QUIZ 2 MONEY AND BANKING 1. Which of the following instruments is traded in the capital market. a. Treasury bills d. All of the above are capital market instrument b. Negotiable CDs e. None of the above are capital market instrument c. Eurodollars a b c d e 2. A 90-day Treasury bill with a maturity value of $10,000 selling for $9725 has a discount yield of : a. 15% b. 14% c. 12% d. 11% e. 10% a b c d e 3. An increase in the liquidity of an asset tends to -------------- the demand for that asset. a. increase b. decrease c. have no effect on a b c 4. In class, we referred to bonds issued by deficit saving units as ------------ securities . a. secondary b. primary c. We didn't specifically refer to these bonds. a b c 5. Immediately available funds sold by one bank to another bank are called-----------. a. MMDAs b. Treasury funds c. Federal funds d. Commercial paper a b c d 6. A 90-day Treasury bill with a maturity value of $10,000 selling for $9750 has a yield-to-maturity of : a.12.6% b. 10.1% c. 13.7% d. 10.4% e. 11.3 % a b c d e 7. An asset with a wealth elasticity of Ew = 1.6 would be classified as a -----------. a. luxury asset b. necessity asset c. neither is correct a b c 8. Which of the following $1000 face-value bonds has the lowest yield-to-maturity? a. An 16% coupon bond with a price of $ 700. b. An 16% coupon bond with a price of $ 900. c. An 16% coupon bond with a price of $ 1000. d. An 16% coupon bond with a price of $ 1300. e. An 16% coupon bond with a price of $ 1600. a b c d e 9. A bond with a $1000 face value and a coupon rate of 12% sells in the market for $1000 . What is the bonds yield-to-maturity ? a. 9% b. 10% c. 11% d. 12% e. Cannot be determined without a maturity date a b c d e 10. An example of a real investment is the___________ . a. purchase of a share in a mutual fund b. purchase of a Treasury bill c. purchase of a share of Texaco stock d. purchase of a life insurance policy e. None of the above are real investments. a b c d e 11. With a market interest rate of eight percent , the present value of $200 received next year is ---------- . a. $216.00 b. $95.39 c. $188.68 d. $173.32 e. $185.19 a b c d e 12. Which of the following $1000 face-value bonds has the highest yield-to-maturity? a. An 20% coupon bond with a price of $ 700. b. An 20% coupon bond with a price of $ 900. c. An 20% coupon bond with a price of $ 1000. d. An 20% coupon bond with a price of $ 1300. e. An 20% coupon bond with a price of $ 1600. a b c d e 13. Treasury bonds are classified as ------------ instruments. a. capital market b. money market a b 14. ------------ are the main secondary securities produced by commercial banks. a. mortgages b. deposits c. commercial paper d. long-term bonds e. Treasury bills a b c d e 15. Saving surplus units save more than they invest in real investment goods. a. True b. False a b 16. The Federal government is generally considered to a ------------------- . a. surplus saving unit b. deficit saving unit c. balanced saving unit a b c 17. Use the following information to calculate the expected return on Bond Y. State of Prob.of State Bond Y's the World of the World Return Prosperity 0.40 0.30 Depression 0.60 - 0.05 What is Bond Y's expected return ? a. 0.07 b. 0.09 c. 0.16 d. 0.12 e. - 0.18 a b c d e 18. Money markets are generally organized as ------------ . a. exchange markets b. auction market c. over-the-counter markets a b c 19. If an asset has a wealth elasticity of Ew = 1.5 , then a 10% increase in wealth will cause an increase of ------ % in the demand for this asset . a. 10% b. 15% c. 20% d. 25% e. 18% a b c d e 20. The current yield on a $1000, 10% coupon bond selling for $1000 is -------- . a. 9.0% b. 9.2% c. 9.8% d. 10.0% e. 11.3% a b c d e 21. The riskiness of a bond decreases relative to similar bonds , therefore I will tend to ----------- my holdings of the bond . a. increase b. decrease a b 22. When interest rates fall, holding period yields (RETs) tend to ------- . a. rise b. fall a b 23. The variability of a bonds return can be referred to as its -------- . a. coupon rate d. discount b. liquidity e. RET c. risk a b c d e 24. Over the business cycle interest rates and bond prices tend to move in the -------- direction. a. same b. opposite c. since bond prices and interest rates are random variables you really can't tell . a b c 25. The percentage change in the quantity demanded of an asset divided by the percentage change in wealth is called the ------------ . a. expected return on wealth d. wealth elasticity b. price elasticity of demand e. interest spread c. coincidence effect a b c d e 26. Which of the above cash flow profiles most likely represents a discount or zero coupon bond? a. profile a. b. profile b. a b 27. If the price of gold becomes