Reference no: EM131956707
1. According to the liquidity premium theory, investors are willing to pay a price premium for securities with shorter maturities.
1) True
2) False
2. In using the discounted cash flow model, the valuation of an asset depends on the expected amount, timing, and risk associated with the project’s cash flows.
1) True
2) False
3. Weak form market efficiency says that the current price of an asset reflects all information contained in its historical prices.
1) True
2) False
4. The interest rate on a default - free bond would be the same as the real rate when:
1) inflationary expectations are zero
2) it is at its lowest of all time and remains constant
3) it is at its highest
4) there is a balanced budget
5. The following security is generally considered to have no default risk:
1) EBM corporation
2) Orange County, California
3) U.S. Treasury securities
4) State of New York general revenue bonds
6. Intertemporal transfer of funds means:
1) interest that accrues from the beginning of the contract negotiations to consummation of the proceedings
2) literally “between the time,” translated—from the time that the person thought of transferring funds to the time he actually transferred the funds
3) the time value of money and the implications for interest rate on the time value of money and financing decisions
4) the time value of money and the implication of profit maximization
7. In general, financial institutions tend to borrow on a short-term basis and invest on a long-term basis.
1) True
2) False
8. Since the nominal interest rate can be observed in the market, a precise measure of future inflation can be determined.
1) True
2) False
9. When a residential mortgage is created the mortgagee acquires a call option which allows the debt to be retired at any time prior to maturity.
1) True
2) False
10. A tightly written lease will typically eliminate all of the risk in a real estate project.
1) True
2) False
11. Financial markets can be partitioned into two categories:
1) primary and secondary
2) liquid and non-liquid securities
3) long-term and temporary instruments
4) money markets and capital markets
12. The yield observed on a riskless bond in a non-inflationary environment would be the real rate of interest.
1) True
2) False
13. Commercial banks are overseen by the Office of Thrift Supervision.
1) True
2) False