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70 Cards in this Set

  • Front
  • Back
What are the 2 types of financial markets?
1) debt
2) equity
Stockholders who are paid after all the company's debts are paid off:
Residual claimants
Market that involves short-term bonds, very liquid:
Money market
For a good to be used in an indirect exchange it must have what 4 characteristics?
Must be:

1) durable
2) easily divisible
3) easily transported
4) scarce
_____ is always caused by the Federal Govt. printing more money.
What are the 2 types of exchanges?
1) exchanges (brokers)
2) over-the-counter funds (dealers)
Nothing does more harm to a society than a _____.
Central bank
What are the 3 functions of financial intermediaries?
1) Reduce transaction costs.
2) Reduce asymmetric info.
3) Risk sharing
Market that involves long-term debt:
Capital market
_____ is always a devaluing of your money supply.
What were the 2 main problems with the barter system?
1) coincidence of wants
2) indivisibility
What is the most basic level of interest?
Simple interest (future value)
Extreme inflation that happens very quickly:
What are the 3 functions of money?
1) store of value
2) unit of account
3) medium of exchange
In the _____, interest rates average out to be approximately 10%
Bonds that have no coupon rate and pay no interest over time:
Discount bonds
If the price (P) equals the face value (FV), then the _____ will equal the _____.
Yield to maturity, coupon rate
An approximation for yield to maturity:
Current yield
Interest that is adjusted for inflation:
Real interest
What are the 5 factors that shift the demand for bonds?
Changes in:

1) wealth
2) expected interest rate
3) expected inflation
4) liquidity of bonds
5) riskiness of bonds
The lender is the _____ side.
What will happen as the price moves further from the future value?
The less accurate the current yield will be
The bond issuer that supplies bonds:
Price and interest are _____ related.
Government bonds are almost always _____.
Discount bonds
What are the 3 factors that shift the supply for bonds?
Changes in:

1) profitability of investments
2) expected inflation
3) govt. deficit
The shorter the _____, the less accurate current yield will be.
Time period
If the _____ equals the _____, then the yield to maturity will equal the coupon rate.
Price (P), face value (FV)
In the long-run, interest rates average out to be approximately _____.
The demand side is the _____.
Short-term bonds are very _____.
What do lenders hate?
Anything below a B level is considered a _____.
Junk bond
Which bonds are exempt from federal taxes?
Municipal bonds
Who hates inflation?
The borrower is the _____ side.
Who loves inflation?
Which bonds are considered risk free?
U.S. Treasury bonds
What happens to the bonds as you move down the list?
They become more risky
The people lending the money:
Bonds that have high risk and high return:
Junk bonds
Investors love _____.
What do borrowers love?
The supply side is the _____.
Treasury bonds are _____.
Risk free
When short-term interest rates are high, yield curves are more likely to slope:
Downward and be inverted
States that long-term bond interest rates are an average of short-term bond interest rates:
Expectation theory
Yield curves almost always slope _____.
Investors prefer what type of bonds?
Short-term bonds
What predicts a recession in the next year?
An inverted yield curve
What happens to interest rates on bonds of different maturities?
They move together over time
States that bonds of different maturities are not substitutes at all:
Segmented markets theory
When short-term interest rates are low, yield curves are more likely to slope:
What are the 3 theories put forward to explain the structure of interest rates?
1) expectation theory
2) segmented markets theory
3) liquidity premium and preferred habitat theory
_____ prefer short-term bonds.
What does an inverted yield curve predict?
A recession in the next year
_____ bonds are the most liquid of all investments.
The longer you hold a bond, the _____.
Lower the price gets
The key assumption of this theory is that bonds of different maturities are perfect substitutes:
Expectations theory
To claim that a lottery winner who is to receive $1 million per year for twenty years has won $20 million ignores the concept of:
Discounting the future
What are the 2 coupon bonds that never mature?
1) consol
2) perpetuity
The interest rate that is considered to be the most accurate measure:
Yield to maturity
What happens as yield to maturity goes down?
Price goes up
The more distance between the future value and the price you paid, the more _____.
Capital gain
The current yield is a less accurate measure of the yield to maturity the _____ the time to maturity of the bond and the _____ the price is from the par value.
Shorter, farther
As the years increase, the _____ approaches the _____.
Yield to maturity, coupon rate
For a consol, the current yield is a(n) _____ of the yield to maturity.
States that bonds of different maturities are substitutes, but not perfect substitutes:
Liquidity premium and preferred habitat theory
The concept of _____ is based on the notion that a dollar paid to you in the future is less valuable to you than a dollar today.
Present value
What is the key assumption of the Expectations theory?
That bonds of different maturities are perfect substitutes