??????20172018?? ?2?????? Course _Money and Banking Cohort Name ID Number Unit I

Question

??????20172018?? ?2?????? Course _Money and Banking Cohort Name ID Number Unit IlI Total Mark Please write your answer in BLACK or BLUF ink or ballpoint ONLY I. Multiple Choice (10%) Directionsi For each of questions, there are four choices marked A, B, C, and D. You should decide on the best choice and write the corresponding letter on Answer Sheet. 1. Compared to an economy that uses a medium of exchange, in a barter economy A) transaction costs are higher C) liquidity costs are higher B) transaction costs are lower D) liquidity costs are lower 2. Which of the following $1,000 face-value securities has the lowest yield to maturity? A) a 5 percent coupon bond selling for $1,000 B) a 10 percent coupon bond selling for $1,000 C) a 15 percent coupon bond selling for $1,000 D) a 15 percent coupon bond séling for $900 . Government regulations require publicly traded firms to provide information roducing A) transactions costs C) the adverse selection problem B) the need for diversification. D) economies of scale. Page 1 of 4

Explanation / Answer

1. Ans: A) transaction costs are higher.

2. Ans: A) a 5 percent coupon bond selling for $1,000

For a bond if Selling price and Face value is same then YTM = coupon rate. So for a 5 percent coupon bond selling for $1,000 YTM will be 5%, for a 10 percent coupon bond selling for $1,000 YTM will be 10%, for a 15 percent coupon bond selling for $1,000 YTM will be 15% and for a 15 percent coupon bond selling for $900 YTM will be more than 15% because the bond is selling at a discount. So, a 5 percent coupon bond selling for $1,000 has the lowest YTM.

3. Ans C) the adverse selection problem

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