i. What do investment banks mainly do?

a. Manage the deposits of the clients
b.		Provide analysis on firms
c.		Help companies with financing needs
d.		Issue mortgages

ii. What one of the following is NOT an example of securities in the financial market?

a.		Stocks
b.		Bonds
c.		Options
d.		Pension funds

iii. Which one of the following is one of the reasons why we need the financial industry (middleman)?

	a.	To increase search costs between the borrowers and investors
	b.	To provide liquidity to investors.
	c.	To increase information asymmetry between borrowers and investors
	d.	To provide a way for investors to obtain guaranteed high income

iv. Susan and Jeff each make deposits of 100 at the end of each year for 40 years. Starting at the end of the 41st year, Susan makes annual withdrawal of X for 15 years, where Jeff makes annual withdrawals of Y for 15 years. Both Susan and Jeff have 0 on their accounts after the last withdraw. Susan's account made 8% per year and Jeff made 10% per year. What is Y-X?

a. 2792

b. 2824

c. 2859

d. 2893

v. Which statement regarding interest rate is correct?

a. If EAR=8%, the interest accumulated in half a year is 4%.

b. If APR is positive, APR is always lower than the corresponding EAR when compounding frequency per year > 1.

c. A lender would always prefer to lend at a higher APR regardless of the compounding frequency of the interest.

d. APR tells investors how much interest they will receive each year for each dollar they invest.

vi. Which one of the following choices should be most preferred by borrowers?

		a. 5% APR with monthly compounding frenquency
		b. 4.5% EAR with weekly compounding frequency
		c. 4.8% APR with continuous compounding frequency
		d. 4% APR with daily compounding frequency

vii. A bank is trying to sell you some investment products that will pay you the following cash flows in the future. Which of the following would you be willing to pay the highest price for? Assume the interest rate in the market is 4%

		a. $30000 per year for 20 years with payments paid at the end of each year
		b. $40000 per year from the end of the 5th year to the end of 20th year
		c. $15000 per year for 8 years starting from now
		d. perpetual payments from one year later that grows at 2%

iix. What is the primary function of financial markets?

		a. To facilitate the money flow from investors to borrowers
		b. To help investors become rich quickly
		c. To reduce the risks in the economy
		d. To help the stock investors make money