An investor pays $1,230 for a bond with a face value of $1,000 and an annual coupon
rate of 9 percent. The investor plans to hold the bond until its maturity date in eight
years. The bond has a yield to maturity of __________ percent. (Note: This question
requires a financial calculator.)
A) 5.39
B) 5.67
C) 10.94
D) 9.00
A perfect market would have all but which of the following characteristics?
A) Infinitely divisible securities
B) Asymmetric information
C) Buyers and sellers of financial instruments would know the true quality of what they
are buying and selling.
D) Buyers and sellers could transact with each other without cost (no transactions
costs).
In the early 1980s, many savings-and-loan associations pretended to be solvent by
A) valuing their assets on a historical cost basis.
B) underreporting the amount of their liabilities.
C) including the impact of high interest rates on the value of their assets.
D) counting “goodwill” as an asset.
Complete crowding out occurs when the
A) IS curve is horizontal.
B) IS curve is vertical.
C) LM curve is horizontal.
D) LM curve is vertical.
Assume that the Cambridge k = 0.2. If income increases by $20,000, the demand for
money will change by
A) $20,000.
B) $10,000.
C) $5,000.
D) $4,000.
Suppose a nation has a total population of 50,000,000. Out of that, 50% are in the labor
force and 23,000,000 people are employed. What is the nation’s unemployment rate?
A) 4.0%
B) 8.0%
C) 12%
D) 14%
Because banks are act as dealers in financial instruments such as bonds, foreign
currency and derivatives, they are exposed to
A) credit risk.
B) liquidity risk.
C) trading risk.
D) interest risk.
Japan and Germany are two major __________-oriented systems.
A) securities
B) equities
C) banking
D) markets
In closely held firms, the manager-stockholder conflict is
A) worse than in the larger firm because there is no incentive for the individual
stockholder to monitor managers.
B) the same as in publicly held firms.
C) less severe than in the larger firm because there is an incentive for the major
stockholder to monitor managers.
D) less pronounced than in large public companies, because the manager is the owner.
Which of the following is most risky at a time of fluctuating interest rates?
A) Commercial paper
B) U.S. Treasury bill
C) Corporate bond
D) Large negotiable bank CD
Regulation Q was rendered ineffective by the invention of
A) negotiable CDs.
B) commercial paper.
C) 401(k) plans.
D) money market mutual funds.
Of the two conflicts, __________ more severe as the firm becomes smaller.
A) the shareholder-lender conflict gets
B) the manager-shareholder conflict gets
C) both get
D) neither gets
An individual who arranges for buyers and sellers to exchange securities and earns a
commission in return is a
A) dealer.
B) auctioneer.
C) broker.
D) underwriter.
The __________ is a regulator of intermediated markets?
A) SEC
B) Commodities Futures Trading Commission
C) NYSE
D) FDIC
A fully funded pension liability is one in which
A) the Pension Benefit Guaranty Corporation insures full benefit payments.
B) enough money has been set aside to ensure that the promised pension can be paid
out after allowing for interest payments.
C) the yield on the pension fund is equal to the inflation rate.
D) corporation pension contributions are equal to employee contributions.
With a decrease in government expenditure we
A) move up along the aggregate demand curve.
B) move down along the aggregate demand curve.
C) shift the aggregate demand curve to the right.
D) shift the aggregate demand curve to the left.
In the Keynesian model, which of the following will cause an increase in interest rates?
A) An increase in money demand
B) An increase in money supply
C) An increase in saving
D) A decline in saving
Assume that the M1 multiplier is 3.0 and the monetary base is $200 billion. If M1 is
currently equal to $600 billion and the Federal Reserve wishes to raise the level to $690
billion, the monetary base should be expanded by
A) $60 billion.
B) $30 billion.
C) $20 billion.
D) $10 billion.
The marginal propensity to consume is assumed to be
A) greater than 1.
B) less than 1.
C) greater than 2.
D) less than 0.5.
The price of a Treasury bond futures contract is set
A) by the federal government.
B) by the Chicago Board of Trade.
C) by the Federal Reserve.
D) as a result of bidding and offering by market participants.