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FIN 3100 Exam 2 Practice Exam Questions And Correct Detailed Answers. $12.99   Add to cart

Exam (elaborations)

FIN 3100 Exam 2 Practice Exam Questions And Correct Detailed Answers.

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Short-term tends to be more... - correct answer volatile Economy is strong when... - correct answer interest rates go up real risk free rate - correct answer r* , rate for short term...

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  • September 7, 2024
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RealGrades
FIN 3100 Exam 2

Short-term tends to be more... - correct answer volatile



Economy is strong when... - correct answer interest rates go up



real risk free rate - correct answer 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 answer DRP, premium added as compensation for
risk investor will not get paid in full



nominal risk free rate - correct answer R rf, rate for riskless security that is exposed
to changes and inflation, calculated by adding the inflation premium to r*



liquidity risk premium - correct answer 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 answer 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 answer 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 answer higher



humped yield curve - correct answer short-term and long-term rates are
significantly less than intermediate term rates

, normal yield curve - correct answer upward sloping path



flat yield curve - correct answer 0 slope, long term and short-term rates are equal



inverted yield curve - correct answer short-term rates and greater than long term
rates



pure expectation theory assumes that - correct answer maturity risk premium is 0.
Investing consistently in a short term will have the same return as investing a a long-term



The interest rate is - correct answer price that lenders receive and borrowers pay
for debt



factors that affect supply of and demand for investment capital - correct answer
production opportunities, time preferences for consumption, risk, and inflation



If the Federal Reserve tightens credit, which decreases the supply of funds, interest rates - correct
answer will increase



If the demand for funds decline, which typically happens during a recession, interest rates - correct
answer 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 answer nominal



The real risk-free rate of interest may be thought of as the interest rate on - correct answer
short-term



the yield spread between corporate and Treasury bonds is ______________ the longer the maturity. -
correct answer larger

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