1. A decrease in the expected future interest rate makesbonds______________ . a.
ID: 2770837 • Letter: 1
Question
1. A decrease in the expected future interest rate makesbonds______________ .
a. Less attractive
b. More attractive
c. Less expensive
d. More expensive
2. As interest ratefalls in recession, the bond prices are likely to____________.
a. Decrease
b. Increase
c. Be stable
d. Fluctuate
3. There is noguarantee that a bond issuer will make the promised payments isknown as the:
a. Default risk
b. Inflation risk
c. Interest rate risk
d. Systematic risk
4. The greater theinflation risk, the___________ will be the compensation forit.
a. Smaller
b. Larger
c. Zero
d. None of the given options
5.___________________ risk arises from the fact thatinvestors don’t know the holding
period yield of a long term bond.
a. Default risk
b. Inflation risk
c. Interest rate risk
d. Systematic risk
6. The____________are an assessment of the creditworthiness of the corporateissuer.
a. Bond yield
b. Bond ratings
c. Bond risk
d. Bond rate
7. The lower abond’s rating, the____________ will be itsprice.
a. Higher
b. Lower
c. Equal to
d. No change
8. A plot of the term structure with YTM on Y-axis andtime to maturity on X-axis iscalled .
a. Demand curve
b. Supply curve
c. Yield curve
d. Leffer curve
9. Yields on short term bonds are_____________ than theyield on long term bonds.
a. Less volatile
b. Higher
c. Lower
d. More volatile
10. The KSE 100 Index contains a representative sampleof common stock that trade on the .
a. Lahore Stock Exchange
b. Karachi Stock Exchange
c. Islamabad StockExchange
d. New York Stock Exchange
11. The expectations theory of the term structureassumes:
a. Buyers of bonds preferbonds with longer maturities.
b. Buyers of bonds consider bondsof different maturities to be perfect substitutes.
c. Buyers of bonds preferbonds with shorter maturities.
d. Markets for different maturitybonds are completely separate.
12. Yield curves show:
a. The relationship betweenliquidity and bond interest rates (yields).
b. The relationship between riskand bond interest rates (yields).
c. The relationship betweenbond interest rates (yields) and bond prices.
d. The relationship between timeto maturity and bond interest rates (yields).
13. Municipal bonds generally have lower interest ratesthan U.S. Government bonds because:
a. They have less risk.
b. They are more liquid.
c. They never mature.
d. They are exempt from Federal taxes.
14. If the bond is selling above the face value than itis called:
a. Discount
b. Compound
c. Premium
d. None of the given options
15. Zero- Coupon bonds are sold at a price:
a. Equal t their facevalue
b. Below their face value
c. Above their facevalue
d. None of the given options
16. According to the_________ effect, an increase in themoney supply lowers the interest rate.
a. Price-level
b. Liquidity
c. Income
d. Expected-inflation
17. The real interest rate is:
a. The nominal rate plus theexpected inflation rate
b. The nominal interest rate/theCPI
c. The product of thenominal rate and the CPI
d. The nominal rate minus theexpected inflation rate
18. For a coupon bond, the current yield is calculatedas:
a. Coupon Payment/Price
b. The current yield is the sameas the coupon rate.
c. Coupon Payment/FaceValue
d. Coupon Payment/((Price + FaceValue)/2)
19. Which of the following is a use for commercial bankfunds?
a. Loans
b. Securities
c. Reserves
d. All of the given options
20. Financial intermediaries:
a. Channel funds from saversto borrowers
b. Greatly enhance economicefficiency
c. Have been a source ofmany financial innovations
d. Have done all of the above
Explanation / Answer
20. (d) Have done all of the above
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