BUSN 410 WEEK 8 FINAL EXAM FINAL
PAPER 2026 FULL QUESTIONS WITH
CORRECT ANSWERS GRADED 100%
⩥ Inflation. Answer: The percentage increase in the price of
standardized basket size of goods and services over a given period
⩥ How to measure Inflation. Answer: CPI - Consumer Price Index
⩥ June 2024 CPI 314.175, June 2025 CPI 322.561: This periods
inflation was?. Answer: (322.561-314.175)/314.175 = 2.7%
⩥ Headline Inflation. Answer: Inflation calculated using the CPI
⩥ Core Inflation. Answer: The % increase in the CPI that excludes the
categories of food and energy prices over given period
⩥ In June 2024 CPI (less food + energy) was 319.003, in June 2025 CPI
was 328.364: The core inflation during this period was?. Answer:
(328.364-319.003)/319.003 = 2.9%
,⩥ Real Interest Rate. Answer: The interest rate that would be observed
on a security if no inflation were expected over the holding period of the
security
⩥ Fisher Effect. Answer: The relationship among the nominal interest
rate, the real interest rate, and the expected inflation
⩥ Fisher Effect Formula. Answer: nominal interest rate = real interest
rate + expected inflation
⩥ Nominal interest rate 3.6% and real interst rate is 1.5%: Expected
inflation is?. Answer: 3.6% - 1.5%= 2.1%
⩥ Coupon Interest. Answer: Periodic cash flow that the bond issuer
promises to pay the bondholder
⩥ $1,000 face value bond matures in one year. No coupon interest.
Required rate of return is 8% per year: What is PV?. Answer:
(1000/1.08) = 925.93
⩥ $1,000 face value bond matures in six years. No coupon interest.
Required rate of return is 8% per year: What is PV?. Answer:
1000/(1.08)^6 = 630.17
,⩥ Yield. Answer: Return that bondholders earn on bond if they buy bond
at current market price, recieve payments as promised, and hold until
maturity
⩥ July 9, 2025 the yield on 10 yr bond was 4.34%: What does this
mean?. Answer: 4.34% is the return for bondholders when buy at market
price, payments, and hold til maturity
⩥ What determines the yield on security?. Answer: 1) Default risk: risk
that security issuer may fail to make the promised payment, usually
higher return for higher default risk securities
2) Maturity: investors typically require different yields for holding
securities with different maturities
3) Liquidity: an asset is liquid if it can be converted to cash quickly with
little or no loss
⩥ Yield Curve. Answer: A plot of yields on debt securities with different
maturities but same default risk, liquidity, and tax consideration
⩥ Money Markets. Answer: Markets where debt securities with original
maturities of one year or less are traded
⩥ Why are money markets useful?. Answer: Companies and gov may
need to borrow money temporarily
, ⩥ When would someone use money market?. Answer: A bank is facing
large amount of deposit withdrawals needs to borrow money from other
banks for one day
⩥ Give examples of major money market securities. Answer: Treasury
bills, federal funds, repurchase agreements, commercial paper, and
negotiable certificates of deposit
⩥ Example of where money market is conducted. Answer: Over-the-
counter markets
⩥ Size of money market securities. Answer: Usually sold in large
denominations ($1-10MM)
⩥ Are money market securities liquid?. Answer: Yes
⩥ Who can issue money market securities. Answer: Only places with
low default risk, such as federal government, JP Morgan, BOA, and
Microsoft
⩥ What do institutional investors use money market securities for?.
Answer: As interim investments, such as when market conditions are not
good for additional stocks or bonds, they may invest in money market
securities
PAPER 2026 FULL QUESTIONS WITH
CORRECT ANSWERS GRADED 100%
⩥ Inflation. Answer: The percentage increase in the price of
standardized basket size of goods and services over a given period
⩥ How to measure Inflation. Answer: CPI - Consumer Price Index
⩥ June 2024 CPI 314.175, June 2025 CPI 322.561: This periods
inflation was?. Answer: (322.561-314.175)/314.175 = 2.7%
⩥ Headline Inflation. Answer: Inflation calculated using the CPI
⩥ Core Inflation. Answer: The % increase in the CPI that excludes the
categories of food and energy prices over given period
⩥ In June 2024 CPI (less food + energy) was 319.003, in June 2025 CPI
was 328.364: The core inflation during this period was?. Answer:
(328.364-319.003)/319.003 = 2.9%
,⩥ Real Interest Rate. Answer: The interest rate that would be observed
on a security if no inflation were expected over the holding period of the
security
⩥ Fisher Effect. Answer: The relationship among the nominal interest
rate, the real interest rate, and the expected inflation
⩥ Fisher Effect Formula. Answer: nominal interest rate = real interest
rate + expected inflation
⩥ Nominal interest rate 3.6% and real interst rate is 1.5%: Expected
inflation is?. Answer: 3.6% - 1.5%= 2.1%
⩥ Coupon Interest. Answer: Periodic cash flow that the bond issuer
promises to pay the bondholder
⩥ $1,000 face value bond matures in one year. No coupon interest.
Required rate of return is 8% per year: What is PV?. Answer:
(1000/1.08) = 925.93
⩥ $1,000 face value bond matures in six years. No coupon interest.
Required rate of return is 8% per year: What is PV?. Answer:
1000/(1.08)^6 = 630.17
,⩥ Yield. Answer: Return that bondholders earn on bond if they buy bond
at current market price, recieve payments as promised, and hold until
maturity
⩥ July 9, 2025 the yield on 10 yr bond was 4.34%: What does this
mean?. Answer: 4.34% is the return for bondholders when buy at market
price, payments, and hold til maturity
⩥ What determines the yield on security?. Answer: 1) Default risk: risk
that security issuer may fail to make the promised payment, usually
higher return for higher default risk securities
2) Maturity: investors typically require different yields for holding
securities with different maturities
3) Liquidity: an asset is liquid if it can be converted to cash quickly with
little or no loss
⩥ Yield Curve. Answer: A plot of yields on debt securities with different
maturities but same default risk, liquidity, and tax consideration
⩥ Money Markets. Answer: Markets where debt securities with original
maturities of one year or less are traded
⩥ Why are money markets useful?. Answer: Companies and gov may
need to borrow money temporarily
, ⩥ When would someone use money market?. Answer: A bank is facing
large amount of deposit withdrawals needs to borrow money from other
banks for one day
⩥ Give examples of major money market securities. Answer: Treasury
bills, federal funds, repurchase agreements, commercial paper, and
negotiable certificates of deposit
⩥ Example of where money market is conducted. Answer: Over-the-
counter markets
⩥ Size of money market securities. Answer: Usually sold in large
denominations ($1-10MM)
⩥ Are money market securities liquid?. Answer: Yes
⩥ Who can issue money market securities. Answer: Only places with
low default risk, such as federal government, JP Morgan, BOA, and
Microsoft
⩥ What do institutional investors use money market securities for?.
Answer: As interim investments, such as when market conditions are not
good for additional stocks or bonds, they may invest in money market
securities
