1. Which of the following is a centralized market? NYSE CBOT FTSE all of the abo

Question

1. Which of the following is a centralized market?

NYSE

CBOT

FTSE

all of the above

2.

An AAA bond has lower default risk than a BBB bond.

True

False

3. The yield on a one-year bond is currently 4% and the expected yield on one-year bonds for the next two years is 5% and 6%. If the liquidity premium is 0.5%, what is the yield on a bond with two years to maturity?

6%

5.5%

5%

4.5%

4. When a pension fund buys stock on the NYSE, it is using a secondary market.

True

False

5. The present value of a future payment is always greater than the payment.

True

False

6. A bond is bought at par and market yields rise after purchase. If the bond is held to maturity, the rate of return at maturity will be _____ the yield at purchase.

greater than

less than

equal to

Cannot be determined.

7. A bank takes deposits and uses the funds to make home loans. Hence, the _____ increases.

level of capital

ROA

quantity of reserves

none of the above

8. Mortgage-backed assets are an example of a securitized asset.

True

False

9. Tightening regulations on traditional banks was a major cause of the S&L crisis.

True

False

10. A decrease in the money supply leads to an initial increase but a long-run decrease in the equilibrium interest rate if the _____ effect dominates other effects.

liquidity

price level

expected inflation

none of the above

NYSE

CBOT

FTSE

all of the above

Explanation / Answer

NYSE True YTM = Average of 5% and 6% + Liquidity premium = 5.5+0.5 = 6% True False Greater than ROA (if interest rate on home loans is greater than that on deposits) True False Liquidity

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