Modern Monetary Policy and the Challenges Facing Central Bankers Conceptual and Analytical Problems 1. Explain in detail how monetary policy influences banks lending behavior. Show how an open market purchase affects the banking systems balance sheet, and dis- cuss the impact on the supply of bank loans. (You may wish to refer to

1. *Suppose there is an unexpected slowdown in the rate of productivity growth in the economy so that forecasters consistently overestimate the growth rate of GDP. If the central bank bases its policy decisions on the consensus forecast, what would be the likely consequences for inflation assuming it maintains its existing

Chapter 3 Financial Instruments, Financial Markets, and Financial Institutions Conceptual and Analytical Problems 1. As the end of the month approaches, you realize that you probably will not be able to pay the next months rent. Describe both an informal and a formal financial instrument that you next months rent. Describe both an

Chapter 4 Future Value, Present Value, and Interest Rates Conceptual and Analytical Problems 1. Compute the future value of $100 at an 8 percent interest rate 5, 10, and 15 years into the future. What would the future value be over these time horizons if the interest rate were 5 future. What would

Chapter 5 Understanding Risk Conceptual and Analytical Problems 1. Consider a game in which a coin will be flipped three times. For each heads you will be paid $100. Assume that the coin comes up heads with probability . (LO2) be paid $100. Assume that the coin comes up heads with probability .

If you borrow an additional $1,000, the expected value = 0.5($1,600-$1,000) + 0.5($2,800-$1,000) = $1,200 or 20%. You have doubled the expected return. The standard deviation = 1,200600 1,200= 600. The standard deviation has also doubled. 0.5($2,800-$1,000) = $1,200 or 20%. You have doubled the expected return. The standard deviation =

Chapter 6 Bonds, Bond Prices, and the Determination of Interest Rates Conceptual and Analytical Problems 1. Consider a U.S. Treasury Bill with 270 days to maturity. If the annual yield is 3.8 percent, what is the price? (LO1) Answer: 24.97$ )038.01( 100$ 12/9 P 2. *You are an officer of a commercial bank and wish to sell one

1. Suppose that a sustainable peace is reached around the world, reducing military spending by the U.S. Government. How would you expect this development to spending by the U.S. Government. How would you expect this development to spending by the U.S. Government. How would you expect this development to affect

Chapter 7 The Risk and Term Structure of Interest Rates Conceptual and Analytical Problems 1. Consider a firm that issued a large quantity of commercial paper in the period leading to a financial crisis. (LO1) a. How would you expect the credit rating of the commercial paper to evolve as the crisis unfolds?

1. The misrating of mortgage-backed securities by rating agencies contributed to the financial crisis of 2007-2009. List some recommendations you would make to avoid such mistakes in the future. (LO1) Answer: In the run-up to the 2007-2009 crisis, the absence of data capturing a period of falling house prices at a

Chapter 8 Stocks, Stock Markets, and Market Efficiency Conceptual and Analytical Problems 1. Explain why being a residual claimant makes stock ownership risky. (LO1) Answer: Stockholders do not receive dividends unless all of the firms creditors have been paid. If the firm does poorly, stockholders may receive nothing. The result is that returns

4. Do you think a proposal to abolish limited liability for stockholders would be supported by companies issuing stock? (LO1) Answer: No. The obvious downside would be that stocks would become much less attractive as an investment, making it much costlier for firms to raise funds by issuing stock. The potential

Chapter 9 Derivatives: Futures, Options, and Swaps Conceptual and Analytical Problems 1. An agreement to lease a car can be thought of as a set of derivative contracts. Describe them. (LO2) Answer: When someone leases a car, he or she agrees to make a series of fixed monthly payments; this is like a forward

Data Exploration 1. Central banks occasionally engage in liquidity swaps with each other. Plot and interpret the Feds provision of dollar liquidity swaps (FRED code: SWPT) to other central banks since 2007. To facilitate your interpretation, view the FRED Notes interpret the Feds provision of dollar liquidity swaps (FRED code: SWPT)

