Finance 300 Exam 2 Ch 5-8 || with Error-free Answers.
Investors should expect that investments with: correct answers lower risk will pay lower returns
The total return that an investor earns on any investment consists of the dollar return that the
investment pays plus the _____ associated with the investment. correct answers capital gains
Everything else equal, interest rates increase: correct answers when the consumers' preference
for current consumption increases
Inflation refers to: correct answers the tendency of prices to increase over time that erodes the
purchasing power of money
Which of the following statements is true? correct answers If the supply of funds increases, the
interest rates decrease
If the _____ decreases, then the interest rates will decrease. correct answers time preference for
consumption
The capital gain on a stock purchased for $150 was $50 and the dividend income is $20. The
stock's yield is _____. correct answers 46.67%
A bond purchased for $100 which gave a dividend income of $20 was sold for $125. _____ is the
capital gain from the investment. correct answers $25
Which of the following increases the cost of money? correct answers high risk
Everything else equal, long-term bonds have to pay higher returns than short-term bonds due to
the: correct answers maturity risk premium
,Although long-term bonds are heavily exposed to interest rate risk, short-term investments are
more vulnerable to _____. correct answers reinvestment rate risk
Which of the following statements is true? correct answers Financial assets are more liquid than
real assets
_____ is defined as the ability to convert an asset into cash on short notice and reasonably
capture the amount initially invested. correct answers Liquidity
_____ is the difference between the interest rate on a U.S. Treasury bond and a corporate bond of
equal maturity and marketability. correct answers default risk premium
Which of the following features of a corporate bond will lead to a lower cost of borrowing?
correct answers high credit rating
The real-risk free rate of interest of interest is the rate: correct answers that would exist when
inflation is zero
If the nominal rate on a bond is 10% and the real risk-free rate 6%, then the inflation premium is
_____. correct answers 4%
Which of the following is the risk-free rate of an asset with real risk-free rate of 4% and an
inflation premium of 3%? correct answers 7%
A bond issued by Zinc Corp. offers a return of 8% whereas a treasury bond with the same
features offers a return of 6%. The difference in interest rates is due to the _____. correct
answers default risk premium
Which of the following best describes the shape of a "normal" yield curve? correct answers
upward sloping
, The three theories mentioned in the text to explain the shapes of yield curves (term structure of
interest rates) are the expectations theory, the market segmentation theory, and the _____ theory.
correct answers liquidity preference
Other things constant, if the supply of funds in the economy increases, the: correct answers
interest rates in the financial markets should decrease
A _____ is a graph that shows the relationship between the yields and maturities of similar-risk
securities. correct answers yield curve
Risk-free rate of return includes: correct answers the real-risk free return and an adjusted risk
premium
Which of the following is one of the "other factors" mentioned in the book that influence interest
rates? correct answers federal deficit
During the past couple of decades, the United States has generally run a foreign trade deficit,
which means that, everything else equal,: correct answers the amount of goods imported into the
United States exceeds the amount of goods exported to foreign countries
Which of the following statements is true about the foreign trade deficit? correct answers A trade
deficit hinders measures to combat recession
Which of the following can lead to an increase in interest rates? correct answers federal deficit
Which of the following actions is taken by the Federal Reserve during expansion? correct
answers The Federal Reserve sells securities to increase interest rates
Which of the following actions is taken by the Federal Reserve during recession? correct answers
The Federal Reserve purchases securities to decrease interest rates
Investors should expect that investments with: correct answers lower risk will pay lower returns
The total return that an investor earns on any investment consists of the dollar return that the
investment pays plus the _____ associated with the investment. correct answers capital gains
Everything else equal, interest rates increase: correct answers when the consumers' preference
for current consumption increases
Inflation refers to: correct answers the tendency of prices to increase over time that erodes the
purchasing power of money
Which of the following statements is true? correct answers If the supply of funds increases, the
interest rates decrease
If the _____ decreases, then the interest rates will decrease. correct answers time preference for
consumption
The capital gain on a stock purchased for $150 was $50 and the dividend income is $20. The
stock's yield is _____. correct answers 46.67%
A bond purchased for $100 which gave a dividend income of $20 was sold for $125. _____ is the
capital gain from the investment. correct answers $25
Which of the following increases the cost of money? correct answers high risk
Everything else equal, long-term bonds have to pay higher returns than short-term bonds due to
the: correct answers maturity risk premium
,Although long-term bonds are heavily exposed to interest rate risk, short-term investments are
more vulnerable to _____. correct answers reinvestment rate risk
Which of the following statements is true? correct answers Financial assets are more liquid than
real assets
_____ is defined as the ability to convert an asset into cash on short notice and reasonably
capture the amount initially invested. correct answers Liquidity
_____ is the difference between the interest rate on a U.S. Treasury bond and a corporate bond of
equal maturity and marketability. correct answers default risk premium
Which of the following features of a corporate bond will lead to a lower cost of borrowing?
correct answers high credit rating
The real-risk free rate of interest of interest is the rate: correct answers that would exist when
inflation is zero
If the nominal rate on a bond is 10% and the real risk-free rate 6%, then the inflation premium is
_____. correct answers 4%
Which of the following is the risk-free rate of an asset with real risk-free rate of 4% and an
inflation premium of 3%? correct answers 7%
A bond issued by Zinc Corp. offers a return of 8% whereas a treasury bond with the same
features offers a return of 6%. The difference in interest rates is due to the _____. correct
answers default risk premium
Which of the following best describes the shape of a "normal" yield curve? correct answers
upward sloping
, The three theories mentioned in the text to explain the shapes of yield curves (term structure of
interest rates) are the expectations theory, the market segmentation theory, and the _____ theory.
correct answers liquidity preference
Other things constant, if the supply of funds in the economy increases, the: correct answers
interest rates in the financial markets should decrease
A _____ is a graph that shows the relationship between the yields and maturities of similar-risk
securities. correct answers yield curve
Risk-free rate of return includes: correct answers the real-risk free return and an adjusted risk
premium
Which of the following is one of the "other factors" mentioned in the book that influence interest
rates? correct answers federal deficit
During the past couple of decades, the United States has generally run a foreign trade deficit,
which means that, everything else equal,: correct answers the amount of goods imported into the
United States exceeds the amount of goods exported to foreign countries
Which of the following statements is true about the foreign trade deficit? correct answers A trade
deficit hinders measures to combat recession
Which of the following can lead to an increase in interest rates? correct answers federal deficit
Which of the following actions is taken by the Federal Reserve during expansion? correct
answers The Federal Reserve sells securities to increase interest rates
Which of the following actions is taken by the Federal Reserve during recession? correct answers
The Federal Reserve purchases securities to decrease interest rates
