Exam (elaborations)
CFIN EXAM 2 with complete solutions 2024_2025
- Course
- Institution
CFIN EXAM 2 with complete solutions 2024_2025
[Show more]
Content preview
CFIN EXAM 2 with complete solutions2024/2025
The "nominal rate of interest" is defined as the sum if the nominal
risk-free rate of return and the expected inflation rate. T/F -
ANSWER✓✓-F
If the federal reserve tightens the money supply, other things held
constant, short-term interest rates will be pushed upward, and this
increase probably will be greater than the increase in rates in the
long-term market. T/F - ANSWER✓✓-T
The term structure is defined as the relationship between interest
rates and the similar securities. T/F - ANSWER✓✓-T
During or near peaks of business activity , yield curves that are flat
or downward sloping (possibly with humps) often are prevalent. T/F
- ANSWER✓✓-T
The "expectation theory" postulates that the "term structure" of
interest rates is based on expectations regarding future inflation
rates. T/F - ANSWER✓✓-T
The real rate of interest is composed of a risk free rate of interest
plus a premium that reflects the riskiness of the security. T/F -
ANSWER✓✓-F
The yield curve is downward sloping, or inverted, if the long term
rates are high than the short-term rates. - ANSWER✓✓-F
, The liquidity preference theory states that each borrower and
lender has a preferred maturity and that the slope of the yield curve
depends on supply and demand for funds in the long-term market
relative to the short-term market. T/F - ANSWER✓✓-F, That is the
Market Segmentation Theory
If you have information that a recession is ending and the economy
is about to enter a boom, and your firm needs to borrow money, it
should probably issue a long-term rather than short-term debt. T/F -
ANSWER✓✓-T
The two reasons most expert give for the existence of positive
maturity risk premium are: 1. because investors are assumed to be
risk averse, and 2. because investors prefer to lend long while firms
prefer to borrow short. - ANSWER✓✓-F
Suppose financial institutions, such as savings and loans, were
required by law to make a long-term, fixed interest rate mortgages,
but at the same time, were largely restricted, in terms of their
capital source, to deposit that could be withdrawn on demand.
Under these conditions, these financial institutions should prefer a
"normal" yield curve to an inverted curve. T/F - ANSWER✓✓-T
investors with a higher time preference for consumption will
demand a "lower rate" of return to forego current consumption and
save than investors with a lower time preference for consumption.
T/F - ANSWER✓✓-F
Firms with the most profitable investment opportunities are willing
and able to pay the most for capital, so they tend to attract it away
from less efficient firms or from those whose products are not in
demand. T/F - ANSWER✓✓-T
Bonds with higher liquidity will demand higher interest rates in the
market since they can be easily converted into cash on short notice
at or near the fair market value for that bond. T/F - ANSWER✓✓-F
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller tuition. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $10.49. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
75759 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now