Chapter 17 The Central Bank Balance Sheet and the Money Supply Process Conceptual and Analytical Problems 1. Follow the impact of a $100 cash withdrawal through the entire banking system, assuming that the reserve requirement is 10 percent and that banks have no desire to hold excess reserves. (LO3) Answer: Deposits fall by $100

1 Ans: B Difficulty: 01 Easy Learning Objective: 01-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Six Parts of the Financial System 1 Ans: B Difficulty: 01 Easy Learning Objective: 01-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Six Parts of the Financial System 1 Ans: B Difficulty: 01 Easy

2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2017 by McGraw-Hill Education. This is proprietary

20 Ans: A Difficulty: 02 Medium Learning Objective: 10-03 AACSB: Knowledge Application Blooms: Apply Topic: Exchange Rates in the Short Run 20 Ans: A Difficulty: 02 Medium Learning Objective: 10-03 AACSB: Knowledge Application Blooms: Apply Topic: Exchange Rates in the Short Run 20 Ans: A Difficulty: 02 Medium Learning

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20 Ans: C Difficulty: 01 Easy Learning Objective: 11-02 AACSB: Reflective Thinking Blooms: Remember Topic: Information Asymmetries and Information Costs 20 Ans: C Difficulty: 01 Easy Learning Objective: 11-02 AACSB: Reflective Thinking Blooms: Remember Topic: Information Asymmetries and Information Costs 20 Ans: C Difficulty: 01 Easy Learning Objective: 11-02 AACSB:

1 Ans: A Difficulty: 01 Easy Learning Objective: 12-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Balance Sheet of Commercial Banks 1 Ans: A Difficulty: 01 Easy Learning Objective: 12-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Balance Sheet of Commercial Banks 1 Ans: A Difficulty: 01 Easy Learning Objective:

20 Ans: C Difficulty: 01 Easy Learning Objective: 12-03 AACSB: Reflective Thinking Blooms: Remember Topic: Bank Risk: Where it Comes From and What to do About It 20 Ans: C Difficulty: 01 Easy Learning Objective: 12-03 AACSB: Reflective Thinking Blooms: Remember Topic: Bank Risk: Where it Comes From and What

1 Ans: A Difficulty: 01 Easy Learning Objective: 13-01 AACSB: Reflective Thinking Blooms: Remember Topic: Banking Industry Structure 1 Ans: A Difficulty: 01 Easy Learning Objective: 13-01 AACSB: Reflective Thinking Blooms: Remember Topic: Banking Industry Structure 1 Ans: A Difficulty: 01 Easy Learning Objective: 13-01 AACSB: Reflective Thinking Blooms: Remember

21 Ans: D Difficulty: 02 Medium Learning Objective: 13-02 AACSB: Reflective Thinking Blooms: Understand Topic: Nondepository Institutions 21 Ans: D Difficulty: 02 Medium Learning Objective: 13-02 AACSB: Reflective Thinking Blooms: Understand Topic: Nondepository Institutions 21 Ans: D Difficulty: 02 Medium Learning Objective: 13-02 AACSB: Reflective Thinking Blooms: Understand Topic:

32 Ans: This means that banks can decide to be state chartered or federally chartered. There used to be very good reasons for selecting one over the other since choosing one over the other meant also deciding which regulators will oversee the bank. Although no longer the case, federally

1 Ans: C Difficulty: 02 Medium Learning Objective: 14-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Sources and Consequences of Runs, Panics, and Crises 1 Ans: C Difficulty: 02 Medium Learning Objective: 14-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Sources and Consequences of Runs, Panics, and Crises 1 Ans:

21 Ans: C Difficulty: 03 Hard Learning Objective: 14-03 AACSB: Knowledge Application Blooms: Apply Topic: Regulation and Supervision of the Financial System 21 Ans: C Difficulty: 03 Hard Learning Objective: 14-03 AACSB: Knowledge Application Blooms: Apply Topic: Regulation and Supervision of the Financial System 21 Ans: C Difficulty: 03

and the industry at risk. The same cannot be said of the financial industry. The failure of one bank or financial institution, through contagion, can put the entire system at risk. This is due to information asymmetries that can have depositors assuming their bank is going to also fail

