Econ 350 Exam Questions with 100%
Correct Answers
The yield to maturity for a discount bond is ________ related to the current
bond price.
A) negatively
B) not
C) positively
D) directly - A) negatively
Municipal bonds have default risk, yet their interest rates are usually lower
than the r...
Econ 350 Exam Questions with 100% Correct Answers The yield to maturity for a discount bond is ________ related to the current bond price. A) negatively B) not C) positively D) directly - ✔✔A) negatively Municipal bonds have default risk, yet their interest rates are usually lower than the rates on default -free Treasury bonds. This suggests that A) the benefit from the tax -exempt status of municipal bonds equals their default risk. B) the benefit from the tax -exempt status of municipal bonds exceeds their default risk. C) Treasury bonds are not default -free. D) the benefit from the tax -exempt status of municipal bonds is less than their default risk - ✔✔B) the benefit from the tax -exempt status of m unicipal bonds exceeds their default risk. Assuming the same coupon rate and maturity length, when the interest rate on a Treasury Inflation Indexed Security is 3 percent, and the yield on a nonindexed Treasury bond is 8 percent, the expected rate of infla tion is A) 8 percent. B) 3 percent. C) 5 percent. D) 11 percent. - ✔✔C) 5 percent. 8 -3 = 5 During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything els e held constant. A) falls; right B) rises; right C) rises; left D) falls; left - ✔✔B) rises; right The problem created by asymmetric information before the transaction occurs is called ________, while the problem created after the transaction occurs is called ________. A) costly state verification; free -riding B) moral hazard; adverse selection C) adverse selection; moral hazard D) free -riding; costly state verification - ✔✔C) adverse selection; moral hazard Credit card debt is A) unrestricted debt. B) secured debt. C) restricted debt. D) unsecured debt. - ✔✔D) unsecured debt. If the expe cted path of one -year interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that today's interest rate on the five -year bond is A) 5 percent. B) 7 percent. C) 6 percent. D) 4 percent. - ✔✔C) 6 percent. If the price level doubles, the value of money
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