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32 Cards in this Set

  • Front
  • Back

If the interest rate on a bond is above the equilibrium interest rate, there is an excess ______ for bonds and the bond price will ____.



When yield curves are steeply upward sloping....

long-term interest rates are above short-term interest rates

Everything else held constant, if interest rates are expected to fall in the future, the demand for long-term bonds today _____ and the demand curve shifts to the _____.



When the Treasury bond market becomes less liquid, other things equal, the demand curve for corporate bonds shifts to the ____ and the demand curve for Treasury bonds shifts to the



What is the return on a 5 percent coupon bond that initially sells for 1000 and sells for 900 next year?

-5 percent

If an individual redeems a U.S. savings bond for currency...

M1 increases and M2 increases.

Bonds and stocks are...

not money

Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ____ and the interest rate _____.



A fall in the level of prices...

increases the value of money.

Which of the following can be described as direct finance?

You borrow $2500 from a friend

A financial market in which only short-term debt instruments are traded is called the _____ market.


Which of the following statements about the characteristics of debt and equity are true? (3)

They both enable a corporation to raise funds.

They both involve a claim on the issuer's income.

They can both be long-term financial instruments.

Everything else held constant, if the federal government were to guarantee today that it will pay creditors if a corporation goes bankrupt in the future, the interest rate on corporate bonds will ________ and the interest rate on Treasury securities will _______.



Income is a...

flow variable

According to the expectations theory of the term structure, the interest rate on a long-term bond will equal the ________ of the short-term interest rates that people expect to occur over the life of the long-term bond.


The U shaped yield curve indicates that short-term interest rates are expected to...

fall sharply in the near term and rise later on

All of the following are necessary criteria for a commodity to function as money (3):

it must be divisible

it must be widely accepted

it must be easy to carry

When the Fed conducts open market sales, the supply of bonds _________ and the interest rate ________, everything else held constant.



When the expected inflation rate increase, the demand for bonds __________, the supply of bonds ________, and the interest rate ______, everything else held constant.




When the price of a bond decreases, all else equal, the bond demand curve....

does not shift

The segmented markets theory can explain...

why yield curves usually tend to slope upward

When the ____ interest rate is low, there are greater incentives to ______ and fewer incentives to ____.




real interest rate =

real cost of borrowing

What is an example of an intermediate-term debt?

a sixty-month car loan

Patrick places his pocket change into his paddy bank on his desk each evening. By his actions, Patrick indicates that he believes that money is a...

store of value.

Factors that decrease the demand for bonds include...

a decrease in the riskiness of stocks.

A bank may send loan officers to monitor customers with outstanding loans. The purpose of this is to...

reduce moral hazards.

Which of the following bonds would have the highest default risk?

junk bonds

Everything else held constant, if the tax-exempt status of municipal bonds were eliminated then...

the interest rate on municipal bonds would exceed the rate on Treasury bonds.

If the interest rate on all bonds rise from 5 to 6 percent over the course of the year, which bond would you prefer to be holding?

A bond with a one year to maturity

If a 10% coupon bond with face value of $2000 has a yield to maturity of 8% and two years until maturity, then the current selling price is...


If you expect the inflation rate to be 15% next year and a one-year bond has a yield to maturity of 7%, then the real interest rate on this bond is...

-8 percent