Question Question 1 (1 point) Which yield curve theory is based on the premises that financial instruments of different terms are not substitutable and therefore the supply and demand in the markets for short-term and long-term instruments is determined largely independently? Question 1 options: The liquidity premium theory . All of these answers . The segmented market hypothesis . The expectation hypothesis . Question 2 (1 point) Which of the following statements regarding the relationship between economic factors and the nominal inflation rate is true? Question 2 options: If the inflationary expectation goes up, the market interest rate decreases . All of these answers . If there is an inflationary gap, there will be a corresponding reduction in interest rates . For every 1% increase in inflation, the nominal interest rate should be raised by more than 1% . Question 3 (1 point) Which of the following predictions based on a description of the yield curve is correct? Question 3 options: A flat yield curve suggest that interest rates will be cut . A normal yield curve suggests that interest rates will be raised in the future . An inverted yield curve suggests that interest rates will be dramatically cut . All of these answers . Question 4 (1 point) The terms of a bond allows its issuer to redeem the security at anytime . This type of bond is _____ . Question 4 options: an Asian callable . an American callable . a Bermudan callable . a European callable . Question 5 (1 point) A company issues a bond with a coupon rate of 5% . Since the bond was issued, market interest rates have decreased . What effect will this decrease have on the bond’s market price and its current yield? Question 5 options: The bond will trade below par and its current yield will decrease . The bond will trade below par and its current yield will increase . The bond will trade above par and its current yield will increase . The bond will trade above par and its current yield will decrease . Question 6 (1 point) Which of the following describes a difference between stocks and bonds? Question 6 options: Stockholders generally have an equity stake in the business while bondholders have a creditor stake . Stocks can be resold on a secondary market, while bonds cannot . Bonds always have a defined term while stocks may be outstanding indefinitely . All of these answers . Question 7 (1 point) Which of the following are debt instruments that companies use as investments? Choose one answer . Question 7 options: Bank Loans Stocks Unpaid Accounts Bonds Question 8 (1 point) Which of the following statements about the disadvantages of bonds as investments is correct? Question 8 options: Interest rate risk is only a problem if the bondholder decides to hold the bond until it matures . Bonds are subject to prepayment risk, credit risk, reinvestment risk, and yield curve risk . When a bond issuer is able to pay off a bond early, the bond is subject to event risk . All of these answers . Question 9 (1 point) Which of the following statements regarding the advantages of bonds as an investment, are true? Question 9 options: Bonds are more liquid than stock . If a company goes bankrupt, its bondholders will recover the entirety of the bond’s principal . The market price of bonds are less volatile than stocks . All of these answers . Question 10 (1 point) Which of the following statements about zero coupon bonds is NOT true? Question 10 options: The impact of interest rate fluctuations on zero coupon bonds is higher than for coupon bonds . U . S . Treasury bills and saving bonds are example of zero coupon bonds . Zero coupon bonds are particularly popular with pension and insurance companies . When a bond is “stripped,” it is split into two parts; the principal and the coupons, or “residue . ” Question 11 (1 point) Which of the following statements about floating rate bonds (FRBs) is NOT true? Question 11 options: In Europe, FRBs are generally issued by banks . An …
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