The risk of financial institutions associated with varying returns caused by fluctuating loan yields and corresponding costs of funds is called

$(3$ POINT$)$

A$)$ credit risk

B$)$ liquidity risk

C$)$ foreign exchange risk

D$)$ interest rate risk

A $10-$year annual payment corporate bond has a market price of $$1,050.$ It pays annual interest of $$100$ and its required rate of return is $9$ percent. Is the bond correctly priced, overpriced, or underpriced? If it is overpriced or underpriced, then list by how much. $(5$ POINT$)$

A$)$ Correctly priced

B$)$ Overpriced by $$14\mathrm{.}18$

C$)$ Underpriced by $$14\mathrm{.}18$

D$)$ Overpriced by $$9\mathrm{.}32$

E$)$ Underpriced by $$9\mathrm{.}32$

You go to the Wall Street Journal and notice that yields on almost all corporate and Treasury bonds have decreased. The yield decreases may be explained by which one of the following? $(3$ POINT$)$

A$)$ A decrease in U$.$S$.$ inflationary expectations.

B$)$ Newly expected decline in the value of the dollar.

C$)$ An increase in current and expected future returns of real corporate investments.

D$)$ Decreased Japanese purchases of U$.$S$.$ Treasury bills$/$bonds$.$

E$)$ Increases in the U$.$S$.$ government budget deficit.

IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then resells the issue to the U$.$S$.$ public through its mutual funds.

This transaction is an example of $a(n)$ :

$(3$ POINT$)$

A$)$ primary market transaction.

B$)$ asset transformation by Morgan Stanley.

C$)$ money market transaction.

D$)$ foreign exchange transaction.

E$)$ forward transaction.