Fin 4303 Quiz 4

9/1/2018 Chapter 4 FINC 3700 Flashcards | Quizlet
Chapter 4 FINC 3700 84 terms Jody_Gorham
Terms in this set (84)

1) As the price of a A) falls; rises
bond ________ and the
expected return ________,
bonds become more
attractive to investors
and the quantity
demanded rises.
A) falls; rises
B) falls; falls
C) rises; rises
D) rises; falls
2) The supply curve for D) rises; quantity supplied

bonds has the usual
upward slope,
indicating that as the
price ________, ceteris
paribus, the ________
increases.
A) falls; supply
B) falls; quantity
supplied
C) rises; supply
D) rises; quantity
supplied
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3) When the price of a C) supply; fall

bond is above the
equilibrium price, there
is excess ________ in the
bond market and the
price will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
4) When the price of a A) demand; rise

bond is below the
is excess ________ in the
bond market and the
price will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
When the price of a B) above; fall

bond is ________ the
is an excess supply of
bonds and the price will
________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
6) When the price of a D) below; rise

bond is ________ the
is an excess demand for
bonds and the price will
________.
A) above; rise
B) above; fall
C) below; fall
D) below; rise
7) When the interest B) demand; fall

rate on a bond is above
the equilibrium interest
rate, there is excess
________ in the bond
market and the interest
rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
8) When the interest D) supply; rise

rate on a bond is below
rate will ________.
A) demand; rise
B) demand; fall
C) supply; fall
D) supply; rise
9) When the interest A) above; demand; fall

rate on a bond is ________
rate will ________.
A) above; demand; fall
B) above; demand; rise
C) below; supply; fall

D) above; supply; rise
10) When the interest C) below; supply; rise

rate on a bond is ________
rate will ________.
A) below; demand; rise
B) below; demand; fall
C) below; supply; rise
D) above; supply; fall
11) When the demand D) decreases; increases

for bonds ________ or the
supply of bonds ________,
interest rates rise.
A) increases; increases
B) increases; decreases
C) decreases;
decreases
D) decreases; increases
12) When the demand B) increases; decreases

interest rates fall.
C) decreases;
decreases
13) When the demand A) increases; decreases

bond prices rise.
A) increases; decreases
B) decreases; increases
C) decreases;
decreases
D) increases; increases
14) When the demand D) decreases; increases

bond prices fall.
C) decreases;
decreases
15) Factors that E) all of the above.

determine the demand
for an asset include
changes in the
A) wealth of investors.
B) liquidity of bonds
relative to alternative
assets.
C) expected returns on
bonds relative to
alternative assets.
D) risk of bonds relative
to alternative assets.
E) all of the above.
16) The demand for an A) risk relative to other assets

asset rises if ________ falls.
A) risk relative to other
assets
B) expected return
relative to other assets
C) liquidity relative to
other assets
D) wealth
17) The higher the A) greater; risk

standard deviation of
returns on an asset, the
________ the asset's ________.
A) greater; risk
B) smaller; risk
C) greater; expected
return
D) smaller; expected
return
18) Diversification C) reducing risk.

benefits an investor by
A) increasing wealth.
B) increasing expected
return.
C) reducing risk.
D) increasing liquidity.
19) In a recession when B) falls; left

income and wealth are
falling, the demand for
bonds ________ and the
demand curve shifts to
the ________.
A) falls; right
B) falls; left
C) rises; right
D) rises; left
20) During business C) rises; right

cycle expansions when
income and wealth are
rising, the demand for
bonds ________ and the
demand curve shifts to
the ________.
A) falls; right
B) falls; left
C) rises; right
D) rises; left
21) Higher expected C) decrease; left

interest rates in the
future ________ the
demand for long-term
bonds and shift the
demand curve to the
________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
22) Lower expected B) increase; right.

interest rates in the
future ________ the
demand for long-term
bonds and shift the
demand curve to the
________
A) increase; left.
B) increase; right.
C) decrease; left.
D) decrease; right.
23) When people begin A) right; falls

to expect a large stock
market decline, the
demand curve for
bonds shifts to the
________ and the interest
rate ________.
A) right; falls
B) right; rises
C) left; falls
D) left; rises
24) When people begin D) left; rises

to expect a large run up
in stock prices, the
demand curve for
bonds shifts to the
rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
25) An increase in the B) reduce; real; demand

expected rate of
inflation will ________ the
expected return on
bonds relative to that
on ________ assets, and
shift the ________ curve to
the left.
A) reduce; financial;
demand
B) reduce; real; demand
C) raise; financial;
supply
D) raise; real; supply
26) A decrease in the D) raise; real

