MCQs For Final Flashcards
If the yield curve is flat, this means
A) short term interest rates are expected to rise in the next years
B) short term interest rates are expected to rise by a small amount
C) short term interest rates are expected to fall in the next years
D) short term interest rates are expected to fall by just a small amount
E) short term interest rates are expected to remain the same in the next years
E) short term interest rates are expected to remain the same in the next years
A production function in which the inputs are perfect substitutes have isoquants that are:
A) Convex
B) Linear
C) L shaped
D) Concave
E) Vertical
B) Linear
If the yield to maturity is less than the coupon rate
A) the current price of the bond is the same as the face value of the bond
B) the current price of the bond is less than the face value of the bond
C) the current price of the bond is greater than the face value of the bond
D) there is no relationship between the current price of the bond and the yield to maturity
C) the current price of the bond is greater than the face value of the bond
Use the production function:
Q = 4L^(1/2) * K(1/2)
The production function exhibits:
A) decreasing returns to scale
B) constant returns to scale
C) increasing returns to scale
D) all of the above at various levels of output
B) constant returns to scale
True or false
A flat indifference curve means the individual values an extra unit of leisure time very little
True
True or false
Indifférence curves are usually downward sloping, but this could change based on individual preferences and individual utility
False
Suppose you hold a portfolio comprised of a risk free asset. The risk of the portfolio is equal to:
A) the fraction invested in the risky asset multiplied by the standard deviation of that asset
B) the risk is 0 because risk free assets have a standard deviation of 0, hence the name risk free asset
C) the fraction invested in the non risky asset multiplied by the standard deviation of the risky asset
D) the weighted average of the returns on the portfolio multiplied by their respective standard deviations
A) the fraction invested in the risky asset multiplied by the standard deviation of that asset
Which of the following bonds are considered to be default-risk free?
A) Municipal bonds
B) Investment-grade bonds
C) U.S. Treasury bonds
D) Junk bonds
C) U.S. Treasury bonds
Everything else held constant, an increase in marginal tax rates would likely have the effect of ________ the demand for municipal bonds, and ________ the demand for U.S. government bonds.
A) increasing; increasing
B) increasing; decreasing
C) decreasing; increasing
D) decreasing; decreasing
B) increasing; decreasing
According to the expectations theory of the term structure
A) when the yield curve is steeply upward sloping, short-term interest rates are expected to
remain relatively stable in the future.
B) when the yield curve is downward sloping, short-term interest rates are expected to
remain relatively stable in the future.
C) investors have strong preferences for short-term relative to long-term bonds, explaining
why yield curves typically slope upward.
D) yield curves should be equally likely to slope downward as slope upward.
D) yield curves should be equally likely to slope downward as slope upward.
According to the segmented markets theory of the term structure
A) the interest rate on long-term bonds will equal an average of short-term interest rates that
people expect to occur over the life of the long-term bonds.
B) buyers of bonds do not prefer bonds of one maturity over another.
C) interest rates on bonds of different maturities do not move together over time.
D) buyers require an additional incentive to hold long-term bonds.
C) interest rates on bonds of different maturities do not move together over time.
The additional incentive that the purchaser of a Treasury security requires to buy a long -term security rather than a short-term security is called the
A) risk premium.
B) term premium.
C) tax premium.
D) market premium.
B) term premium.
in actual practice, short-term interest rates and long-term interest rates usually move together; this is the major shortcoming of the
A) segmented markets theory.
B) expectations theory.
C) liquidity premium theory.
D) separable markets theory.
A) segmented markets theory.
When the yield curve is flat or downward-sloping, it suggest that the economy is more likely to enter
A) a recession.
B) an expansion.
C) a boom time.
D) a period of increasing output.
A) a recession.
if a higher inflation is expected, what would you expect to happen to the shape of the yield curve?
Why?
The yield curve should have a steep upward slope.
Nominal interest rates will increase if the inflation rate increases, therefore, bond purchasers will require a higher term premium to hold the riskier long-term bond.
