Question

1) For U.S. Treasury bonds, what type of risk exists when rates are historically low? _______

A) Gap risk
B) Interest-rate risk C) Default risk
D) Reinvestment risk

2) Which of the following institutions assign ratings for bonds in the United States? _______

A) The Securities and Exchange Commission
B) The Federal Reserve District Banks
C) The U.S. Treasury
D) Private companies such as Moody’s and Fitch

3) If the three-month Treasury bill yields 3.1% while the yield on a ten-year Treasury note is 4.7%, what is the risk premium on a BBB rated ten-year corporate bond with a yield of 6.5%? _______

A) 1.6% B) 1.8% C) 2.3% D) 3.4%

4) Regarding the expectations theory, an upward-sloping yield curve indicates that investors expect short-term rates to: _______.

A) rise B) fall

C) either rise or remain constant D) noconclusioncanbedrawn

5) The nominal exchange rate is: _______.

A) the difference in the interest rates between two countries
B) the price of one country's currency in terms of a different currency C) the rate at which goods and services are exchanged
D) the price of a bond if sold to an investor outside the country

6) During the financial crisis of 2007-2009, which asset likely increased as a percentage of a person’s wealth? _______

A) Checkingaccount

B) Gold and other real assets

C) Common stocks

D) Corporatebonds

7) A portfolio is: _______.

A) themeasureofriskwithholdingdifferentriskyassets

B) a collection of assets

C) money invested in fixed income securities with different default risks

D) allcommonstocksavailabletoinvestors

8) If you deposit $500 in a savings account at an annual rate of 5%, how much will you have in the account at the end of five years? Assume annual payment of interest and no withdrawals. _______

A) $638 B) $721 C) $392 D) $550

9) Which of the following will lead to a higher interest rate on a loan? _______

A) Lower opportunity cost

B) Increased bank reserves

C) Lower inflation

D) Higher risk of default

10) In the bond market, a seller or issuer is considered to be: _______.

A) thelenderortheborrowerdependingontheuseofthefunds

B) the lender

C) the borrower

D) thelenderortheborrowerdependingontheratingagency’sreport