5) Which of the following might be the result of a "flight to quality?" a) The differences in yields between U.S. government bonds and corporate bonds decreases. b) The differences in yields between low default risk corporate debt and speculative grade bonds increases. c) The differences in yields between U.S. government bonds and Mexican government bond decreases. d) The differences in interest rates between bank loans and bank deposits increases. 6) Steven is very confused about the usefulness of financial market data. He does not understand why MI which was such a useful statistic is no longer so useful. What do you tell him? a) Globalization has reduced the usefulness of M1. b) The elimination of Regulation Q has greatly decreased the usefulness of M1. c) Since banks no longer hold mortgages the M1 statistic is of very little use. d) Financial market innovation has greatly reduced the usefulness of M1. e) Since the Savings & Loan industry has all but disappeared the M1 statistic is no longer useful. 7) Approximately what is the present value of $5,000 received in 2 years if the current interest rate is 10%? a) Somewhere between $40 and $45. b) Somewhere between $4,000 and $5,000. c) Somewhere between $5,000 and $6,000. ") Somewhere between $10,000 and $12,000. e) Somewhere between $15,000 and $20,000. 8) After helping the Longhorns win the NCAA tournament, Andrew is drafted in the first round of the NBA draft by the Milwaukee Bucks. The Bucks offer Andrew a $5million dollar signing bonus that will be paid immediately, or a $5.25million payment at the end of the year which is 12 months away. At what annual interest rate would Andrew be indifferent between the two offers? a) 50% b) 10% c) 5% d) 2% e) 1% 9) If the U.S. government budget deficit increases what happens in the bond market in the U.S. and to the loanable funds market in the US? a) Bond prices rise as the demand for bonds increase. Interest rates fall as the supply of loanable funds decreases. b) Bond prices fall as the demand for bonds fall. Interest rates increase as the demand for loanable funds increase. c) Bond prices rise as the supply of bonds increase. Interest rates fall as the demand for loanable funds decreases. d) Bond prices fall as the supply of bonds increase. Interest rates rise as the demand for loanable funds increases