1 Ans: D Difficulty: 01 Easy Learning Objective: 15-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Basics: How Central Banks Originated and Their Role Today 1 Ans: D Difficulty: 01 Easy Learning Objective: 15-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Basics: How Central Banks Originated and Their Role Today

19 Ans: C 19 Ans: C 19 Ans: C 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or

1 Ans: C Difficulty: 01 Easy Learning Objective: 16-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Structure of the Federal Reserve System 1 Ans: C Difficulty: 01 Easy Learning Objective: 16-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Structure of the Federal Reserve System 1 Ans: C Difficulty: 01 Easy

19 Ans: C 19 Ans: C 19 Ans: C 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in

1 Ans: A Difficulty: 01 Easy Learning Objective: 17-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Central Banks Balance Sheet 1 Ans: A Difficulty: 01 Easy Learning Objective: 17-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Central Banks Balance Sheet 1 Ans: A Difficulty: 01 Easy Learning Objective: 17-01 AACSB:

19 Ans: C Difficulty: 01 Easy Learning Objective: 17-03 AACSB: Reflective Thinking Blooms: Remember Topic: The Deposit Expansion Multiplier 19 Ans: C Difficulty: 01 Easy Learning Objective: 17-03 AACSB: Reflective Thinking Blooms: Remember Topic: The Deposit Expansion Multiplier 19 Ans: C Difficulty: 01 Easy Learning Objective: 17-03 AACSB: Reflective Thinking

1 Ans: D Difficulty: 02 Medium Learning Objective: 18-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Federal Reserves Conventional Policy Toolbox 1 Ans: D Difficulty: 02 Medium Learning Objective: 18-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Federal Reserves Conventional Policy Toolbox 1 Ans: D Difficulty: 02 Medium Learning Objective:

19 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2017 by McGraw-Hill Education. This is

1 Ans: D Difficulty: 01 Easy Learning Objective: 19-01 AACSB: Reflective Thinking Blooms: Remember Topic: Linking Exchange-Rate Policy with Domestic Monetary Policy 1 Ans: D Difficulty: 01 Easy Learning Objective: 19-01 AACSB: Reflective Thinking Blooms: Remember Topic: Linking Exchange-Rate Policy with Domestic Monetary Policy 1 Ans: D Difficulty: 01 Easy

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1 Ans: B Difficulty: 02 Medium Learning Objective: 02-01 AACSB: Reflective Thinking Blooms: Understand Topic: Money and How We Use It 1 Ans: B Difficulty: 02 Medium Learning Objective: 02-01 AACSB: Reflective Thinking Blooms: Understand Topic: Money and How We Use It 1 Ans: B Difficulty: 02 Medium Learning Objective:

18 Ans: A Difficulty: 02 Medium Learning Objective: 02-03 AACSB: Reflective Thinking Blooms: Remember Topic: Money and How We Use It 18 Ans: A Difficulty: 02 Medium Learning Objective: 02-03 AACSB: Reflective Thinking Blooms: Remember Topic: Money and How We Use It 18 Ans: A Difficulty: 02 Medium Learning Objective:

Chapter 20 Money Growth, Money Demand and Modern Monetary Policy Multiple-Choice Questions 1. History shows that: a. countries with low rates of money growth have high rates of inflation. b. money growth and inflation are not related. c. countries with high rates of money

20 Ans: B Difficulty: 02 Medium Learning Objective: 20-04 AACSB: Reflective Thinking Blooms: Understand Topic: Targeting Money Growth in a Low-Inflation Environment 20 Ans: B Difficulty: 02 Medium Learning Objective: 20-04 AACSB: Reflective Thinking Blooms: Understand Topic: Targeting Money Growth in a Low-Inflation Environment 20 Ans: B Difficulty: 02 Medium

