FIN 6320 Money and Capital Markets, Spring
2004 – Test 1. Peter
Lewin.
Please read the
following carefully:
Multiple Choice – 25 questions. Please use a 50 question scantron (882-ES)
with a pencil. Hand in only the scantron
(you may keep this question paper).
This is a closed book exam. Cheating will result in a zero (among other
possible sanctions).
Among the possibilities given
in each question select the best alternative.
Solution and grade distribution at end.
1. Which
of the following statements is not true about money?
a.
money is sometimes
viewed as a lubricant that greases the wheels of economic activity.
b. money influences the behavior of the economy as a whole.
c.
without money, some
transactions would be unimaginably difficult.
d. all of the above are true.
2. The
most prominent role for money is to serve as a
a.
standard of value.
b. form of credit.
c.
source of income.
d. means of payment.
3. The
M1 definition of money includes
a.
currency outside banks
plus checkable deposits and Eurodollars.
b. currency outside banks plus checkable deposits plus
small-denomination time deposits.
c.
currency outside banks
plus checkable deposits plus retail money market deposit accounts.
d. currency outside banks plus checkable deposits plus
traveler's checks.
4. An
asset that can be quickly turned into the medium of exchange without
taking a loss is said to be very _______
a.
divisible
b.
profitable.
c.
liquid
d. accountable
5. If
people lost confidence in the medium of exchange, the likely result would be
a.
no more transactions
taking place.
b. inflation.
c.
increased financial
intermediation.
d. increased barter activity.
6. Money
increases economic growth by facilitating transfers from
a.
savers to borrowers.
b. investors to savers.
c.
the government to
investors.
d. investors to borrowers.
7. Financial
markets increase the volume of saving and investment by
a.
reducing the velocity
of money.
b. maintaining low interest rates.
c.
providing savers a
variety of ways to lend to borrowers.
d. storing large quantities of cash.
8. Which
of the following is not a financial institution?
a.
A pension fund
b. A
mining company
c.
A mutual fund
d. An
insurance company
9. An
indirect flow of funds occurs when
a.
funds flow from
saver-lenders to borrower-spenders through financial markets.
b. funds flow from saver-lenders to borrower-spenders through
financial intermediaries.
c.
funds flow to
saver-lenders from borrower-spenders through financial markets.
d. funds flow to saver-lenders from borrower-spenders through
financial intermediaries.
10. An
example of direct finance would be when
a.
a person buys a life
insurance policy.
b. a person purchases a certificate of deposit from a bank.
c.
a person buys 100
shares of stock from a corporation.
d. a bank makes a loan to a customer.
11. The
largest group of saver-lenders in the financial system is
a. financial intermediaries.
b. businesses.
c.
households.
d. government.
12. Most
borrower-spenders in the financial system are
a.
households and
foreigners.
b. banks and thrift institutions.
c.
governments and
financial institutions.
d. businesses and governments.
13. When
borrower-spenders raise funds in financial markets, they issue new securities
in the
a.
third market.
b. fourth market.
c.
secondary market.
d. primary market.
14. A
secondary market is one in which
a.
savers place funds in
financial intermediaries.
b. existing securities can be bought and sold.
c.
new securities are
issued.
d. financial intermediaries make loans.
15. The
present value of $900 to be received in three years, with an annual interest
rate of 10 percent, compounded annually, is equal to $__________.
a.
810
b. 816
c.
772
d. 676
16. Suppose
an individual pays $4,000 for a $5,000 face-value, coupon-bearing bond that
pays $400 per year in interest and will be held until it matures in ten years.
The coupon rate on this bond is
a.
10 percent.
b.
6
percent.
c.
8
percent.
d.
5
percent.
17. Paul
Oldy just purchased a $2,000 face value. The bond pays $45 in interest
semiannually. Paul could sell the bond today for $2,050. The current yield on
this bond is __________ percent.
a.
4.39
b. 2.25
c.
4.50
d. 2.20
18. The
yield to maturity on a bond is the
a.
coupon payment
multiplied by the number of payments.
b. coupon rate.
c.
rate of discount that
makes the sum of present values for all future payments equal to the purchase
price.
d. annual interest payment divided by the purchase price.
19. A
lottery winner receives $20 million in equal payments spread out over 20 years.
The present value of the winnings is
a.
greater than $20
million.
b. less than $20 million.
c.
equal to $20 million.
d. either greater than or less than $20 million, depending on
the discount rate used for the calculation.
20. One-year
securities are currently yielding 8 percent. You expect one-year securities to
yield 10 percent next year. Currently, two-year securities are yielding 9.5
percent. Given this situation, portfolio managers would __________ two-year
securities, pushing their yield __________
a.
buy; up
b. buy;
down
c.
sell; down
d. sell;
up
21. Two-year
securities are yielding 6 percent, and comparable one-year securities are
yielding 8 percent. According to the pure expectations theory, the market
expects next year's comparable one-year securities to yield
a.
8 percent.
b. 4
percent.
c.
14 percent.
d. 6
percent.
22. Using
the pure expectations theory of term structure, a negatively sloped yield curve
indicates that investors expect
a.
falling short term
interest rates.
b. rising long term interest rates.
c.
falling long term
interest rates.
d. rising short term interest rates.
23. The
standard deviation around an expected value is a useful measure of
a.
expected value of an
asset.
b. deviation of an asset's actual returns from its expected
returns.
c.
the difference between
the best-case return of an asset and its worst-case return.
d. economic value of an asset.
24. The
most fundamental proposition of modern portfolio theory is that
a.
even though an asset is
risky in isolation, when combined with other assets the risk of the portfolio
is less, perhaps even zero.
b. investment risk is reduced by investing in on security.
c.
the smaller the
standard deviation is, the larger is the risk of a portfolio.
d. uncertain outcomes make for risky investments.
25. The interest rate is determined
a.
in the market for
loanable funds
b.
by the time preferences
of traders in the economy
c.
in the market for
tomatoes
d.
a and b of the above
GRADE DISTRIBUTION:
If you score is greater
than or equal to: your grade is
|
22 |
A |
|
21 |
B+ |
|
20 |
B |
|
18 |
B- |
|
17 |
C+ |
|
ELSE |
C |
Solution.
1.
d
2.
d
3.
d
4.
c
5.
d
6.
a
7.
c
8.
b
9.
b
10. c
11. c
12. d
13. d
14. b
15. d
16. c
17. a
18. c
19. b
20. b
21. b
22. a
23. b
24. a
25. d.