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32 Cards in this Set
- Front
- Back
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If the interest rate on a bond is above the equilibrium interest rate, there is an excess ______ for bonds and the bond price will ____. |
demand rise |
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When yield curves are steeply upward sloping.... |
long-term interest rates are above short-term interest rates |
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Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today _____ and the demand curve shifts to the _____. |
rises right |
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When the Treasury bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the ____ and the demand curve for Treasury bonds shifts to the |
right
left |
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What is the return on a 5 percent coupon bond that initially sells for 1000 and sells for 900 next year? |
-5 percent |
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If an individual redeems a U.S. savings bond for currency... |
M1 increases and M2 increases. |
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Bonds and stocks are... |
not money |
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Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ____ and the interest rate _____. |
left rises |
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A fall in the level of prices... |
increases the value of money. |
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Which of the following can be described as direct finance? |
You borrow $2500 from a friend |
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A financial market in which only short-term debt instruments are traded is called the _____ market. |
money |
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Which of the following statements about the characteristics of debt and equity are true? (3) |
They both enable a corporation to raise funds. They both involve a claim on the issuer's income. They can both be long-term financial instruments. |
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Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will _______. |
decrease increase |
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Income is a... |
flow variable |
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According to the expectations theory of the term structure, the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond. |
average |
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The U shaped yield curve indicates that short-term interest rates are expected to... |
fall sharply in the near term and rise later on |
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All of the following are necessary criteria for a commodity to function as money (3): |
it must be divisible it must be widely accepted it must be easy to carry |
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When the Fed conducts open market sales, the supply of bonds _________ and the interest rate ________, everything else held constant. |
increase increases |
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When the expected inflation rate increase, the demand for bonds __________, the supply of bonds ________, and the interest rate ______, everything else held constant. |
decreases increases rises |
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When the price of a bond decreases, all else equal, the bond demand curve.... |
does not shift |
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The segmented markets theory can explain... |
why yield curves usually tend to slope upward |
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When the ____ interest rate is low, there are greater incentives to ______ and fewer incentives to ____. |
real borrow lend |
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real interest rate = |
real cost of borrowing |
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What is an example of an intermediate-term debt? |
a sixty-month car loan |
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Patrick places his pocket change into his paddy bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a... |
store of value. |
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Factors that decrease the demand for bonds include... |
a decrease in the riskiness of stocks. |
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A bank may send loan officers to monitor customers with outstanding loans. The purpose of this is to... |
reduce moral hazards. |
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Which of the following bonds would have the highest default risk? |
junk bonds |
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Everything else held constant, if the tax-exempt status of municipal bonds were eliminated then... |
the interest rate on municipal bonds would exceed the rate on Treasury bonds. |
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If the interest rate on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to be holding? |
A bond with a one year to maturity |
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If a 10% coupon bond with face value of $2000 has a yield to maturity of 8% and two years until maturity, then the current selling price is... |
$2071.33 |
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If you expect the inflation rate to be 15% next year and a one-year bond has a yield to maturity of 7%, then the real interest rate on this bond is... |
-8 percent |