more volatile, then, other things the same, the demand for stocks will ---------- and the demand for antiques will --------- . a. increase; increase c. decrease; decrease b. increase; decrease d. decrease; increase a b c d 28. If the expected return on NET stock declines from 12 percent to 9 percent and the expected return on MICRO stock declines from 8 percent to 7 percent, then the expected return of holding NET stock --------- relative to MICRO stock and demand for MICRO stock -------- . a. rises; rises b. rises; falls c. falls; rises d. falls; falls a b c d 29. If an asset has a wealth elasticity of Ew = 2.0, then a 10% increase in wealth will cause an increase of ------ % in the demand for this asset . a. 10% b. 15% c. 20% d. 25% e. 18% a b c d e 30. The yield on a discount basis of a 32-day, $1000 T-bill selling for $990 is --------- . a. 5.25 percent b. 10.35 percent c. 11.25 percent d. 12.75 percent e. None of the above, the correct answer is-------------- . a b c d e 31. The current yield on a $6000, 10 percent coupon bond selling for $4500 is ---------- . a. 5.65 percent b. 10.39 percent c. 12.19 percent d. 13.33 percent e. 15.83 percent a b c d e 32. ------------ are the main secondary securities produced by commercial banks. a. Mortgages b. Deposits c. Commercial paper d. Long-term bonds e. T-bills a b c d e 33. A 90-day Treasury bill with a maturity value of $1000 selling for $965 has a yield-to-maturity of : a.18.6% b. 14.5% c. 13.7% d. 15.5% e. 21.3 % a b c d e 34. A $5000 coupon bond with a $480 coupon payment every year has a coupon rate of a. 2.7 percent b. 6.8 percent c. 8.2 percent d. 9.6 percent e. 1.5 percent a b c d e 35. Which of the following are true for discount bonds ? a. A discount bond is bought at a price below its face value. b. The purchaser receives the face value of the bond at the maturity date. c. US Treasury bonds and notes are examples of discount bonds. d. All of the above are true. e. Only (a) and (b) of the above are true. a b c d e 36. Saving deficient units save more than they invest in real investment goods. a. True b. False a b 37. Diversification is most beneficial when asset returns are perfectly negatively correlated. a. True B. False a b 38. The risk that can be eliminated through diversification is referred to as ----------. a. systematic risk b. cyclical risk c. coincidental risk d. nonsystematic risk a b c d 39. When the lenders and the borrowers have different amounts of information regarding a transaction then -------------- information is said to exist. a. adverse b. fraudulent c. insider d. asymmetric e. immoral a b c d e 40. A financial institution which assists in the initial sale of securities in the primary market is ---- . a. a commercial bank b. the SEC c. the investment bank d. the credit union e. the property and casualty insurance company a b c d e 41. Which of the following $1000 face-value bonds has the lowest yield-to-maturity? a. An 12% coupon bond with a price of $ 700. b. An 12% coupon bond with a price of $ 900. c. An 12% coupon bond with a price of $ 1000. d. An 12% coupon bond with a price of $ 1300. e. An 12% coupon bond with a price of $ 1600. a b c d e 42. An investor's strategy of holding many risky assets in an attempt to reduce overall risk is called ------------ . a. spread management c. specialization e. coincidentialization b. securitization. d. diversification a b c d e 43. Risk, as used in economics, means a. the probability of a loss. b. the probability of a gain. c. the probabilty of a gain and the probability of a loss. d. the overall rate of return. e. the present value of a financial instrument. a b c d e 44. If a financial instrument has a 35 percent chance of paying 29 percent and a 65 percent chance of paying - 13 percent, it expected return would be a. 0.008 b. 0.036 c. 0.053 d. 0.017 e. - 0.029 a b c d e 45. Dollar denominated deposits in banks outside the United States are referred as a. foreign currency dposits b. Yankee commercial paper c. Eurodollar deposits d. treasury dollar bills e. penny bills a b c d e
QUIZ 2 MONEY AND BANKING 1. Which of the following instruments is traded in the capital market. a. Treasury bills d. All of the above are capital market instrument b. Negotiable CDs e. None of the above are capital market instrument c. Eurodollars
2. A 90-day Treasury bill with a maturity value of $10,000 selling for $9725 has a discount yield of : a. 15% b. 14% c. 12% d. 11% e. 10%
3. An increase in the liquidity of an asset tends to -------------- the demand for that asset. a. increase b. decrease c. have no effect on
4. In class, we referred to bonds issued by deficit saving units as ------------ securities . a. secondary b. primary c. We didn't specifically refer to these bonds.
