MONEY AND BANKING- ECONOMICS

| November 9, 2018

THERE ARE 10 MULTIPLE CHOICE QUESTIONS and 1 SHORT ANSWER THE CHOICES CAN BE FOUND BELOW THE QUESTIONS, EACH QUESTION HAS 4 CHOICES. THE CHOICES ARE NOT NUMBERED BUT EACH CHOICE IS IN A SEPARATE LINE, JUST WRITE THE CORRECT ANSWER UNDER EACH QUESTION IN RED COLOR.Question 1(3 points)Under which circumstances is it best for a speculator seeking a capital gain to purchase bonds.Question 1 options:The domestic inflation rate doubles.The capacity utilization rate for the overall economy rises to 86%.The unemployment rate is 3% greater than full employment.Commodity prices begin to rise significantly.Question 2(3 points)Approximately how much would you pay for a one-year T-bill (sold at a discount) with a face value of $10,000 and with a return of 5%?Question 2 options:$10,000$9758.$9524.$9760.Question 3(3 points)The coupon rate is the?Question 3 options:Yearly coupon payment divided by the face value of the bond.Yearly coupon payment divided by the market value of the bond.The difference between the market value of the bond and its par value.The difference between the market value of the bond and market interest rates.Question 4(3 points)The present value of $1 received n years from now has a value today of?r = market interest rateQuestion 4 options:($1 + r) / r$1 / (1 + r)($1 + r)n / r$1 / (1 + r)nQuestion 5(3 points)A one-year discount bond with a par value of $10,000 sold today, at issuance, for $9,500 has a yield to maturity of?Question 5 options:5.00%5.26%6.53%7.05%Question 6(3 points)Assume that you own a coupon bond. If the market interest rates on other similar bonds decreases, you can be sure that?Question 6 options:The coupon payments on your bond will fall.The market price of your bond will rise.The market price of your bond will fall.The par value of your bond will rise.Question 7(3 points)The Fisher hypothesis holds that:Question 7 options:In the long run, the nominal interest rate equals the real interest rate.The yield to maturity equals the real interest rate.The nominal interest rate equals the coupon rate if the bond is held to maturity.The nominal interest rate rises or falls with expected inflation.Question 8(3 points)If the federal government eliminates its budget deficit and runs a surplus, the effect is:Question 8 options:An increase in the demand for loanable funds and an increase in interest rates.A decrease in the demand for loanable funds and a decrease in interest rates.An increase in the supply of savings and a decrease in interest rates.A decrease in the supply of savings and an increase in interest rates.Question 9(3 points)economic growth increases, increasing the demand for goods and services, the response of businesses in the loanable funds market can be represented by:Question 9 options:An increase in the demand for loanable funds and an increase in interest rates.A decrease in the demand for loanable funds and a decrease in interest rates.An increase in the supply of savings and a decrease in interest rates.A decrease in the supply of savings and an increase in interest rates.Question 10(3 points)If foreign markets become more unstable, and foreign savers prefer U.S. financial markets the effect in the loanable funds market is:Question 10 options:An increase in the demand for loanable funds and an increase in interest rates.A decrease in the demand for loanable funds and a decrease in interest rates.An increase in the supply of savings and a decrease in interest rates.A decrease in the supply of savings and an increase in interest rates.Question 11(10 points) short answer, answer in few lines . Answer all the questions asked belowHow much should you pay today for a bond with the following characteristics? • par value = $1,000, • maturity in 2 years, • coupon = 5%, • 2-year expected market interest rate = 6%.Please show the formula that you use in your calculation.

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