36. The slope of the yield curve is frequently measured by the following bonds yield difference:

    A. The 10 year Treasury Bond Less the 2 year Treasury Bond B. A 10 year AAA Corporate Bond less a 10 year BBB Corporate Bond C. A 10 year Treasury Bond less a 10 year Municipal Bond D. None of the above

The inverted yield is considered a signal of a potential A. Rate hike

41. B. Recession C. Expansion D. Stock Rally

42. If the current 2 year rate is 2% and the 10 year rate is 3%, the current yield curve would most likely be

    A. Inverted. B. Normal. C. Flat.

43. Under pure expectation theory, if the current 1 year Treasury rate is 5% and the current 2 year rate is 4%, what rate is the market predicting for the 1 year Treasury one year from now? A. 3%

    B. 4% C. 5% D. 6%

44. Of the four theories that explain how interest rates on bonds with different terms to maturity are related, the one that views long-term interest rates as equaling the average of future short-term rates expected to occur over the life of the bond is the A. pure expectations theory.

    B. preferred habitat theory. C. liquidity premium theory. D. segmented markets theory.

45. Under the liquidity premium theory, a moderately upward-sloping yield curve indicates that short-term interest rates are expected to A. neither rise nor fall in the near future. B. remain relatively unchanged, but that long-term rates are expected to fall.

    C. neither rise nor fall, but that long-term rates are expected to rise moderately. D. rise moderately in the near future.

46. One would expect an exempt municipal bond to have a _______ a corporate bond with a similar structure and equal credit rating. A. higher nominal yield than B. lower nominal yield than

    C. similar nominal yield as D. lower tax equivalent yield than

47. Which of the following long-term bonds typically has the lowest market interest rate? A. 10 year Corporate Baa bonds B. 10 year U.S. Treasury bonds C. 10 year Corporate Aaa bonds

47. D. 10 year Exempt Municipal bonds

48. An increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds and ________ the demand for U.S. government bonds. A. Increasing | increasing B. Decreasing | increasing

    C. Decreasing | decreasing D. Increasing | decreasing

49. If an investor with a 30% marginal tax rate invests in a tax exempt municipal bond with a coupon of 6% purchased at yield of 3%, what would the approximate tax equivalent yield be? A. 10.0%

    B. 8.6% C. 4.3% D. 20.0%

50. Assuming your average tax rate is 20% and your marginal rate is 36%, which of the following bonds would provide you with higher net income? 1) AAA rated tax-exempt municipal bond yielding 3.00% (Municipal) 2) AAA corporate bond with similar maturity but yielding 4.20% (Corporate)

    3) US Treasury Bond with similar maturity and yielding 3.85% (Treasury) A. Corporate B. Municipal C. US Treasury

    D. No Difference

51. Which of the following attributes of a security will result in a higher required rate of return (yield):

    A. Lower Default Risk B. Lower Volatility C. Higher Liquidity D. Greater Cash Flow Uncertainty E. All Of The Above

Stocks and bonds have different claims. A stock is said to have a _______ claim on a firms assets and cash flows and a bond is said to have _______ claims. A. Symmetrical | Asymmetrical B. Effectual | Ineffectual

52. C. Dividend | Coupon D. Residual | Contractual E. Gross | Net