Reference no: EM133057395

1) Risk-taking investors ______________. 

1. choose an investment alternative that provides the greatest amount of risk
2. choose an investment alternative that provides the lowest amount of risk
3. choose an investment alternative that provides the highest return
4. require higher returns on investments with higher risk
5. require higher returns on investments with lower risk

2) The real interest rate will exceed the nominal interest rate whenever

1. inflation exceeds the nominal interest rates
2. inflation is below the nominal interest rate
3. inflation is equal to the nominal interest rate
4. inflation is negative (i.e., deflation)
5. The real interest rate will never exceed the nominal interest rate

3) Money market instruments have all but one of the following characteristics:

1. large denominations
2. high marketability
3. short maturities
4. high default risk
5. standardized contracts

4) A sale of securities with a simultaneous agreement to repurchase them is a _______. 

1. repossession loan
2. repurchase agreement
3. reverse repurchase agreement
4. prime rate loan
5. reverse discount window loan

5) In the money markets, _______.

1. SSUs lend temporary excesses and DSUs borrow to cover temporary shortages.
2. DSUs lend temporary excesses and SSUs borrow to cover temporary shortages.
3. SSUs lend permanent excesses and DSUs borrow to cover long-term shortages.
4. DSUs lend permanent excesses and SSUs borrow to cover long-term shortages.
5. DSUs lend permanent excesses and SSUs borrow to cover temporary shortages.

6) Assume that you calculated the first month cash flow of a portfolio of fixed-rate mortgages. Which of the following adjustments is not required when calculating the next monthly cash flow?

1. The weighted-average maturity must be adjusted downward.
2. The recovery cash flow must be added to the principal balance.
3. The expected default amount must be subtracted from the principal balance.
4. The expected prepayment amount must be subtracted from the principal balance 

7) Because of prepayments, expected cash flows of a mortgage portfolio are usually _______ contractually promised cash flows during the first few years.

1. higher than
2. lower than
3. equal to
4. lower than or equal to
5. unrelated to