expected rate of
inflation will ________ the
expected return on
bonds relative to that
on ________ assets.
A) reduce; financial
B) reduce; real
C) raise; financial
D) raise; real
27) When the expected D) decreases; increases; rises

inflation rate increases,
the demand for bonds
________, the supply of
bonds ________, and the
interest rate ________.
A) increases; increases;
rises
B) decreases;
decreases; falls
C) increases; decreases;
falls
D) decreases; increases;
rises
28) When the expected C) increases; decreases; falls

inflation rate decreases,
________, the supply of
bonds ________, and the
rises
B) decreases;
decreases; falls
falls
rises
29) When bond prices D) decreases; rises

become more volatile,
rate ________.
A) increases; rises
B) increases; falls
C) decreases; falls
D) decreases; rises
30) When bond prices B) increases; falls

become less volatile,
rate ________.
A) increases; rises
B) increases; falls
C) decreases; falls
D) decreases; rises
31) When prices in the B) right; falls

stock market become
more uncertain, the
demand curve for
bonds shifts to the
rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
32) When stock prices D) left; rises

become less volatile,
the demand curve for
bonds shifts to the
rate ________.
A) right; rises
B) right; falls
C) left; falls
D) left; rises
33) When bonds B) right; falls

become more widely
traded, and as a
consequence the
market becomes more
liquid, the demand
curve for bonds shifts
to the ________ and the
A) right; rises
B) right; falls
C) left; falls
D) left; rises
34) When bonds D) left; rises

become less widely
traded, and as a
consequence the
market becomes less
liquid, the demand
to the ________ and the
A) right; rises
B) right; falls
C) left; falls
D) left; rises
35) Factors that cause D) all of the above.

bonds to shift to the left
include
A) an increase in the
inflation rate.
B) an increase in the
liquidity of stocks.
C) a decrease in the
volatility of stock prices.
D) all of the above.
E) none of the above.
36) Factors that cause C) an increase in the liquidity of stocks.

bonds to shift to the left
include
A) a decrease in the
inflation rate.
B) an increase in the
volatility of stock prices.
C) an increase in the
liquidity of stocks.
E) only A and B of the
above
37) During an economic B) increases; right

expansion, the supply
of bonds ________ and the
supply curve shifts to
the ________.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
38) During a recession, C) decreases; left

the supply of bonds
________ and the supply
curve shifts to the
________.
A) increases; left
B) increases; right
C) decreases; left
D) decreases; right
39) An increase in B) increase; right

expected inflation
causes the supply of
bonds to ________ and the
supply curve to shift to
the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
40) When the federal D) supply; right

governments budget
deficit increases, the
________ curve for bonds
shifts to the ________.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
41) When the federal C) supply; left

government's budget
deficit decreases, the
________ curve for bonds
shifts to the ________.
A) demand; right
B) demand; left
C) supply; left
D) supply; right
42) When the inflation A) demand for; demand

rate is expected to
increase, the expected
return on bonds relative
to real assets falls for
any given interest rate;
as a result, the ________
bonds falls and the
________ curve shifts to the
left.
A) demand for; demand
B) demand for; supply
C) supply of; demand

D) supply of; supply
43) When the inflation D) supply of; supply

rate is expected to
increase, the real cost
of borrowing declines
at any given interest
rate; as a result, the
________ bonds increases
and the ________ curve
shifts to the right.
A) demand for; demand
B) demand for; supply
C) supply of; demand
D) supply of; supply
44) In Figure 4.4, the C) an increase in the expected inflation rate.

most likely cause of the
increase in the
equilibrium interest rate
from i1 to i2 is
price of bonds.
B) a business cycle
boom.
an increase in the
expected inflation rate.
C) an increase in the
D) a decrease in the
45) In Figure 4.4, the A) increase; expected inflation rate

most likely cause of the
increase in the
from i1 to i2 is a(n) ________
in the ________.
A) increase; expected
inflation rate
B) decrease; expected
inflation rate
C) increase;
government budget
deficit
D) decrease;
government budget
deficit
46) In Figure 4.4, the B) a decrease in the expected inflation rate.

most likely cause of a
decrease in the
from i2 to i1 is
B) a decrease in the
C) a business cycle
expansion.
D) a combination of
both A and C of the
above.
47) Factors that can A) an expansion in overall economic activity.

cause the supply curve
for bonds to shift to the
right include
A) an expansion in
overall economic
activity.
B) a decrease in
expected inflation.
C) a decrease in
government deficits.

