If the expected path of one-year interest rates over the next five years is 4 percent, 5
percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that
today’s interest rate on the five-year bond is
A) 4 percent.
B) 5 percent.
C) 6 percent.
D) 7 percent.
What is the present value of $500.00 to be paid in two years if the interest rate is 5
percent?
A) $453.51
B) $500.00
C) $476.25
D) $550.00
An option allowing the owner to sell an asset at a future date is a
A) put option.
B) call option.
C) futures contract.
D) forward contract.
The U-shaped yield curve in the figure above indicates that short-term interest rates are
expected to
A) rise in the near-term and fall later on.
B) fall sharply in the near-term and rise later on.
C) fall moderately in the near-term and rise later on.
D) remain unchanged in the near-term and rise later on.
The higher the insurance coverage, the ________ the policyholder can gain from risky
activities that make an insurance payoff ________ likely.
A) more; less
B) more; more
C) less; less
D) less; more
When investment banks allocate shares of a popular but underpriced IPO to executives
of other firms in order to attract their business, it is called
A) spinning.
B) a bribe.
C) reputational activities.
D) a kickback.
If 1-year interest rates for the next five years are expected to be 4, 2, 5, 4, and 5 percent,
and the 5-year term premium is 1 percent, than the 5-year bond rate will be
A) 2 percent.
B) 3 percent.
C) 4 percent.
D) 5 percent.
In investment banking, a conflict usually is present between the issuers of securities,
who ________, and investors, who ________.
A) benefit from unbiased auditing; desire unbiased consulting
B) desire unbiased research; benefit from optimistic research
C) benefit from optimistic research; desire unbiased research
D) desire unbiased consulting; benefit from unbiased auditing
Since Social Security benefits are paid from current contributions, the system is a
A) privatized system.
B) overfunded system.
C) “pay-as-you-go” system.
D) defined contribution system.
The number of futures contracts outstanding is called
A) turnover.
B) volume.
C) float.
D) open interest.
An example of economies of scale in the provision of financial services is
A) investing in a diversified collection of assets.
B) providing depositors with a variety of savings certificates.
C) hiring more support staff so that customers don’t have to wait so long for assistance.
D) spreading the cost of writing a standardized contract over many borrowers.
Which of the following can be described as involving indirect finance?
A) You make a loan to your neighbor.
B) You buy shares in a mutual fund.
C) You buy a U.S. Treasury bill from the U.S. Treasury at Treasury Direct.gov.
D) You purchase shares in an initial public offering by a corporation in the primary
market.
An autonomous easing of monetary policy results in a ________ level of equilibrium
output, shifting the aggregate demand curve to the ________.
A) higher; right
B) lower; right
C) higher; left
D) lower; left