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REE4204 1 FINAL EXAM QUESTIONS WITH VERIFIED ANSWERS
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REE4204 1 FINAL EXAM QUESTIONS WITH VERIFIED ANSWERS
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REE4204 1 FINAL EXAM QUESTIONSWITH VERIFIED ANSWERS
Risk characteristics of securities include:
a. future growth, default, risk and callability
b. bond rate, marketability, future growth, maturity
c. default, callability, marketability and maturity
d. future growth, bond rate, default, and callability - ✔✔c.* default,
callability, marketability and maturity
Default risk:
a. is the risk the bond issuer will be unable to pay the interest and principal
on the obligation
b. means a high percentage yield (11% or higher)
,c. with a 11.3% yield on a bond means that there is little risk involved in paying
back the principal and interest
d. means that the interest rate can be low because the risk is high - ✔✔a.*
is the risk the bond issuer will be unable to pay the interest and principal on
the obligation
Non-callable bonds:
a. have a callability risk attached to them
b. are less desirable than callable bonds
c. can be called prior to maturity if holders are given a 120-day notice
d. will have a lower yield than identical callable bonds - ✔✔d.* will have
a lower yield than identical callable bonds
Interest rate risk is best described by:
a. the risk of choosing the wrong interest rate
b. the risk of having a bond that may not trade in a liquid market
c. values of bonds with longer maturities change more than those with
shorter maturities when interest rates change
d. longer-term bonds are priced higher to yield more than shorter-term bonds -
✔✔c.* values of bonds with longer maturities change more than those with
shorter maturities when interest rates change
Market segmentation:
,a. means there are two (or more) markets for securities of different maturities
b. is based on the long-term market
c. is based on the short-term market
d. includes the pension fund for long-term investments but not short-term
investments - ✔✔a.* means there are two (or more) markets for securities
of different maturities
a. deal in long-term securities
b. deal in short-term Treasury bills and long-term Treasury bonds to finance their
deficits
c. rarely are involved in real estate transactions
d. consider mortgages only for short-term, interim financing - ✔✔a.* deal
in long-term securities
The most accurate definition of finance is:
a. the study of the allocation of resources
b. the process of maximizing profits through money transfers
c. the study of the transfer of money and credit between
individuals, businesses, and governments
d. the one you are about to marry - ✔✔c.* the study of the transfer of
money and credit between individuals, businesses, and governments
The following is an accurate statement:
, a. the fields of finance and economics are unrelated for the most
part b. finance is a segment of the more general field of economics
c. finance focuses on profits, whereas economics focuses on cash flows
d. b and c - ✔✔b. finance is a segment of the more general field of economics
Velocity of circulation refers to:
a. how fast the average person spends his paycheck
b. how fast the current interest rate doubles
c. the average number of times one dollar turns over in one year
d. the total annual dollar transactions divided by the current interest rate
- ✔✔c.* the average number of times one dollar turns over in one year
In the equation of exchange:
a. M = marginal revenue, V = velocity of trade. P = price level, T = trade value
b. M = money, V = volume of trade, P = price level, T = Time value of money
c. M = market yield, V = variability of circumstances, P = population growth,
T time value of money
d. M = money supply, T = velocity of circulation, P = general price level, T = volume
of trade - ✔✔d.* M = money supply, T = velocity of circulation, P = general
price level, T = volume of trade
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