1

1. Which of the following would cause the demand for bonds to decrease?

QUESTION 1

1. Which of the following would cause the demand for bonds to decrease?

   		an decrease in expected inflation
   		an increase in the risk of bonds relative to other assets
   		a decrease in the expected return on stocks
   		an increase in wealth
   		All of the above are correct.

2 points

QUESTION 2

1. Treasury bonds are included in the money market rather than the capital market.

   True

   False

2 points

QUESTION 3

1. Which of the following statements is true?

   		A perpetuity is a type ofdiscount bond.
   		A perpetuity makes periodic interest payments and pays its face value on maturity.
   		The Yield to Maturity for a perpetuity is given by C/i.
   		For a perpetuity, the current yield is identical to the yield to maturity.
   		All of these statements are correct.

2 points

QUESTION 4

1. Initial Public Offerings aretraded inaprimary market.

   True

   False

2 points

QUESTION 5

1. Money is able to function as astoreofvaluebecause

   		money reduces the transaction cost of exchange.
   		money is fungible.
   		money is liquidity.
   		money is durable.
   		money provides intrinsic value to the buyer and seller.

2 points

QUESTION 6

1. What are four characteristics that an asset should have to function as commodity money?

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4 points

QUESTION 7

1. What price would investors be willing to pay for a perpetuity with a coupon payment of $9,000 per year if interest rates were 3%? What if interest rates were 6%? Please show your work.

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4 points

QUESTION 8

1. One difference between money and capital markets is that

   		moneymarkets include equity instruments such as stocks.
   		money markets includeall debtinstruments such as bonds.
   		money markets consist of long-term securities.
   		capital markets include long-term securities.
   		All of these are correct.

2 points

QUESTION 9

1. Wherewere coinsfirst developed in the Western world?

   		in Greece in the 100s B.C..
   		in colonial America.
   		by bankers in present-day Italy and goldsmiths in Amsterdam.
   		in England in the 1500s.
   		in Lydia in the 600s B.C..

2 points

QUESTION 10

1. What was the yield to maturity for Series A ClassCash bonds?

   		$6.75/$5.25= 1.2857= 128.57%
   		$6.75/$12.00 =0.5625 = 56.25%
   		$8.00/$12.00 = .67 = 67%
   		$5.25/$12.00 =.4375 = 43.75%
   		$4.00/$8.00 = .5 = 50%

2 points

QUESTION 11

1. Why is money important to the economy?

   		Moneyreduces the transaction costs of exchange.
   		The quantity of money in circulation helps to determine the price level.
   		Money creates wealth.
   		All three of these statements are correct.
   		None of these three statements are correct.

2 points

QUESTION 12

1. An increase ingovernment deficitswill lead to a decrease in the supply of bonds.

   True

   False

2 points

QUESTION 13

1. List three factors that may cause the price of bonds to increase.

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4 points

QUESTION 14

1. Explain whybailouts area form of moral hazard.

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4 points

QUESTION 15

1. Using both the bond market and loanable funds market models, briefly describe the effects of an increase in the expected return of stocks..

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4 points

QUESTION 16

1. What are 4 types ofdebt instruments?

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4 points

QUESTION 17

1. What is the present value of a payment of $500 in two years if interest rates are 4%?

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4 points

QUESTION 18

1. The Fisher effect states that an increase in expected inflation will lead toadecreasein nominal interest rates.

   True

   False

2 points

QUESTION 19

1. If the coupon rate isless than the yield to maturity for a coupon bond, then

   		the return on the bond will equal zero.
   		the bond is priced above face value.
   		the bond is priced at face value.
   		the yield to maturity will be negative.
   		the bond is priced below face value.

2 points

QUESTION 20

1. What are four causes of the current credit crisis?

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