1 Ans: B Difficulty: 01 Easy Learning Objective: 21-01 AACSB: Reflective Thinking Blooms: Remember Topic: Output and Inflation in the Long Run 1 Ans: B Difficulty: 01 Easy Learning Objective: 21-01 AACSB: Reflective Thinking Blooms: Remember Topic: Output and Inflation in the Long Run 1 Ans: B Difficulty: 01 Easy

17 Ans: C Difficulty: 02 Medium Learning Objective: 21-02 AACSB: Reflective Thinking Blooms: Understand Topic: Monetary Policy and the Dynamic Aggregate Demand Curve 17 Ans: C Difficulty: 02 Medium Learning Objective: 21-02 AACSB: Reflective Thinking Blooms: Understand Topic: Monetary Policy and the Dynamic Aggregate Demand Curve 17 Ans: C Difficulty:

1 Ans: B Difficulty: 02 Medium Learning Objective: 22-01 AACSB: Reflective Thinking Blooms: Understand Topic: Sources of Fluctuations in Output and Inflation 1 Ans: B Difficulty: 02 Medium Learning Objective: 22-01 AACSB: Reflective Thinking Blooms: Understand Topic: Sources of Fluctuations in Output and Inflation 1 Ans: B Difficulty: 02 Medium

18 Ans: C Difficulty: 01 Easy Learning Objective: 22-02 AACSB: Reflective Thinking Blooms: Remember Topic: Using the Aggregate Demand-Aggregate Supply Framework 18 Ans: C Difficulty: 01 Easy Learning Objective: 22-02 AACSB: Reflective Thinking Blooms: Remember Topic: Using the Aggregate Demand-Aggregate Supply Framework 18 Ans: C Difficulty: 01 Easy Learning Objective:

1 Ans: B Difficulty: 02 Medium Learning Objective: 23-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Monetary Policy Transmission Mechanism 1 Ans: B Difficulty: 02 Medium Learning Objective: 23-01 AACSB: Reflective Thinking Blooms: Understand Topic: The Monetary Policy Transmission Mechanism 1 Ans: B Difficulty: 02 Medium Learning Objective:

17 Ans: A Difficulty: 02 Medium Learning Objective: 23-02 AACSB: Reflective Thinking Blooms: Understand Topic: The Challenges Modern Monetary Policymakers Face 17 Ans: A Difficulty: 02 Medium Learning Objective: 23-02 AACSB: Reflective Thinking Blooms: Understand Topic: The Challenges Modern Monetary Policymakers Face 17 Ans: A Difficulty: 02 Medium Learning

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19 Ans: D Difficulty: 01 Easy Learning Objective: 03-02 AACSB: Reflective Thinking Blooms: Remember 19 Ans: D Difficulty: 01 Easy Learning Objective: 03-02 AACSB: Reflective Thinking Blooms: Remember 19 Ans: D Difficulty: 01 Easy Learning Objective: 03-02 AACSB: Reflective Thinking Blooms: Remember 2017 by McGraw-Hill Education. This is proprietary

1 Ans: B Difficulty: 01 Easy Learning Objective: 04-01 AACSB: Reflective Thinking Blooms: Remember Topic: Valuing Monetary Payments Now and in the Future 1 Ans: B Difficulty: 01 Easy Learning Objective: 04-01 AACSB: Reflective Thinking Blooms: Remember Topic: Valuing Monetary Payments Now and in the Future 1 Ans: B

20 Ans: B Difficulty: 02 Medium Learning Objective: 04-02 AACSB: Knowledge Application Blooms: Apply Topic: Applying Present Value 20 Ans: B Difficulty: 02 Medium Learning Objective: 04-02 AACSB: Knowledge Application Blooms: Apply Topic: Applying Present Value 20 Ans: B Difficulty: 02 Medium Learning Objective: 04-02 AACSB: Knowledge Application Blooms:

1 Ans: C Difficulty: 01 Easy Learning Objective: 05-01 AACSB: Reflective Thinking Blooms: Remember Topic: Defining Risk 1 Ans: C Difficulty: 01 Easy Learning Objective: 05-01 AACSB: Reflective Thinking Blooms: Remember Topic: Defining Risk 1 Ans: C Difficulty: 01 Easy Learning Objective: 05-01 AACSB: Reflective Thinking Blooms: Remember

