Q#1: Financial instruments are evolved just as ___________.
(A) Currency
(B) Stock
(C) Bond
(D) Commodity
Answer: (A) Currency
Q#2: Price of 100 goods under the barter system would be _________.
(A) 5050
(B) 19800
(C) 4950
(D) 20200
Answer: (C) 4950
Q#3: Wealth can be held in number of other forms but we use to hold money because of which reason?
(A) It is the only mode of payment
(B) It is an asset
(C) It is most liquid
(D) It is the only store of value
Answer: (C) It is most liquid
Q#4: A decrease in the number of credit cards issued:
(A) Has same impact as Fed reducing money supply
(B) Reduces money supply since credit cards act like money
(C) Would lower M3 but not M1
(D) None
Answer: (C) Would lower M3 but not M1
Q#5: Risk sharing is the characteristic of which one?
(A) Checks
(B) Checking accounts
(C) Money
(D) Bonds
Answer: (D) Bonds
Q#6: ___________ is the today’s value of a payment promised in future.
(A) None
(B) Future value
(C) Present value
(D) Agreed value
Answer: (C) Present value
Q#7: Present Value (PV) is found by:
(A) Discounting
(B) Compounding
(C) Time value of money
(D) Bond pricing
Answer: (A) Discounting
Q#8: Asma deposits $1000, FV = $1081.60, rate 4% for 2 years. Deposit amount is:
(A) $960.60
(B) $900.00
(C) $1005.00
(D) $1000.00
Answer: (D) $1000.00
Q#9: PV of $500 received in 3 years is:
(A) $500/(1+i)
(B) $500*(1+i)
(C) $500/(1+i)^3
(D) $500*(1+i)^3
Answer: (C) $500/(1+i)^3
Q#10: Doubling future value will:
(A) Half PV
(B) Increase half
(C) Double PV
(D) No effect
Answer: (C) Double PV
Q#11: Variance is less useful than standard deviation because:
(A) Easier to calculate
(B) Measure of return
(C) Not in same units as payoffs
(D) Both equal
Answer: (C) Not in same units as payoffs
Q#12: Risk-averse investor will:
(A) Prefer lower return always
(B) Prefer certain return with same expected return
(C) Always require certain return
(D) Focus only return
Answer: (B) Prefer certain return with same expected return
Q#13: Return on bond =
(A) Coupon rate + capital gain
(B) Current yield + capital gain
(C) Coupon rate – capital gain
(D) Current yield – capital gain
Answer: (B) Current yield + capital gain
Q#14: Increase in expected inflation shifts bond demand to:
(A) Right
(B) Left
(C) No change
(D) None
Answer: (B) Left
Q#15: Bond rating refers to:
(A) Coupon size
(B) Return
(C) Likelihood of repayment
(D) Maturity
Answer: (C) Likelihood of repayment
Q#16: Bond ratings are:
(A) Yield
(B) Creditworthiness of issuer
(C) Risk
(D) Price
Answer: (B) Creditworthiness of issuer
Q#17: Tax affects bond return because:
(A) Only interest is taxable
(B) Principal + interest taxable
(C) Bondholders are taxpayers
(D) Tax deducted automatically
Answer: (A) Only interest is taxable
Q#18: Taxable vs tax-exempt bond yield relationship:
(A) Higher tax rate wider gap
(B) Taxable always higher
(C) Higher tax rate smaller gap
(D) Lower tax rate wider gap
Answer: (A) Higher tax rate wider gap
Q#19: If tax rate increases, gap between yields:
(A) Shorter
(B) Wider
(C) No gap
(D) Any
Answer: (B) Wider
Q#20: Liquidity premium theory suggests yield curve is:
(A) Up-sloping
(B) Inverted
(C) Flat
(D) Horizontal
Answer: (A) Up-sloping