Financial Markets and Institutions - Midterm practice (blackboard quiz questions)
Question 1)
What is the return on a 5% coupon bond that initially sells for 1,000$ and sells for 900$ the
next year?
a. -10%
b. 5
c. -5
d. 10
Question 2)
A liquid asset is
a. Always sold in an over-the-counter market
b. A share of an ocean resort
c. Difficult to sell
d. An asset that can easily and quickly be sold to raise cash
Question 3)
If the nominal rate of interest is 2%, and the expected inflation is -10%, the real rate of
interest is
a. 2
b. 8
c. 10
d. 12
Question 4)
Differences in __________ explain why interest rates on Treasury securities are not all the
same
a. liquidity
b. Risk
c. Tax characteristics
d. Maturity
Question 5)
To say that stock prices follow a ‘random walk’ means that stock prices
a. Rise, then fall in a predictable fashion
b. Rise, then fall, then rise again
c. Cannot be predicted based on past trends
d. Tend to follow trends
Question 6)
Another way to state the efficient market condition: in an efficient market,
a. Every financial market participant must be well-informed about securities
b. Unexploited profit opportunities will be quickly eliminated
c. Arbitragers guarantee that unexploited profit opportunities will never exist
d. Unexploited profit opportunities will never exist
, Question 7)
A business cycle expansion increases income, causing money demand to _____ and
interest rates to ______, everything else held constant
a. increase, increase
b. decrease, increase
c. decrease, decrease
d. increase, decrease
Question 8)
The global financial crisis showed the need for increased financial regulation, however, too
much or poorly designed regulation could
a. choke off financial innovation
b. increase the efficiency of the financial system
c. increase international financial integration
d. increase economic growth
Question 9)
The higher a security’s price in the secondary market, the ______ funds a firm can raise by
selling in the ______ market
a. less; primary
b. more; primary
c. more; secondary
d. less; secondary
Question 10)
Assume that you borrow 2,000$ at 10% annual interest to finance a new business project.
For this loan to be profitable, the minimum amount this project must generate in annual
earnings is
a. $400
b. $201
c. $199
d. $200
Question 11)
When I purchase a 10% coupon bond, I calculate a yield to maturity of 8%. If I hold this bond
to maturity, then my return on this asset is
a. 12%
b. 10%
c. 8%
d. There is not enough information to determine the return
Question 12)
In the one-period valuation model, the value of a share of stock today depends upon
a. the future value of dividends and the actual sales price
b. the present value of both the dividends and the expected sales price
c. the actual value of the dividends and expected sales price received in one year
d. only the present value of the future dividends