19 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2017 by McGraw-Hill Education. This

1 Ans: D Difficulty: 01 Easy Learning Objective: 06-01 AACSB: Reflective Thinking Blooms: Remember Topic: Bond Prices 1 Ans: D Difficulty: 01 Easy Learning Objective: 06-01 AACSB: Reflective Thinking Blooms: Remember Topic: Bond Prices 1 Ans: D Difficulty: 01 Easy Learning Objective: 06-01 AACSB: Reflective Thinking Blooms: Remember Topic: Bond

21 Ans: C Difficulty: 02 Medium Learning Objective: 06-03 AACSB: Reflective Thinking Blooms: Understand Topic: The Bond Market and the Determination of Interest Rates 21 Ans: C Difficulty: 02 Medium Learning Objective: 06-03 AACSB: Reflective Thinking Blooms: Understand Topic: The Bond Market and the Determination of Interest Rates 21 Ans:

32 32 32 2017 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part. 2017 by McGraw-Hill Education.

1 Ans: A Difficulty: 01 Easy Learning Objective: 07-01 AACSB: Reflective Thinking Blooms: Remember Topic: Ratings and the Risk Structure of Interest Rates 1 Ans: A Difficulty: 01 Easy Learning Objective: 07-01 AACSB: Reflective Thinking Blooms: Remember Topic: Ratings and the Risk Structure of Interest Rates 1 Ans: A Difficulty:

21 Ans: A Difficulty: 02 Medium Learning Objective: 07-03 AACSB: Reflective Thinking Blooms: Understand Topic: The Term Structure of Interest Rates 21 Ans: A Difficulty: 02 Medium Learning Objective: 07-03 AACSB: Reflective Thinking Blooms: Understand Topic: The Term Structure of Interest Rates 21 Ans: A Difficulty: 02 Medium Learning Objective:

32 Ans: 0.65% 32 Ans: 0.65% 32 Ans: 0.65% 2015 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or

1 Ans: D Difficulty: 01 Easy Learning Objective: 08-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Essential Characteristics of Common Stock 1 Ans: D Difficulty: 01 Easy Learning Objective: 08-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Essential Characteristics of Common Stock 1 Ans: D Difficulty: 01 Easy

21 Ans: C Difficulty: 02 Medium Learning Objective: 08-03 AACSB: Analytical Thinking Blooms: Analyze Topic: Valuing Stocks 21 Ans: C Difficulty: 02 Medium Learning Objective: 08-03 AACSB: Analytical Thinking Blooms: Analyze Topic: Valuing Stocks 21 Ans: C Difficulty: 02 Medium Learning Objective: 08-03 AACSB: Analytical Thinking Blooms: Analyze

32 Ans: First, we need to compute the growth rate of dividends, g. This is equal to 5% = ($21 - $20)/$20. Now, we can compute the price of the stock: Ptoday = Dtoday(1 + g)/(i - g) Ptoday = $20(1 + 0.05)/(0.08 - 0.05) Ptoday = $700

1 Ans: C Difficulty: 01 Easy Learning Objective: 09-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Basics: Defining Derivatives 1 Ans: C Difficulty: 01 Easy Learning Objective: 09-01 AACSB: Reflective Thinking Blooms: Remember Topic: The Basics: Defining Derivatives 1 Ans: C Difficulty: 01 Easy Learning Objective: 09-01 AACSB: Reflective Thinking

21 Ans: C Difficulty: 02 Medium Learning Objective: 09-03 AACSB: Reflective Thinking Blooms: Understand Topic: Options 21 Ans: C Difficulty: 02 Medium Learning Objective: 09-03 AACSB: Reflective Thinking Blooms: Understand Topic: Options 21 Ans: C Difficulty: 02 Medium Learning Objective: 09-03 AACSB: Reflective Thinking Blooms: Understand Topic: Options 2017