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Chapter 02 Determinants of Interest Rates




Question;11. When the quantity of a financial security supplied;or demanded changes at every given interest rate in response to a change in a;factor, this causes a shift in the supply or demand curve.;True False;12. An improvement in economic conditions would likely;shift the supply curve down and to the right and shift the demand curve for;funds up and to the right.;True False;13. The risk that a security cannot be sold at a;predictable price with low transaction costs at short notice is called;liquidity risk.;True False;14. Convertible bonds will normally have lower;promised yields than straight bonds of similar terms and quality.;True False;15. We expect liquidity premiums to move inversely;with interest rate volatility.;True False;16. Everything else equal, the interest rate required;on a callable bond will be less than the interest rate on a convertible;bond.;True False;17. The term structure of interest rates is the relationship;between interest rates on bonds similar in terms except for maturity.;True False;18. The unbiased expectations hypothesis of the term;structure posits that long-term interest rates are unrelated to expected future;short-term rates.;True False;19. The traditional liquidity premium theory states;that long-term interest rates are greater than the average of expected future;interest rates.;True False;20. According to the market segmentation theory;short-term investors will not normally switch to intermediate- or long-term;investments.;True False


Paper#55102 | Written in 18-Jul-2015

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