5. Immediately available funds sold by one bank to another bank are called-----------. a. MMDAs b. Treasury funds c. Federal funds d. Commercial paper
6. A 90-day Treasury bill with a maturity value of $10,000 selling for $9750 has a yield-to-maturity of : a.12.6% b. 10.1% c. 13.7% d. 10.4% e. 11.3 %
7. An asset with a wealth elasticity of Ew = 1.6 would be classified as a -----------. a. luxury asset b. necessity asset c. neither is correct
8. Which of the following $1000 face-value bonds has the lowest yield-to-maturity? a. An 16% coupon bond with a price of $ 700. b. An 16% coupon bond with a price of $ 900. c. An 16% coupon bond with a price of $ 1000. d. An 16% coupon bond with a price of $ 1300. e. An 16% coupon bond with a price of $ 1600.
9. A bond with a $1000 face value and a coupon rate of 12% sells in the market for $1000 . What is the bonds yield-to-maturity ? a. 9% b. 10% c. 11% d. 12% e. Cannot be determined without a maturity date
10. An example of a real investment is the___________ . a. purchase of a share in a mutual fund b. purchase of a Treasury bill c. purchase of a share of Texaco stock d. purchase of a life insurance policy e. None of the above are real investments.
11. With a market interest rate of eight percent , the present value of $200 received next year is ---------- . a. $216.00 b. $95.39 c. $188.68 d. $173.32 e. $185.19
12. Which of the following $1000 face-value bonds has the highest yield-to-maturity? a. An 20% coupon bond with a price of $ 700. b. An 20% coupon bond with a price of $ 900. c. An 20% coupon bond with a price of $ 1000. d. An 20% coupon bond with a price of $ 1300. e. An 20% coupon bond with a price of $ 1600.
13. Treasury bonds are classified as ------------ instruments. a. capital market b. money market
14. ------------ are the main secondary securities produced by commercial banks. a. mortgages b. deposits c. commercial paper d. long-term bonds e. Treasury bills
15. Saving surplus units save more than they invest in real investment goods. a. True b. False
16. The Federal government is generally considered to a ------------------- . a. surplus saving unit b. deficit saving unit c. balanced saving unit
17. Use the following information to calculate the expected return on Bond Y. State of Prob.of State Bond Y's the World of the World Return Prosperity 0.40 0.30 Depression 0.60 - 0.05 What is Bond Y's expected return ? a. 0.07 b. 0.09 c. 0.16 d. 0.12 e. - 0.18
18. Money markets are generally organized as ------------ . a. exchange markets b. auction market c. over-the-counter markets
19. If an asset has a wealth elasticity of Ew = 1.5 , then a 10% increase in wealth will cause an increase of ------ % in the demand for this asset . a. 10% b. 15% c. 20% d. 25% e. 18%
20. The current yield on a $1000, 10% coupon bond selling for $1000 is -------- . a. 9.0% b. 9.2% c. 9.8% d. 10.0% e. 11.3%
21. The riskiness of a bond decreases relative to similar bonds , therefore I will tend to ----------- my holdings of the bond . a. increase b. decrease
22. When interest rates fall, holding period yields (RETs) tend to ------- . a. rise b. fall
23. The variability of a bonds return can be referred to as its -------- . a. coupon rate d. discount b. liquidity e. RET c. risk
24. Over the business cycle interest rates and bond prices tend to move in the -------- direction. a. same b. opposite c. since bond prices and interest rates are random variables you really can't tell .
