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| 1 | |
Another name for "default risk" is: |
| | A) | Interest rate risk |
| | B) | Inflation risk |
| | C) | Credit risk |
| | D) | Liquidity risk |
| | E) | Reinvestment risk |
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| 2 | |
The "yield curve" shows: |
| | A) | interest rates observed at a point in time, on securities of different maturity |
| | B) | bond prices, computed for various alternative discount rates |
| | C) | nominal interest rates, for various alternative expected inflation rates. |
| | D) | real interest rates, computed at various alternative expected inflation rates. |
| | E) | interest rates observed at different times, for securities having the same maturity. |
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| 3 | |
Donna will make a series of end-of-year contributions to a retirement account. She will contribute $2,800 per year. If the contributions earn 6.0% per year, compounded annually, how much will Donna have in her account at the end of 10 years? (to the nearest dollar) |
| | A) | $39,120 |
| | B) | $21,604 |
| | C) | $20,608 |
| | D) | $12,195 |
| | E) | $36,906 |
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| 4 | |
A security has a nominal interest rate of 9%. If we know that market participants are expecting inflation of 2% per year, what's the real interest rate? (…assuming no other additional factors like liquidity risk, default risk, etc.) |
| | A) | 2% |
| | B) | 5.5% |
| | C) | 7% |
| | D) | 9% |
| | E) | 11% |
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| 5 | |
William puts $8,000 in the bank today. The quoted interest rate is 8%, and the bank compounds interest quarterly. If William makes no further deposits, how much will be have at the end of 9 years? (To the nearest dollar) |
| | A) | $13,760 |
| | B) | $16,319 |
| | C) | $10,146 |
| | D) | $15,992 |
| | E) | $11,766 |
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| 6 | |
In the "loanable funds" framework, which of the following would be associated with a higher interest rate? |
| | A) | a larger quantity of funds demanded, on a given demand curve |
| | B) | a smaller quantity of funds supplied, on a given supply curve |
| | C) | a leftward shift, or decrease, in the supply of funds |
| | D) | a rightward shift, or increase, in the supply of funds |
| | E) | a decrease in the expected rate of inflation |
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| 7 | |
You're scheduled to receive $4,500 at the end of each quarter, over the next 3 years. If the annual interest rate is 10%, with quarterly compounding, what is the present value of this stream of cash flows? (nearest dollar) |
| | A) | $96,229 |
| | B) | $47,314 |
| | C) | $68,132 |
| | D) | $46,160 |
| | E) | $30,662 |
| | F) | $62,080 |
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| 8 | |
The possibility that a bond issuer will not pay back the investor in a timely manner is the essence of: |
| | A) | Interest rate risk |
| | B) | Default risk |
| | C) | Exchange rate risk |
| | D) | Inflation risk |
| | E) | Operational risk |
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| 9 | |
A bank paid a stated annual interest rate of 12%, with monthly compounding. What was the equivalent (or "effective") annual rate? |
| | A) | 14.40% |
| | B) | 12.68% |
| | C) | 12.75% |
| | D) | 6.25% |
| | E) | 12.36% |
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| 10 | |
Suppose the unbiased expectations theory is true. Further, we observe yields on U.S. Treasury securities today and see the following: 1-year security: | 2% | 2-year security: | 4% | 3-year security: | 5% |
Which of the following is/are true? |
| | A) | The 2-year security has a 2 percent liquidity premium. |
| | B) | The 3-year security has a 1 percent liquidity premium. |
| | C) | We expect yields to rise in the future. |
| | D) | We expect yields to fall in the future. |
| | E) | (a) and (b) |
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| 11 | |
Julie has $2,000 in her bank right now. In addition, she will be making 4 more deposits of $1,000—at the end of each of the next 4 years. If the bank pays 6% per year, compounded annually, how much will Julie have in her account at the end of 4 years? (To the nearest dollar) |
| | A) | $ 6,900 |
| | B) | $ 4,375 |
| | C) | $ 6,375 |
| | D) | $ 6,586 |
| | E) | $10,012 |
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| 12 | |
Jim owns a corporate bond issued by Packer Freezers Inc. The company is doing okay, and it pays its coupons in a timely manner. But Jim wants to sell the bond—and his broker is having a hard time finding a willing buyer. Jim appears to be having a first-hand encounter with: |
| | A) | Liquidity risk |
| | B) | Inflation risk |
| | C) | Operational risk |
| | D) | Default risk |
| | E) | Risk of fraud |
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| 13 | |
Suppose we observe the following U.S. Treasury yields at one point in time: 1-year | 8.0% | 2-year | 7.0% | 3-year | 6.5% |
If the "unbiased expectations theory" is correct, what is the expected interest rate for the 1-year period starting one year from now? |
| | A) | 6.0% |
| | B) | 7.0% |
| | C) | 8.0% |
| | D) | 5.5% |
| | E) | 6.75% |
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| 14 | |
Suppose we observe the following U.S. Treasury yields at one point in time: 1-year | 8.0% | 2-year | 7.0% | 3-year | 6.5% |
If the "unbiased expectations theory" is correct, what is the expected interest rate for the 1-year period starting two years from now? |
| | A) | 6.0% |
| | B) | 7.0% |
| | C) | 8.0% |
| | D) | 5.5% |
| | E) | 6.75% |
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| 15 | |
A typical supply curve for funds (in the "Loanable Funds" framework) depicts: |
| | A) | no change in funds demanded as the interest rate rises |
| | B) | more funds demanded as the interest rate rises |
| | C) | fewer funds supplied as the interest rate rises |
| | D) | more funds supplied as the interest rate rises |
| | E) | no change in the amount of funds supplied as the interest rate rises |
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| 16 | |
Assume the unbiased expectations theory is true. The current, 1-year Treasury yield is 4%. Suppose the market expects that the 1-year Treasury yield will be 7% in one year's time. What is the current 2-year Treasury yield? (Nearest tenth of a percent) |
| | A) | 11.0% |
| | B) | 22.0% |
| | C) | 5.5% |
| | D) | 7.0% |
| | E) | 14.5% |
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| 17 | |
The concept of ______________________ implies that any interest payments are not being reinvested. |
| | A) | simple interest |
| | B) | effective interest |
| | C) | loanable funds |
| | D) | the term structure of interest rates |
| | E) | compound interest |
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