Question

QUESTION 1

1. If firms decide to raise more funds through the sale of bonds, interest rates will rise.

True

False

1 points   

QUESTION 2

1. If the price of bonds is higher than the market equilibrium then their price will fall and interest rates will fall as well.

True

False

1 points   

QUESTION 3

1. As explained in the text, assets may be financial or non-financial.

True

False

1 points   

QUESTION 4

1. In deciding what assets to hold, people consider three factors – taxes, returns and liquidity.

True

False

1 points   

QUESTION 5

1. You are risk-loving if you will take on more risk without any increase in relative return.

True

False

1 points   

QUESTION 6

1. The liquidity preference model, which looks at the supply and demand for money, shows the equilibrium real rate of interest (r).

True

False

1 points   

QUESTION 7

1. The demand for money would increase if there is an increase in income or if there is an increase in prices (i.e., inflation).

True

False

1 points   

QUESTION 8

1. During the 1920s, the authors of the text claim that falling interest rates were reflecting the positive business environment which would be expected to increase the demand for bonds.

True

False

1 points   

QUESTION 9

1. The lowest grades on bonds is either C or D depending on the rating firm you look at.

True

False

1 points   

QUESTION 10

1. The “flight to quality” will raise the price of low rated bonds and lower the price of high rated bonds.

True

False

Answer 1

Ans 1)

If firm sells more bonds then price of bond will decrease which in turn will increase the interest rates as firms need more funds therefore their opportunity cost has increased

Statement is true.

Ans 2)

If price of the bind is higher than equilibrium then prices of bond will fall but interest rate would increase because price and interest rate are negatively related

Hence False statement

Ans 3)

True .

Assets can be financial or intangible such as goodwill copyrights

Ans 4)

False

Liquidity ,Return and Risks are the three most important components to hold or sell an asset.

Ans 5)

True

Ans 6)

True

Loanable funds theory helps us to fine equilibrium real interest rate to lend the funds

Ans 7)

As the inflation rate increase people need to shell more money to buy same quantity of goods therefore demand for money increase for transaction purposes

True

Ans 9)

True