25. The percentage change in the quantity demanded of an asset divided by the percentage change in wealth is called the ------------ . a. expected return on wealth d. wealth elasticity b. price elasticity of demand e. interest spread c. coincidence effect
26. Which of the above cash flow profiles most likely represents a discount or zero coupon bond? a. profile a. b. profile b.
27. If the price of gold becomes more volatile, then, other things the same, the demand for stocks will ---------- and the demand for antiques will --------- . a. increase; increase c. decrease; decrease b. increase; decrease d. decrease; increase
28. If the expected return on NET stock declines from 12 percent to 9 percent and the expected return on MICRO stock declines from 8 percent to 7 percent, then the expected return of holding NET stock --------- relative to MICRO stock and demand for MICRO stock -------- . a. rises; rises b. rises; falls c. falls; rises d. falls; falls
29. If an asset has a wealth elasticity of Ew = 2.0, then a 10% increase in wealth will cause an increase of ------ % in the demand for this asset . a. 10% b. 15% c. 20% d. 25% e. 18%
30. The yield on a discount basis of a 32-day, $1000 T-bill selling for $990 is --------- . a. 5.25 percent b. 10.35 percent c. 11.25 percent d. 12.75 percent e. None of the above, the correct answer is-------------- .
31. The current yield on a $6000, 10 percent coupon bond selling for $4500 is ---------- . a. 5.65 percent b. 10.39 percent c. 12.19 percent d. 13.33 percent e. 15.83 percent
32. ------------ are the main secondary securities produced by commercial banks. a. Mortgages b. Deposits c. Commercial paper d. Long-term bonds e. T-bills
33. A 90-day Treasury bill with a maturity value of $1000 selling for $965 has a yield-to-maturity of : a.18.6% b. 14.5% c. 13.7% d. 15.5% e. 21.3 %
34. A $5000 coupon bond with a $480 coupon payment every year has a coupon rate of a. 2.7 percent b. 6.8 percent c. 8.2 percent d. 9.6 percent e. 1.5 percent
35. Which of the following are true for discount bonds ? a. A discount bond is bought at a price below its face value. b. The purchaser receives the face value of the bond at the maturity date. c. US Treasury bonds and notes are examples of discount bonds. d. All of the above are true. e. Only (a) and (b) of the above are true.
36. Saving deficient units save more than they invest in real investment goods. a. True b. False
37. Diversification is most beneficial when asset returns are perfectly negatively correlated. a. True B. False
38. The risk that can be eliminated through diversification is referred to as ----------. a. systematic risk b. cyclical risk c. coincidental risk d. nonsystematic risk
39. When the lenders and the borrowers have different amounts of information regarding a transaction then -------------- information is said to exist. a. adverse b. fraudulent c. insider d. asymmetric e. immoral
40. A financial institution which assists in the initial sale of securities in the primary market is ---- . a. a commercial bank b. the SEC c. the investment bank d. the credit union e. the property and casualty insurance company
41. Which of the following $1000 face-value bonds has the lowest yield-to-maturity? a. An 12% coupon bond with a price of $ 700. b. An 12% coupon bond with a price of $ 900. c. An 12% coupon bond with a price of $ 1000. d. An 12% coupon bond with a price of $ 1300. e. An 12% coupon bond with a price of $ 1600.
42. An investor's strategy of holding many risky assets in an attempt to reduce overall risk is called ------------ . a. spread management c. specialization e. coincidentialization b. securitization. d. diversification
43. Risk, as used in economics, means a. the probability of a loss. b. the probability of a gain. c. the probabilty of a gain and the probability of a loss. d. the overall rate of return. e. the present value of a financial instrument.
44. If a financial instrument has a 35 percent chance of paying 29 percent and a 65 percent chance of paying - 13 percent, it expected return would be a. 0.008 b. 0.036 c. 0.053 d. 0.017 e. - 0.029
45. Dollar denominated deposits in banks outside the United States are referred as a. foreign currency dposits b. Yankee commercial paper c. Eurodollar deposits d. treasury dollar bills e. penny bills