UNL Fina 361 Final Exam Questions And
Answers Verified 100% Correct
As the economy grows, interest rates tend to rise because - ANSWER -firms have
more investment opportunities and so the firms issue more bonds and the increased
supply of these bonds will cause the price of the bonds to decrease and bond prices
and interest rates move in opposite directions.
Assume you have a portfolio of bonds that consists of $10,000 in 1 year bonds and
$10,000 in 10 year bonds. You expect that next month market interest rates are
going to rise. If you continue to own these bonds, then next month you would
expect to have a - ANSWER -capital loss on both your 1 year and 10 year bonds
with a larger loss on the 10 year bonds.
If investors expect the rate of inflation to increase, most bonds become -
ANSWER -a less good investment because bond coupons and face value are paid
in nominal terms.
If the government places a tax on ONLY long term bond income, but NOT on
short term bond income, then one would expect the slope of term structure to -
ANSWER -Increase, because the price of long term bonds would decrease.
According to the Segmented Market Hypothesis of the term structure - ANSWER
-different types of bond investors limit themselves to buying only bonds of a
certain maturity.
According to the Liquidity Preference Model of the Term Structure the term
structure slopes upwards because (all else equal) short term bonds are more liquid
than long term bonds and their higher liquidity - ANSWER -raises short term bond
prices and lowers short term bond interest rate.
Higher expected inflation will _________ the demand for bonds which will
________ the price of bonds which will ________ the interest rate on bonds. -
ANSWER -lower; decrease; increase
Long maturity bonds usually have _________ price risk and _______
reinvestment risk than short term maturity bonds. - ANSWER -more; more
, Any asset gives return from two possible sources. These are - ANSWER -
Delaying consumption and bearing risk
Which of the following contributes to the DEMAND for bonds? - ANSWER -
Time preference of consumption
Investors make choices of which assets to use for savings based on which two
factors. - ANSWER -risk aversion and the asset's risk characteristics
All else equal, HIGHER expected inflation will _________ the nominal riskless
interest rate. - ANSWER -increase
The MORE risk-averse an investor is the __________ she will pay for a risky
asset and the _________ the required expected return on the asset will be. -
ANSWER -less; greater
Which of the following contributes to the SUPPLY of bonds? - ANSWER -
Production opportunities
Would a callable bond sell for more or less than a similar bond without a call
feature? - ANSWER -A callable bond would sell for LESS
Investor and consumers ultimately are concerned with - ANSWER -Real rates of
return
When investors in a country become more patient there will be pressure on
interest rates in that country - ANSWER -to be low
Where you save (i.e., the assets you invest in) depends on - ANSWER -your risk
aversion AND the risk characteristics of the asset
Illiquid assets tend to be - ANSWER -Heterogeneous with high information costs
Which of the following contributes to the real riskless interest rate? - ANSWER -
Production Opportunities
According to modern finance principles, the price of any asset is equal to -
ANSWER -the present value of the expected cash-flows provided by the asset.
Answers Verified 100% Correct
As the economy grows, interest rates tend to rise because - ANSWER -firms have
more investment opportunities and so the firms issue more bonds and the increased
supply of these bonds will cause the price of the bonds to decrease and bond prices
and interest rates move in opposite directions.
Assume you have a portfolio of bonds that consists of $10,000 in 1 year bonds and
$10,000 in 10 year bonds. You expect that next month market interest rates are
going to rise. If you continue to own these bonds, then next month you would
expect to have a - ANSWER -capital loss on both your 1 year and 10 year bonds
with a larger loss on the 10 year bonds.
If investors expect the rate of inflation to increase, most bonds become -
ANSWER -a less good investment because bond coupons and face value are paid
in nominal terms.
If the government places a tax on ONLY long term bond income, but NOT on
short term bond income, then one would expect the slope of term structure to -
ANSWER -Increase, because the price of long term bonds would decrease.
According to the Segmented Market Hypothesis of the term structure - ANSWER
-different types of bond investors limit themselves to buying only bonds of a
certain maturity.
According to the Liquidity Preference Model of the Term Structure the term
structure slopes upwards because (all else equal) short term bonds are more liquid
than long term bonds and their higher liquidity - ANSWER -raises short term bond
prices and lowers short term bond interest rate.
Higher expected inflation will _________ the demand for bonds which will
________ the price of bonds which will ________ the interest rate on bonds. -
ANSWER -lower; decrease; increase
Long maturity bonds usually have _________ price risk and _______
reinvestment risk than short term maturity bonds. - ANSWER -more; more
, Any asset gives return from two possible sources. These are - ANSWER -
Delaying consumption and bearing risk
Which of the following contributes to the DEMAND for bonds? - ANSWER -
Time preference of consumption
Investors make choices of which assets to use for savings based on which two
factors. - ANSWER -risk aversion and the asset's risk characteristics
All else equal, HIGHER expected inflation will _________ the nominal riskless
interest rate. - ANSWER -increase
The MORE risk-averse an investor is the __________ she will pay for a risky
asset and the _________ the required expected return on the asset will be. -
ANSWER -less; greater
Which of the following contributes to the SUPPLY of bonds? - ANSWER -
Production opportunities
Would a callable bond sell for more or less than a similar bond without a call
feature? - ANSWER -A callable bond would sell for LESS
Investor and consumers ultimately are concerned with - ANSWER -Real rates of
return
When investors in a country become more patient there will be pressure on
interest rates in that country - ANSWER -to be low
Where you save (i.e., the assets you invest in) depends on - ANSWER -your risk
aversion AND the risk characteristics of the asset
Illiquid assets tend to be - ANSWER -Heterogeneous with high information costs
Which of the following contributes to the real riskless interest rate? - ANSWER -
Production Opportunities
According to modern finance principles, the price of any asset is equal to -
ANSWER -the present value of the expected cash-flows provided by the asset.
