A few questions...

If a country's income rises, the demand for bonds is likely to

1. Rise because of higher wealth.
2. Fall because of higher expected returns.
3. Fall because of a lower unemployment rate.
4. Be unchanged.
5. Rise because of lower interest rates.

At the same interest rate, which of the following five-year securities will have the lowest duration

A Treasury note.

A Treasury bond.

A car loan.

A simple load.

A zero-coupon bond.

Ways that banks try to avoid moral hazard include all of the following except

1. Requiring the business to keep their checking account at the lending bank.
2. Require the businesses to get, if so desired, any new lending from the original lenders / investors.
3. Maintain collateral in the form of plant and equipment.
4. Allow the company to audit their business before the loan is made.
5. Monitor the activities of the company

You can't have a bubble in an efficient market.

1. True.
2. False.
3. Uncertain

In an efficient market, all stocks have the same expected return.

1. True.
2. False.
3. Uncertain.

The duration of a bond is always less than its maturity.

1. True.
2. False.
3. Uncertain.

Economists' attempts to explain the term structure of interest rates

1. illustrate how economists modify theories to improve them when they are inconsistent with the empirical evidence.
2. illustrate how economists continue to accept theories that fail to explain observed behavior of interest rate movements.
3. prove that the real world is a special case that tends to get short shrift in theoretical models.
4. have proved entirely unsatisfactory to date.

According to the expectations theory of the term structure,

1. when the yield curve is steeply upward-sloping, short-term interest rates are expected to rise in the future.
2. when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future.
3. buyers of bonds prefer short-term to long-term bonds.
4. all of the above.
5. only A and B of the above

According to the market segmentation theory of the term structure,

1. the interest rate for bonds of one maturity is determined by the supply and demand for bonds of that maturity.
2. bonds of one maturity are not substitutes for bonds of other maturities; therefore, interest rates on bonds of different maturities do not move together over time.
3. investors' strong preference for short-term relative to long-term bonds explains why yield curves typically slope upward.
4. all of the above.
5. none of the above

Since yield curves are usually upward sloping, the ________ indicates that, on average, people tend to prefer holding short-term bonds to long-term bonds.

1. market segmentation theory.
2. expectations theory.
3. liquidity premium theory.
4. both A and B of the above.
5. both A and C of the above