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Chapter 02 Determinants of Interest Rates




Question;43. Which of the following would normally be expected;to result in an increase in the supply of funds, all else equal?;I. The perceived riskiness of all investments decreases.;II. Expected inflation increases.;III. Current income and wealth levels increase.;IV. Near term spending needs of households increase as energy costs rise.;A. I and III only;B. II and III only;C. II, III, and IV only;D. I and IV only;E. I, II, III, and IV;44. An investor requires a 3% increase in purchasing;power in order to induce her to lend. She expects inflation to be 2% next year.;The nominal rate she much charge is about;A. 3%;B. 2%;C. 1%;D. 5%;E. 7%;45. The term structure of interest rates is upward;sloping for all bond types. A certain AAA rated non-callable 10-year corporate;bond has been issued at a 6.15% promised yield. Which one of the following;bonds probably has a higher promised yield?;A. A similar quality municipal bond.;B. A non-callable AAA rated corporate bond with a 5-year maturity.;C. A callable AAA rated corporate bond with a 15-year maturity.;D. A non-callable AAA rated convertible corporate bond with a 10-year;maturity.;E. All of the above would have a higher promised yield.;46. Which of the following bond types pays interest;that is exempt from federal taxation?;A. Municipal bonds;B. Corporate bonds;C. Treasury bonds;D. Convertible bonds;E. Both A) and C);47. The relationship between maturity and yield to;maturity is called the __________________.;A. loan covenant;B. term structure;C. bond indenture;D. Fisher effect;E. DRP structure;48. According to the unbiased expectations;theory;A. markets are segmented and buyers stay in their own segment;B. liquidity premiums are negative and time varying;C. the term structure will most often be upward sloping;D. the long-term spot rate is an average of the current and expected;future short-term interest rates;E. forward rates are less than the expected future spot rates


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