1.LO3

Any asset gives return from two possible sources. These are

Group of answer choices

Default risk and maturity risk

Delaying consumption and expected inflation

Delaying consumption and bearing risk

Expected inflation and real return

2.LO3

Higher expected inflation will _________ the demand for bonds which will ________ the price of bonds which will ________ the interest rate on bonds.

Group of answer choices

increase; increase; decrease

increase; increase; increase

lower; decrease; decrease

lower; decrease; increase

3.LO3

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.

Group of answer choices

less; lower

more; lower

less; greater

more; greater

4.LO2

If investors become MORE risk averse, risk premiums will

Group of answer choices

Increase

Decrease

5.LO3

Long maturity bonds usually have _________ price risk and _______ reinvestment risk than short term maturity bonds.

Group of answer choices

less; less

more; less

more; more

less; more

6.LO3

Investors make choices of which assets to use for savings based on which two factors.

Group of answer choices

expected inflation and the asset's risk characteristics

risk aversion and expected inflation

expected inflation and investment horizon

risk aversion and the asset's risk characteristics

7.LO2

Illiquid assets tend to be

Group of answer choices

Homogeneous with high information costs

Heterogeneous with low information costs

Homogeneous with low information costs

Heterogeneous with high information costs

8.LO2

When investors in a country become more patient there will be pressure on interest rates in that country

Group of answer choices

to be low.

to vary more from high to low.

to be high.

9.LO2

Assets that are NOT liquid tend to be

Group of answer choices

Heterogeneous

Homogenous

10.LO2

There are actually many interest rates in the economy. However, we can talk about THE interest rate because

Group of answer choices

The interest rate on short-term government bonds is the key interest rate to follow.

Interest rates tend to move together, that is, when one interest rate increases all of them tend to increase and when one interest rate decreases all of them tend to decrease.

The interest rate on long-term government bonds is the key interest rate to follow.

11.LO3

Which of the following contributes to the SUPPLY of bonds?

Group of answer choices

Production opportunities

Total asset risk

Expected inflation

Time preference of consumption

12.LO2

In the expression

(Nominal Interest Rate for given asset) = (Nominal Riskless Interest Rate) + (Risk Adjustments)

The nominal riskless interest rate is

Group of answer choices

A market wide rate

An asset specific rate

13.LO2

Investor and consumers ultimately are concerned with

Group of answer choices

Compound rates of return

Simple rates of return

Nominal rates of return

Real rates of return

14.LO2

Assume you require a real rate of return of 3% over 1 year. You expect inflation to be 6% over that same 1 year.What NOMINAL rate of return must you require?

Group of answer choices

9.00%

3.00%

9.18%

6.00%

15.LO3

Which of the following contributes to the DEMAND for bonds?

Group of answer choices

Expected inflation

Time preference of consumption

Production opportunities

Total asset risk

16.Term (years)

Today's Rate

1

2.2%

2

2.31%

3

2.48%

Based on the expectations hypothesis, what does the market expect the 2 year rate in 1 years to be?

State your answer as a percentage to 2 decimal places (e.g., 4.39)

17.Term (years)

Today's Rate

1

2.07%

2

2.33%

3

3%

Based on the expectations hypothesis, what does the market expect the 1 year rate in 2 years to be?

State your answer as a percentage to 2 decimal places (e.g., 4.39)

18.Term (years)

Today's Rate

1

3.25%

2

3.51%

3

3.9%

Based on the expectations hypothesis, what does the market expect the 1 year rate in 1 year to be?

State your answer as a percentage to 2 decimal places (e.g., 4.39)