CFIN EXAM 2 QUESTIONS AND
ANSWERS
The "nominal rate of interest" is defined as the sum if the nominal risk-free rate of return and
the expected inflation rate. T/F - Answer-F
If the federal reserve tightens the money supply, other things held constant, short-term interest
rates will be pushed ...
The liquidity preference theory states that each borrower and lender has a preferred maturity
and that the slope of the yield curve depends on supply and demand for funds in the long-term
market relative to the short-term market. T/F - Answer✔✔-F, That is the Market Segmentation
Theory
If you have information that a recession is ending and the economy is about to enter a boom,
and your firm needs to borrow money, it should probably issue a long-term rather than short-
term debt. T/F - Answer✔✔-T
The two reasons most expert give for the existence of positive maturity risk premium are: 1.
because investors are assumed to be risk averse, and 2. because investors prefer to lend long
while firms prefer to borrow short. - Answer✔✔-F
Suppose financial institutions, such as savings and loans, were required by law to make a long-
term, fixed interest rate mortgages, but at the same time, were largely restricted, in terms of
their capital source, to deposit that could be withdrawn on demand. Under these conditions,
these financial institutions should prefer a "normal" yield curve to an inverted curve. T/F -
Answer✔✔-T
investors with a higher time preference for consumption will demand a "lower rate" of return to
forego current consumption and save than investors with a lower time preference for
consumption. T/F - Answer✔✔-F
Page 2/10
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Emillect. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
