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1. True or False: The FOMC wishes to increase the discount rate by 25bps – if...

1. True or False: The FOMC wishes to increase the discount rate by 25bps – if the current rate is 2.500%, the new rate will be 2.500% x (1 + 25bps) = 2.500% x (1 + 25%) or 3.125%.

2. Empirically, the mortgage rate in the United States has the highest correlation with which market interest rate?

A. Credit Default Swap Rate1
B. Prime
C. LIBOR
D. Yield on the US government’s ten-year bond E. Fed funds’ rate

3. True or False: If the market expectations for inflation increases, interest rates will likely decrease.

4. True or False: An increase in the marginal tax rates for all U.S. taxpayers would probably result in reduced supply of funds by households and thus, a DECREASE in market interest rates.

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Answer #1

And 1 false =) 100 basis points I basis point = = 100 25 basis point = 25 100 so = 0.25% = 2.500Y (17 2568) = 2.500%. (1+ 0.2

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