Interest rates are important to financial institutions, like banks, since an increase in interest rates the cost of acquiring funds and the income from financial assets A decreases decreases B increases increases C decreases increases D increases decreases (I) Debt markets are often referred to generically and collectively as the bond market (II) A bond is a security that is a claim on the residual earnings and assets of a corporation after contractual payments are made to stockholders A (I) is true (II) false B (I) is false (II) true C Both are true D Both are false Financial markets have the basic function of bringing together people with funds to lend and people who want to borrow funds assuring that the swings in the business cycle are less pronounced assuring that governments need never resort to printing money both A and B of the above both B and C of the above Which of the following securities would be classified as a money market instrument A Stock B Long Term Bond C Commercial Paper D Mortgage Backed Security IPOs are launched in the market A Debt B Residual C Primary D Secondary The agency problem called Empire Building occurs when A firms CEO is more interested in increasing the size of the corporation, rather than the size of its profits The CEO increases the scope of a business in order to limit competition The CEO is granted maximum compensation with a minimum strings The CEO expands the firms footprint in order to increase economies of scale When the lender and the borrower have different amounts of information regarding a transaction, is said to exist A asymmetric information B adverse selection C moral hazard D fraud If you expect the inflation rate to be 15 percent next year and a one year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A 7 B 22 C 15 D 8 A decrease in the expected rate of inflation will the expected return on bonds relative to returns on assets A reduce financial B reduce real C increase financial D increase real The interest rate that is adjusted for actual changes in the price level is called the A ex post real interest rate B expected interest rate C ex ante real interest rate D none of the above When the demand for bonds or the supply of bonds , interest rates fall Increases increases Increases decreases Decreases decreases Decreases increases The demand for an asset rises if falls A risk relative to other assets B expected return relative to other assets C liquidity relative to other assets D wealth If Moody's or Standard and Poor's downgrades its rating on a corporate bond, typically the demand for that bond and its yield A Increases decreases B Decreases increases C Increases increases D Decreases decreases

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Interest rates are important to financial institutions, like banks, since an increase in interest rates the cost of acquiring funds and the income

Interest rates are important to financial institutions, like banks, since an increase in interest rates ________ the cost of acquiring funds and ________ the income from financial assets. A. decreases; decreases

B. increases; increases C. decreases; increases D. increases; decreases
(I) Debt markets are often referred to generically and collectively as the bond market. (II) A bond is a security that is a claim on the residual earnings and assets of a corporation after contractual payments are made to stockholders. A. (I) is true | (II) false.

B. (I) is false | (II) true. C. Both are true. D. Both are false.
Financial markets have the basic function of
1. bringing together people with funds to lend and people who want to borrow
  
  funds.
2. assuring that the swings in the business cycle are less pronounced.
3. assuring that governments need never resort to printing money.
4. both A and B of the above.
5. both B and C of the above.
Which of the following securities would be classified as a money market instrument? A. Stock

B. Long Term Bond C. Commercial Paper D. Mortgage Backed Security
IPOs are launched in the _________ market. A. Debt

B. Residual C. Primary D. Secondary
The agency problem called Empire-Building occurs when
1. A firms CEO is more interested in increasing the size of the corporation, rather than the
  
  size of its profits.
2. The CEO increases the scope of a business in order to limit competition.
3. The CEO is granted maximum compensation with a minimum "strings."
4. The CEO expands the firms footprint in order to increase economies of scale.
When the lender and the borrower have different amounts of information regarding a transaction, ________ is said to exist. A. asymmetric information B. adverse selection

C. moral hazard D. fraud
If you expect the inflation rate to be 15 percent next year and a one-year bond has a yield to maturity of 7 percent, then the real interest rate on this bond is A. 7% B. 22%.

C. -15% D. -8%
A decrease in the expected rate of inflation will ________ the expected return on bonds relative to returns on ________ assets. A. reduce | financial B. reduce | real

C. increase | financial D. increase | real
The interest rate that is adjusted for actual changes in the price level is called the A. ex post real interest rate. B. expected interest rate. C. ex ante real interest rate.

D. none of the above.
When the demand for bonds ________ or the supply of bonds ________, interest rates fall.
1. Increases | increases
2. Increases | decreases
3. Decreases | decreases
4. Decreases | increases
The demand for an asset rises if ________ falls. A. risk relative to other assets B. expected return relative to other assets C. liquidity relative to other assets

D. wealth

If Moody's or Standard and Poor's downgrades its rating on a corporate bond, typically the demand for that bond ________ and its yield ________. A. Increases | decreases B. Decreases | increases