t or f a Municipal and corporate bonds are priced on a 365 day year b Treasury bonds are priced on a 360 day year c When a bond is traded, the buyer owes the seller accrued interest d Higher inflation rates lead to lower interest rates e If Velocity increases, then prices and or quantities increase f Quantitative easing adds liquidity when the federal funds rate is near zero g Bonds may trade in advance of Treasury auction h Off the run bonds are the most recently auctioned off for a given initial maturity i The yield curve nearly always uses the on the run Treasuries j If the yield curve in inverted, investors expect higher inflation or real rates Who runs Treasury auctions a The Federal Reserve b The Treasury c Dealers d FOVP Which of the following is an example of long term instruments (select all that apply) a Treasury bonds b Credit default swaps c Mortgage backed securities d Federal funds If the expected inflation rate is 2 , the required real rate of return is 2 3 , and the actual inflation rate is 1 75 , what is the realized real rate of return a 1 45 b 2 55 c 2 05 d 1 65 Which of the following is an example of a money market instrument (Select all that apply) a 10 year Treasury Bond b Repo c Commercial paper d Mutual fund The Fed believes if unemployment is low and GDP is high, inflation is likely to a Increase b Decrease c Remain the same d Invert Primary dealers are looking for a real return of 2 8 on the 10 Treasury They believe that inflation will average 3 ((Show your work for full credit ) a a What will the YTM be on the bond (Nominal) b b If the bond has a coupon of 5 , will the bond trade at par, a discount or a premium What is the price of a bond with an initial YTM of 8 5 , semi annual coupon of 9 5 , maturing in 6 months when the YTM changes to 7 3 a $102 35 b $99 88 c $101 73 d 101 06 List the three sources of returns on a bond a b c What shape of the yield curve foreshadows a recession a Upward sloping b Inverted c Perfectly elastic d Flat A loan transaction involving selling collateral and agreeing to buy it back at a higher price is called a a Swap b Asset Backed Security c Commercial Paper d Repo During a Treasury auction, the lowest price paid to a competitive bidder is called the a Hold price b Return price c Bid cover d Stop out yield What is the Federal Reserve's main policy tool to control inflation ratesin the US a Buying and selling of treasury bonds on the open market b Increasing the federal funds rate c Increasing the reserve requirements for banks d Adding credit to its member banks Which yield curve theory believes a risk premium must be paid to induce investors to hold longer term paper a Liquidity preference theory b Expectation theory c Preferred habitat theory d Market fluctuation theory

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t or f a. Municipal and corporate bonds are priced on a 365 day year. b. Treasury bonds are priced on a 360 day year.

t or f

a. Municipal and corporate bonds are priced on a 365 day year.________

b. Treasury bonds are priced on a 360 day year.________

c. When a bond is traded, the buyer owes the seller accrued interest.______

d. Higher inflation rates lead to lower interest rates. _______

e. If Velocity increases, then prices and/or quantities increase._______

f. Quantitative easing adds liquidity when the federal funds rate is near zero._____

g. Bonds may trade in advance of Treasury auction._______

h. Off the run bonds are the most recently auctioned off for a given initial maturity.___

i. The yield curve nearly always uses the on-the-run Treasuries._____

j. If the yield curve in inverted, investors expect higher inflation or real rates._

Who runs Treasury auctions? a. The Federal Reserve b. The Treasury c. Dealers d. FOVP
Which of the following is an example of long term instruments? (select all that apply) a. Treasury bonds b. Credit default swaps c. Mortgage backed securities d. Federal funds
If the expected inflation rate is 2%, the required real rate of return is 2.3%, and the actual inflation rate is 1.75%, what is the realized real rate of return? a. 1.45% b. 2.55% c. 2.05% d. 1.65%
Which of the following is an example of a money market instrument? (Select all that apply) a. 10-year Treasury Bond b. Repo c. Commercial paper d. Mutual fund
The Fed believes if unemployment is low and GDP is high, inflation is likely to: a. Increase b. Decrease c. Remain the same d. Invert
Primary dealers are looking for a real return of 2.8% on the 10 Treasury. They believe that inflation will average 3%. ((Show your work for full credit.) a. a. What will the YTM be on the bond (Nominal)? b. b. If the bond has a coupon of 5%, will the bond trade at par, a discount or a premium?
What is the price of a bond with an initial YTM of 8.5%, semi-annual coupon of 9.5%, maturing in 6 months when the YTM changes to 7.3%? a. $102.35 b. $99.88 c. $101.73 d. 101.06
List the three sources of returns on a bond: a. ___________ b. ___________ c. ___________
What shape of the yield curve foreshadows a recession? a. Upward sloping b. Inverted c. Perfectly elastic d. Flat
A loan transaction involving selling collateral and agreeing to buy it back at a higher price is called a ______? a. Swap b. Asset Backed Security c. Commercial Paper d. Repo
During a Treasury auction, the lowest price paid to a competitive bidder is called the _______? a. Hold price b. Return price c. Bid-cover d. Stop-out yield
What is the Federal Reserve's main policy tool to control inflation ratesin the US? a. Buying and selling of treasury bonds on the open market b. Increasing the federal funds rate c. Increasing the reserve requirements for banks d. Adding credit to its member banks
Which yield curve theory believes a risk premium must be paid to induce investors to hold longer term paper? a. Liquidity preference theory b. Expectation theory c. Preferred habitat theory d. Market fluctuation theory