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70 Cards in this Set
- Front
- Back
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What are the 2 types of financial markets?
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1) debt
2) equity |
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Stockholders who are paid after all the company's debts are paid off:
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Residual claimants
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Market that involves short-term bonds, very liquid:
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Money market
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For a good to be used in an indirect exchange it must have what 4 characteristics?
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Must be:
1) durable 2) easily divisible 3) easily transported 4) scarce |
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_____ is always caused by the Federal Govt. printing more money.
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Inflation
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What are the 2 types of exchanges?
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1) exchanges (brokers)
2) over-the-counter funds (dealers) |
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Nothing does more harm to a society than a _____.
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Central bank
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What are the 3 functions of financial intermediaries?
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1) Reduce transaction costs.
2) Reduce asymmetric info. 3) Risk sharing |
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Market that involves long-term debt:
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Capital market
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_____ is always a devaluing of your money supply.
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Inflation
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What were the 2 main problems with the barter system?
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1) coincidence of wants
2) indivisibility |
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What is the most basic level of interest?
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Simple interest (future value)
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Extreme inflation that happens very quickly:
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Hyperinflation
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What are the 3 functions of money?
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1) store of value
2) unit of account 3) medium of exchange |
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In the _____, interest rates average out to be approximately 10%
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Long-run
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Bonds that have no coupon rate and pay no interest over time:
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Discount bonds
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If the price (P) equals the face value (FV), then the _____ will equal the _____.
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Yield to maturity, coupon rate
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An approximation for yield to maturity:
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Current yield
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Interest that is adjusted for inflation:
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Real interest
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What are the 5 factors that shift the demand for bonds?
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Changes in:
1) wealth 2) expected interest rate 3) expected inflation 4) liquidity of bonds 5) riskiness of bonds |
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The lender is the _____ side.
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Demand
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What will happen as the price moves further from the future value?
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The less accurate the current yield will be
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The bond issuer that supplies bonds:
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Borrower
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Price and interest are _____ related.
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Inversely
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Government bonds are almost always _____.
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Discount bonds
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What are the 3 factors that shift the supply for bonds?
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Changes in:
1) profitability of investments 2) expected inflation 3) govt. deficit |
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The shorter the _____, the less accurate current yield will be.
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Time period
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If the _____ equals the _____, then the yield to maturity will equal the coupon rate.
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Price (P), face value (FV)
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In the long-run, interest rates average out to be approximately _____.
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10%
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The demand side is the _____.
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Lender
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Short-term bonds are very _____.
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Liquid
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What do lenders hate?
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Inflation
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Anything below a B level is considered a _____.
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Junk bond
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Which bonds are exempt from federal taxes?
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Municipal bonds
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Who hates inflation?
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Lenders
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The borrower is the _____ side.
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Supply
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Who loves inflation?
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Borrowers
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Which bonds are considered risk free?
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U.S. Treasury bonds
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What happens to the bonds as you move down the list?
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They become more risky
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The people lending the money:
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Demanders
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Bonds that have high risk and high return:
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Junk bonds
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Investors love _____.
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Liquidity
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What do borrowers love?
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Inflation
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The supply side is the _____.
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Borrower
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Treasury bonds are _____.
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Risk free
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When short-term interest rates are high, yield curves are more likely to slope:
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Downward and be inverted
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States that long-term bond interest rates are an average of short-term bond interest rates:
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Expectation theory
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Yield curves almost always slope _____.
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Upward
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Investors prefer what type of bonds?
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Short-term bonds
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What predicts a recession in the next year?
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An inverted yield curve
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What happens to interest rates on bonds of different maturities?
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They move together over time
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States that bonds of different maturities are not substitutes at all:
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Segmented markets theory
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When short-term interest rates are low, yield curves are more likely to slope:
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Upward
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What are the 3 theories put forward to explain the structure of interest rates?
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1) expectation theory
2) segmented markets theory 3) liquidity premium and preferred habitat theory |
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_____ prefer short-term bonds.
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Investors
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What does an inverted yield curve predict?
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A recession in the next year
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_____ bonds are the most liquid of all investments.
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Treasury
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The longer you hold a bond, the _____.
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Lower the price gets
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The key assumption of this theory is that bonds of different maturities are perfect substitutes:
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Expectations theory
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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:
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Discounting the future
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What are the 2 coupon bonds that never mature?
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1) consol
2) perpetuity |
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The interest rate that is considered to be the most accurate measure:
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Yield to maturity
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What happens as yield to maturity goes down?
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Price goes up
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The more distance between the future value and the price you paid, the more _____.
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Capital gain
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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.
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Shorter, farther
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As the years increase, the _____ approaches the _____.
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Yield to maturity, coupon rate
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For a consol, the current yield is a(n) _____ of the yield to maturity.
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Overestimate
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States that bonds of different maturities are substitutes, but not perfect substitutes:
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Liquidity premium and preferred habitat theory
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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.
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Present value
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What is the key assumption of the Expectations theory?
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That bonds of different maturities are perfect substitutes
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