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ECON 130 Final || Questions and 100% Accurate Answers.
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  • ECON 130
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  • ECON 130

Money Market correct answers Where financial instruments with high liquidity and short maturities are traded. Capital Market correct answers - Capital generates economic output - Market in which stocks and bonds are sold. - Consists of primary (new stocks sold directly from company to investor...

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  • August 17, 2024
  • 5
  • 2024/2025
  • Exam (elaborations)
  • Questions & answers

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  • money market

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  • ECON 130
  • ECON 130

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ECON 130 Final || Questions and 100% Accurate Answers.
Money Market correct answers Where financial instruments with high liquidity and short
maturities are traded.

Capital Market correct answers - Capital generates economic output
- Market in which stocks and bonds are sold.
- Consists of primary (new stocks sold directly from company to investor) and secondary
(existing stocks traded amongst investors) markets

Consol/Perpetuity correct answers - A bond that pays interest forever
- P = Z/i

Coupon Bond correct answers security that promises predetermined payments at certain points in
time. At maturity, the bond pays its face value. Before that, the owner may receive coupon
payments

Coupon Rate correct answers a periodic interest payment that the bondholder receives during the
time between when the bond is issued and when it matures

Discount Bond correct answers a bond that is issued for less than its par (or face) value, or a
bond currently trading for less than its par value in the secondary market.

Face (Par) Value correct answers initial payment for a bond

Fixed Payment Loan correct answers the amount due every period by a borrower to a lender
under a fixed-rate loan

Present Discounted Value (PDV) correct answers the amount you should be willing to pay in the
present for a stream of expected future payments, can be used to calculate appropriate prices for
stocks and bonds

Rate of Return correct answers return on a security as a percentage of its initial price; rate of
return = (P1 - P0)/P0 + X/P0

Capital Gain correct answers increase in an asset holder's wealth from a change in the asset's
price

Yield to Maturity correct answers interest rate that makes the present value of payments from a
bond equal to its price

Risk Premium correct answers payment on an asset that compensates the owner for taking on
risk

Indirect Finance correct answers savers deposit money in banks that then lend to investors

, Direct Finance correct answers savers provide funds to investors by buying securities in financial
markets

Corporate bonds with the same years to maturity, the same coupon payment, and same face value
trade at a lower price than a U.S. treasury note becaue correct answers they have a greater default
risk, therefore a higher interest rate

M1 Money aggregates correct answers Currency
Checking Deposits
Traveler's Checks

M2 Money Aggregates correct answers Savings Deposits
Small Time Deposits
Retail Money-Market Mutual Funds

Nominal Interest Rate correct answers interest rate offered by a bank account or bond

Real Interest Rate correct answers nominal interest rate minus the inflation rate

Leverage correct answers borrowing money to purchase assets

Cash Flow correct answers the net amount of cash and cash-equivalents moving into and out of a
business

Loanable Funds Theory correct answers real interest rates are determined by the supply and
demand for loans

Fisher Effect correct answers the nominal interest rate equals the real rate plus expected
inflation: i = r + pe (nominal interest rate = real interest rate + expected inflation)

Ex Ante Real Interest Rate correct answers nominal interest rate minus expected inflation over
the loan period (r^ex ante = i - pi^expected)

Ex Post Real Interest Rate correct answers nominal interest rate minus actual inflation over the
loan period (r^ex post = i - pi^actual)

Asset Price Bubbles correct answers rapid rise in asset prices that is not justified by changes in
interest rates or expected asset income

Term Structure of Interest Rates correct answers relationships among interest rates on bonds with
different maturities

Default Risk correct answers Risk that an entity won't make the payment on a bond

Interest Rate in relation to default risk correct answers Higher default risk means higher interest
rate

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