Fin 3080 Final Exam Practice test questions and answers, (Answered 100%)

Fin 3080 Final Exam Practice test questions and answers, (Answered 100%) In October 2009, following the financial crisis the unemployment rate peaked at over __% 10% Give one example of a problem that can occur if people believe that home prices will always raise Homeowners borrow a lot Rating agencies underestimate default rates on MBS Who was the chair of the Federal Reserve in 2008, during the financial crisis Ben Bernake What is the typical denomination of a treasury bill Multiples of 100$ 100, 1000, 5000, 10000 Why do T bills have little liquidity risk Active secondary market Suppose a T-bill matures in 147 days, has a face value of $1,000, and sells for $997.85. Calculate the effective annual rate 0.53585% List one of the differences between T-bills and T-notes/bonds T-bills have shorter maturity, are considered risk free, and do not pay coupons. Give the ranking of secondary market liquidity for the three types of bonds. Treasury bonds (most liquid) Corporate bonds Munis (least liquid) What happens if the convertible bond value falls below the conversion value Arbitrage opportunity List one criticism of rating agencies Slow to react / incentives are not aligned with investors. Common stock has residual claim. What is the implication of this for stocks and bonds of the same firm Common stock is riskier than bonds of the same firm. In the secondary market common stock is typically traded in the _____ while treasury bonds are typically traded in a _______ 1. Centralized market 2. Decentrilized market During the financial crisis, the US unemployment rate peaked at ____ in October 2009, the highest level since ___- 10%; 1983 Which of the following firms was not bailed out by the federal government during the financial crisis of 2008 lehman brothers (they went out of business)