Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Money, Credit, & Banking > Exam 2 Ch 6-8, 15-16 > Flashcards

Exam 2 Ch 6-8, 15-16 Flashcards

1
Q

When you buy a coupon bond, what can change?

A

Yield to maturity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Is YTM the same as the coupon rate if the bond was purchased for face value and held to maturity?

A

Yes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Price > face value, so YTM is what to the coupon rate?

A

YTM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Bond price = face value, so YTM is what to coupon rate?

A

YTM = coupon rate, which equals current yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why does the bond supply curve slope upward?

A

Because for companies seeking financing, the higher the price of bonds the more attractive it is to sell bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Quantity of bonds supplied > quantity of bonds demanded, so bond prices will do what?

A

Bond prices will fall and yields will rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

As general business conditions improve, we would witness what happen to bond prices?

A

Bond prices would decrease because bond supply would rise

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

When expected inflation decreases for any given nominal rate, what occurs? (3) what does NOT occur? (1)

A
  • Bond supply shifts left
  • Cost of borrowing increases/desire to borrow decreases
  • price of bonds increase
  • the real interest rate does NOT decrease
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

If federal gov offers larger tax breaks on purchase of new equipment for businesses, what would happen?

A

Bond supply curve shifts right. They would issue more bonds to purchase more equipment.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How does an improvement in general business conditions increase bond supply?

A

Inflation👇🏾 so r👆🏾 = i - inflation👇🏾 so demand👆🏾 and supply👇🏾

OR

When economy poor, quantity of bonds outstanding with a given risk goes up so when economy is good they want to supply more bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Economic expansion that 👆🏾 nations wealth would cause what to happen to bond demand?

A

Increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Increase in expected inflation will cause what to happen to price of bonds?

A

Decrease because supply increases

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

If interest rates expected to fall, bond prices will do what and why?

A

Increase because demand increase

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The order of bond ratings?

A

Investment grade.
Speculative.
Highly speculative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If a bonds rating increases what should happen to its price and yield?

A

Price would 👆🏾 and yield 👇🏾

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

The risk structure of interest rates says…?

A

Lower rated bonds have higher yields!

High risk = High reward!!!

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

If local gov eliminates tax exemption on municipal bonds, what would happen?

A

Decrease In the gap in yields on taxable and tax-exempt bonds.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How can bonds with the same tax status and ratings have diff yields?

A

If they have diff maturities.

Term structure

19
Q

2 characteristics that make owning stock attractive?

A

Share prices are relatively inexpensive & are transferable

20
Q

The DJIA is…?

A

The average price of stock in 30 of the largest companies in the US

21
Q

The standard & poors 500 index differs from the DJIA how?

A

S&P 500 takes into account the prices of more stocks & it uses a diff weighting scheme (value-weighted)

22
Q

When studying the world stock indexes what do we observe?

A

That the indexes are comparable but only in % terms

23
Q

What does the dividend-discount model predict about stock prices? What’s the relationship?

A

Stock prices should be high when dividends are high.

Stock price👆🏾dividend👆🏾growth rate👆🏾interest rate👇🏾

24
Q

If there’s a reduction of the return provided on US treasury bonds, we should expect the current price of stocks to do what?

A

Increase since the risk-free return is now lower

OR

Increase since demand will increase

25
Q

What does the theory of efficient markets assume?

A

Prices of all financial instruments reflect all available information

26
Q

Notion that stock prices reflect all current available info indicates what?

A

Mutual fund managers will not outperform market averages

27
Q

Why do people have substantial parts of their wealth invested in stocks even though they present risk?

A

Investing in stocks over the long run is not as risky as short-term holdings

28
Q

Stock market bubbles do NOT lead to what?

A

The efficient allocation of resources

29
Q

The goals of central banks are to…?

A

Reduce systematic risk

30
Q

If the growth rate of a country exceeds its sustainable rate, the central bank is likely to do what?

A

Raise interest rates to slow the rate of growth

31
Q

Why is interest rate volatility a problem?

A

Because expenditure in the economy tends to vary inversely with the interest rate

32
Q

Truly independent central banks have monetary policies that cannot be reversed by anyone outside the central bank.

A

True

33
Q

What is the tealbook?

A

Used at FOMC meetings and treated as secret documents, not released to the public until 5 years after

34
Q

Who can change the interest rate changes that result from the FOMC?

A

No one other than the FOMC

35
Q

Most common form of zero coupon bonds in the US?

A

US treasury bills

36
Q

who are the members of the FOMC?

A

7 members of the board of governors and 5 presidents of the regional fed banks

37
Q

efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market…

A

it will be quickly eliminated

38
Q

what is the interest rate charged on overnight loans of reserves between banks called?

A

federal funds rate

39
Q

what long-term bond has the highest interest rate?

A

corporate Baa bonds

40
Q

if the default risk increases, what will the expected return do?

A

decrease

41
Q

what could cause a decrease in the current price of a stock?

A

an increase in the risk premium

42
Q

if gov were to guarantee paying creditors if a corporation goes bankrupt, the interest rate on corporate bonds would do what? and the rate on treasury securities will…?

A

decrease, increase

43
Q

compared to other central banks, the fed reserve does what different?

A

decentralized structure

44
Q

if income tax rates were lowered, the interest rate on municipal bonds would do what?

A

rise

Money, Credit, & Banking (4 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions