1. If you invested in a long-term U.S. Treasury bond to hold to maturity, which form of risk should most concern you?

   1. Prevailing interest rates will decline during the life of the bond.

   2. Prevailing interest rates will rise during the life of the bond.

   3. Rates will be higher when the bond matures.

   4. Rates will be lower when the bond matures.

2. An investor willing to forgo FDIC insurance and unwilling to risk loss of principal could invest using

   A. money market instruments. B. repurchase agreements. C. financial intermediaries. D. IPOs.

3. Demand for liquidity means demand for

A. rising interest rates. C. stocks. B. cash. D. bonds.

4. If the bid-ask spread narrows, which of the following is the most likely cause?

   A. Transaction volume is rising. B. Fewer specialists trade the issue. C. Price of the security will probably rise. D. The market has sustained a large increase in odd lot trading.

5. If you believe that markets are efficient, with which of the following statements do you agree?

   1. Some portfolios may assume the same level of risk and earn different rates of return.

   2. Investment returns in one industry tend to match returns in other industries.

   3. Low-cost investments consistently yield higher returns than investments with

      moderate costs.

   4. Investors cant, on average, outperform the market.