Econ 3229 Midterm 1 Study Guide: Key Terms & Definitions
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40 Terms
If a perpetuity ( a consol bond) has coupon payments of $17 and an interest rate of 5%, then its price is
340
3 multiple choice options
Suppose that your marginal federal income tax rate is 50% and the yield on the thirty-year U.S. Treasury bonds is 6.2% and the yield on thirty-year municipal bond 4%. What is the tax adjusted risk premium on municipal bond?
0.9%
3 multiple choice options
President Trump lowered the top federal income tax bracket. Supply and demand analysis predicts the impact of this change was __________ yields of municipal bonds and _______ yields on treasury bonds
Higher; lower
3 multiple choice options
Which of the following is an example of fiat money
a Federal Reserve Note used as money in the twenty-first century United States
3 multiple choice options
If the government increases taxes while holding expenditures constant
the bond supply curve will shift to the left and the equilibrium interest rate will fall
3 multiple choice options
Was is the price of a 2 year coupon bond that has an annually coupon payment of 4 dollars, a face value of 100 dollars, a yield to maturity of 5%
$98.14
3 multiple choice options
If a 5,000 dollar face value discount bond maturing in one year is selling for 4,800 dollars then its yield to maturity is
4%
3 multiple choice options
a financial market in which only short term debt instruments are traded is called the ________ market.
money
3 multiple choice options
which of the following 100 dollar face value securities has the lowest yield to maturity
a 6 percent coupon bond with a price of 101 dollars
3 multiple choice options
the role of a financial system is to
channel funds from households and other savers to businesses
3 multiple choice options
in the bond market, the seller is considered to be
the borrower
3 multiple choice options
According to the WSJ article, most bond funds had a horrible year in 2022. What was the main reason for such a bad performance
Rising interest rates in the U.S.
3 multiple choice options
Nominal interst rate are higher than real interest rates as long as
Expected inflation is positive
3 multiple choice options
During the financial of 2007-09, the prices of U.S. treasurer securities
Rose and the price of cooperate bonds declined
3 multiple choice options
A financial market in which previously issued securities can be resold in a _______ market
Secondary
3 multiple choice options
If a 100 dollar face value discount bond maturing in one year has a yield of 4%, then its price is
$96.15
3 multiple choice options
Which of the following makes up the largest share of M2
savings deposits
3 multiple choice options
if the real interest rate is -0.5% and expected inflation is 5%, the nominal interest rate is
4.5%
3 multiple choice options
equity and debt instruments which maturities greater than one year are called _______ market instruments
capital
3 multiple choice options
According to the WSJ article, the U.S. congress' inability to raise the debt ceiling is bringing the global financial system closer to collapse. How can failure to raise debt ceiling cause global financial crisis
Failure to raise the debt will cause U.S. government to default on its debt, thereby making treasury securities less valuable
3 multiple choice options
Which of the following assigns widely - followed bond ratings
Standard and poor's cooperation
3 multiple choice options
If the expected gains on stocks rise, while the expected returns on bonds do NOT change, then
The equilibrium bond yields will rise
3 multiple choice options
Bond issues by state and local governments are called ______ bonds.
Municipal
3 multiple choice options
Money eliminates the need for
Barter trade
3 multiple choice options
Which of the following would NOT cause the demand curve for bonds to shift
A change in the government borrowing needs
3 multiple choice options
U.S treasury bills pay no interest but are sold at_______. That is you will pay a lower purchase price than the amount you receive at maturity.
Discount
3 multiple choice options
Which of the following is included in M2, but not in M1
Small time deposits
3 multiple choice options
If an individual moves money from a checking deposit to a money market mutual account
M1 decreases and M2 stays the same
3 multiple choice options
Consider the bonds below. Which is subject to the smallest interest rate risk
A treasury bill
3 multiple choice options
If a bond's rating worsens it should cause the bonds price
To decrease and its yield to increase, all other factors constant
3 multiple choice options
holding everything else constant, if interest rates are expected to increase, the demand for bonds today _______ and the demand curves shift ______.
Decreases, left
3 multiple choice options
money as medium of exchange refers to only to
anything that is generally accepted as payment for good and services
3 multiple choice options
the default risk premium is
the additional yield a saver requires for holding a bond with some default risk
3 multiple choice options
The demand curve for bonds would be reduced by
an increase in the expected inflation rate
3 multiple choice options
According to the WSJ article, El Salvador, after adopting bitcoin as a nation currency, also issued bonds denominated in dollars but backed by the crypto currency, which according to the journal exposed the country to a certain risk. What was this risk?
Failing value of bitcoin will make it harder to repay the borrowed dollars
3 multiple choice options
Currently a three year treasury note pays 6%. Assuming that your federal income tax rate is 20% and state income tax is 15%, what is the minimum interest rate that you would need to earn on a tax free municipal bond in order to buy it instead.
4.8%
3 multiple choice options
A "primary market" is a market
In which newly issued claims are sold to buyers by borrowers
3 multiple choice options
Suppose in 2021 you buy 2 year $1000 face value 5% coupon bond for $950 . In 2022 the interest rates decrease to 3%. If you decide to sell your bond sin 2022 what will be the selling price and one year rate of return for you.
$1,019.4 ; 12.6%
3 multiple choice options
When money prices are used to facilitate comparisons of value, money is said to function as a
Unit of account
3 multiple choice options
A flight to quality refers to a shift by savers from
low quality bonds and into high quality bonds
3 multiple choice options
Note 
Flashcards (59)