Unit 4 Finance
1. Money markets are markets for (Points: 4)
2. Which of the following statements is CORRECT? (Points: 6)
3. If the stock market is semistrong-form efficient, which of the following statements would be CORRECT? (Points: 6)
4. Suppose 1-year T-bills currently yield 5.00% and the future inflation rate is expected to be constant at 3.10% per year. What is the real risk-free rate of return, r*? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. (Points: 6)
5. Suppose the real risk-free rate is 3.50%, the average future inflation rate is 2.25%, and a maturity premium of 0.10% per year to maturity applies, i.e., MRP = 0.10%(t), where t is the years to maturity. What rate of return would you expect on a 5-year Treasury security, assuming the pure expectations theory is NOT valid? Disregard cross-product terms, i.e., if averaging is required, use the arithmetic average. (Points: 6)
6. Which of the following would be most likely to lead to a higher level of interest rates in the economy? (Points: 6)
7. Assume that interest rates on 20-year Treasury and corporate bonds are as follows:
T-bond = 7.72% A = 9.64%
AAA = 8.72% BBB = 10.18%
The differences in rates among these issues were caused primarily by (Points: 6)
8. What does it mean when it is said the U.S. is running a trade deficit? What impact do you think a trade deficit could have on interest rates? Scroll down to respond.
9. Consider the following scenario: John buys a house for $150,000 and takes out a five year adjustable rate mortgage with a beginning rate of 6%. He makes annual payments rather than monthly payments.
Unfortunately for John, interest rates go up by 1% for each of the five years of his loan (Year 1 is 6%, Year 2 is 7%, Year 3 is 8%, Year 4 is 9%, Year 5 is 10%).
Calculate the amount of John's payment over the life of his loan. Compare these findings if he would have taken out a fix rate loan for the same period at 7.5%. Which do you think is the better deal?
TUTORIAL PREVIEW
| K T-10 = 5.2%; K C-10 = 7.5%; MRP = 1.1%; LP = 0.2%; DRP = ? |
File name: Finance quiz 10.xls File
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