FINA 363 Final Exam Questions with Correct Answers Latest Update 2025/2026
bond price - Answers what people in the market are willing to pay for bond based on future
payments
inverse realtionships to interest rates - Answers - Interest rate go up the bond price goes down
- interest rates go down the bond price goes up
bond duration - Answers how sensitive a bond is to interest rate changes (how much price will
move)
- longer maturity is more sensitive
- lower coupon = more sensitive
treasury term structure - Answers how interest rates chnage depending in how long until the
bond matures
yield curve - Answers graph showing interest rates vs time to matuity
normal yield curve - Answers upward sloping long term rates are higher becasue long term =
more risk
flat yield curve - Answers downward sloping long term rates are lower than short term rates
yield spread - Answers diff between yields and two bonds
Market Efficiency - Answers when prices in market are good estimates of a stocks true value
requirements for market efficiency - Answers 1. lots of smart investors looking for profits
2. cheap and easy trading
3. high liquidity (easy to buy/sell fast)
signs of efficient market - Answers - prices react quickly and correctly to news
- abnormal profits=luck,not skill
- active trading doesnt help much
diversification - Answers owning diff investments to reduce risk
low correlation (close to 0)= good diversification
correlation = +1 -> no benefit
systematic risk - Answers market wide risk (cannot diversify away)
bond price - Answers what people in the market are willing to pay for bond based on future
payments
inverse realtionships to interest rates - Answers - Interest rate go up the bond price goes down
- interest rates go down the bond price goes up
bond duration - Answers how sensitive a bond is to interest rate changes (how much price will
move)
- longer maturity is more sensitive
- lower coupon = more sensitive
treasury term structure - Answers how interest rates chnage depending in how long until the
bond matures
yield curve - Answers graph showing interest rates vs time to matuity
normal yield curve - Answers upward sloping long term rates are higher becasue long term =
more risk
flat yield curve - Answers downward sloping long term rates are lower than short term rates
yield spread - Answers diff between yields and two bonds
Market Efficiency - Answers when prices in market are good estimates of a stocks true value
requirements for market efficiency - Answers 1. lots of smart investors looking for profits
2. cheap and easy trading
3. high liquidity (easy to buy/sell fast)
signs of efficient market - Answers - prices react quickly and correctly to news
- abnormal profits=luck,not skill
- active trading doesnt help much
diversification - Answers owning diff investments to reduce risk
low correlation (close to 0)= good diversification
correlation = +1 -> no benefit
systematic risk - Answers market wide risk (cannot diversify away)
