11_

If a security pays $110 next year and $121 the year after that, what is its yield to maturity if it sells for $200?

a.

11 percent

b.

9 percent

c.

10 percent

d.

12 percent

12_

In the United States during the late 1970s, the nominal interest rates were quite high, but the real interest rates were negative. From the Fisher equation, we can conclude that expected inflation in the United States during this period was

a.

negative.

b.

high.

c.

low.

d.

irrelevant.

13_

Everything else held constant, if the expected return on U.S. Treasury bonds falls from 10 to 5 percent and the expected return on GE stock rises from 7 to 8 percent, then the expected return of holding GE stock ________ relative to U.S. Treasury bonds and the demand for GE stock ________.

a.

rises; falls

b.

falls; rises

c.

falls; falls

d.

rises; rises

14_

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ________ for bonds and the bond price will ________.

a.

supply; fall

b.

supply; rise

c.

demand; rise

d.

demand; fall

15_

If there is an excess demand for money, individuals ________ bonds, causing interest rates to ________.

a.

buy; fall

b.

sell; rise

c.

sell; fall

d.

buy; rise