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FIN 3100 Exam 2 questions with Answers Latest Update 2024
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FIN 3100 Exam 2 questions with Answers Latest Update 2024
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FIN 3100 Exam 2 questionswith Answers Latest Update
2024
Short-term tends to be more... - Correct Answers volatile
Economy is strong when... - Correct Answers interest rates go up
real risk free rate - Correct Answers r* , rate for short term risk less security when
inflation is expected to be 0, rate on short-term U.S. treasure securities assuming there
is no inflation
default risk premium - Correct Answers DRP, premium added as compensation for risk
investor will not get paid in full
nominal risk free rate - Correct Answers R fry, rate for riskless security that is exposed
to changes and inflation, calculated by adding the inflation premium to r*
liquidity risk premium - Correct Answers LP, premium added to the equilibrium interest
rate on a security that cannot be bought or sold quickly enough to prevent or minimize
loss
inflation premium - Correct Answers IP, premium added to real risk free rate to
compensate for a decrease in purchasing power over time, reflects average sustained
increased in general level of prices over time
maturity risk premium - Correct Answers MPR, reflects risk associated with changes in
interest rates for a long-term security, added as compensation for uncertainty in interest
rate changes
yield on bond with longer maturity will be _______________________ than the yield on
a bold with a shorter maturity - Correct Answers higher
humped yield curve - Correct Answers short-term and long-term rates are significantly
less than intermediate term rates
normal yield curve - Correct Answers upward sloping path
flat yield curve - Correct Answers 0 slope, long term and short-term rates are equal
, inverted yield curve - Correct Answers short-term rates and greater than long term
rates
pure expectation theory assumes that - Correct Answers maturity risk premium is 0.
Investing consistently in a short term will have the same return as investing a long-term
The interest rate is - Correct Answers price that lenders receive and borrowers pay for
debt
factors that affect supply of and demand for investment capital - Correct Answers
production opportunities, time preferences for consumption, risk, and inflation
If the Federal Reserve tightens credit, which decreases the supply of funds, interest
rates - Correct Answers will increase
If the demand for funds decline, which typically happens during a recession, interest
rates - Correct Answers will decrease
The interest rate on debt, r, is also equal to the _________ risk-free rate plus a default
risk premium plus a liquidity premium plus a maturity risk premium. - Correct Answers
nominal
The real risk-free rate of interest may be thought of as the interest rate on - Correct
Answers short-term
the yield spread between corporate and Treasury bonds is ______________ the longer
the maturity. - Correct Answers larger
corporate bonds have ___________ default and liquidity risk than shorter-term bonds,
and both of these premiums are ______________ in Treasury bonds. - Correct
Answers more, absent
it is logical for a firm to finance current assets with _____________ -term debt and to
finance fixed assets with __________________ -term debt. - Correct Answers short,
long
Treasury bonds are not completely riskless since - Correct Answers their prices will
decline when interest rates rise
municipal bond - Correct Answers local got of the state, if investor is a resident of the
issuing state the interest earned is exempt from federal and state taxes
treasury bond - Correct Answers issued by fed government to fund budget deficits
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