FIN 3100 Exam 2 Practice Exam Questions And Correct Detailed Answers.
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Course
FIN.
Institution
FIN.
Short-term tends to be more... - correct answer volatile
Economy is strong when... - correct answer interest rates go up
real risk free rate - correct answer r* , rate for short term...
Short-term tends to be more... - correct answer volatile
Economy is strong when... - correct answer interest rates go up
real risk free rate - correct answer r* , rate for short term risk less security when
inflation is expected to be 0, rate on short-term U.S. treasure securities assuming there is no inflation
default risk premium - correct answer DRP, premium added as compensation for
risk investor will not get paid in full
nominal risk free rate - correct answer R rf, rate for riskless security that is exposed
to changes and inflation, calculated by adding the inflation premium to r*
liquidity risk premium - correct answer LP, premium added to the equilibrium
interest rate on a security that cannot be bought or sold quickly enough to prevent or minimize loss
inflation premium - correct answer IP, premium added to real risk free rate to
compensate for a decrease in purchasing power over time, reflects average sustained increased in
general level of prices over time
maturity risk premium - correct answer MPR, reflects risk associated with changes
in interest rates for a long-term security, added as compensation for uncertainty in interest rate changes
yield on bond with longer maturity will be _______________________ than the yield on a bold with a
shorter maturity - correct answer higher
humped yield curve - correct answer short-term and long-term rates are
significantly less than intermediate term rates
, normal yield curve - correct answer upward sloping path
flat yield curve - correct answer 0 slope, long term and short-term rates are equal
inverted yield curve - correct answer short-term rates and greater than long term
rates
pure expectation theory assumes that - correct answer maturity risk premium is 0.
Investing consistently in a short term will have the same return as investing a a long-term
The interest rate is - correct answer price that lenders receive and borrowers pay
for debt
factors that affect supply of and demand for investment capital - correct answer
production opportunities, time preferences for consumption, risk, and inflation
If the Federal Reserve tightens credit, which decreases the supply of funds, interest rates - correct
answer will increase
If the demand for funds decline, which typically happens during a recession, interest rates - correct
answer will decrease
The interest rate on debt, r, is also equal to the _________ risk-free rate plus a default risk premium plus
a liquidity premium plus a maturity risk premium. - correct answer nominal
The real risk-free rate of interest may be thought of as the interest rate on - correct answer
short-term
the yield spread between corporate and Treasury bonds is ______________ the longer the maturity. -
correct answer larger
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