E) only A and B of the
above.
48) Factors that can B) a decrease in expected inflation.
cause the supply curve
for bonds to shift to the
left include
A) an expansion in
overall economic
activity.
B) a decrease in
expected inflation.
C) an increase in
government deficits.
D) only A and C of the
above.
49) The economist A) rise; increases

Irving Fisher, after
whom the Fisher effect
is named, explained
why interest rates ________
as the expected rate of
inflation ________.
A) rise; increases
B) rise; stabilizes
C) rise; decreases
D) fall; increases
E) fall; stabilizes
50) An increase in the B) fall; rise

expected rate of
inflation causes the
demand for bonds to
________ and the supply
for bonds to ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
51) A decrease in the C) rise; fall

expected rate of
inflation causes the
demand for bonds to
________ and the supply of
bonds to ________.
A) fall; fall
B) fall; rise
C) rise; fall
D) rise; rise
52) When the economy B) decreases; decreases; falls

slips into a recession,
normally the demand
for bonds ________, the
and the interest rate
________.
rises
B) decreases;
decreases; falls
falls
rises
53) When the economy A) increases; increases; rises

enters into a boom,
normally the demand
for bonds ________,
the supply of bonds
________, and the interest
rate ________.
rises
B) decreases;
decreases; falls
rises
rises
54) In Figure 4.2, one C) increase; economic growth
possible explanation for
the increase in the
interest rate from i1 to i2
is a(n) ________ in ________.
A) increase; the
expected inflation rate
B) decrease; the
expected inflation rate
C) increase; economic
growth
D) decrease; economic
growth
55) In Figure 4.2, one A) an increase in economic growth.

the increase in the
is
A) an increase in
economic growth.
B) an increase in
government budget
deficits.
C) a decrease in
government budget
deficits.
D) a decrease in
economic growth.
E) a decrease in the
riskiness of bonds
relative to other
investments.
56) In Figure 4.2, one C) a decrease in economic growth.

a decrease in the
is
A) an increase in
government budget
deficits.
B) an increase in
expected inflation.
C) a decrease in
economic growth.
D) a decrease in the
riskiness of bonds
relative to other
investments.
81) _______ is the total B) Wealth

resources owned by an
individual, including all
assets.
A) Expected return
B) Wealth
C) Liquidity
D) Risk
82) A ________ prefers B) risk-averse person

stock in a less risky
asset than in a riskier
asset.
A) risk preferrer
B) risk-averse person
C) risk lover
D) risk-favorable
person
83) When the quantity C) a market equilibrium.

of bonds demanded
equals the quantity of
bonds supplied, there is
A) excess supply.
B) excess demand.
C) a market equilibrium.
D) an asset market
approach.
84) Determining asset C) asset market approach.

prices using stocks of
assets rather than flow
is called
A) asset transformation.
B) expected return.
C) asset market
approach.
D) market equilibrium.
85) What is the model A) Econometric model

whose equations are
estimated using
statistical procedures
used in forecasting
interest rates called?
A) Econometric model
B) Liquidity preference
framework
C) Market equilibrium
D) Fisher effect
86) As expected A) increase; demand

inflation increases for
the coming year, we
expected the price of
gold to ________ due to a
rightward shift the in
________ curve.
A) increase; demand
B) increase; supply
C) decrease; demand
D) decrease; supply
87) As expected C) decrease; demand

inflation falls for the
coming year, we
expected the price of
gold to ________ due to a
leftward shift the in
________ curve.
A) increase; demand
B) increase; supply
C) decrease; demand
D) decrease; supply
1) When interest rates Answer: FALSE

decrease, the demand
to the left.
2) When an economy Answer: TRUE

grows out of a
recession, normally the
demand for bonds
increases and the
supply of bonds
increases.
3) When the federal Answer: FALSE

government's budget
deficit decreases, the
demand curve for
bonds shifts to the right.
4) Investors make their Answer: TRUE

choices of which assets
to hold by comparing
the expected return,

liquidity, and risk of
alternative assets.
5) A person who is risk Answer: FALSE

averse prefers to hold
assets that are more,
not less, risky.
6) Interest rates are Answer: TRUE

procyclical in that they
tend to rise during
business cycle
expansions and fall
during recessions.
7) When income and Answer: TRUE

wealth are rising, the
demand for bonds rises
and the demand curve
shifts to the right.
8) An increase in the Answer: FALSE

inflation rate will cause
bonds to shift to the
right.
9) The Fisher Effect Answer: FALSE

predicts that an
increase in expected
inflation will lower the
interest rate on bonds.
10) An increase in the Answer: TRUE

federal government
budget deficit will raise
the interest rate on
bonds.
11) Holding everything Answer: FALSE
else constant, an
increase in wealth
lowers the quantity
demanded of an asset.
12) An increase in an Answer: TRUE

asset's expected return
relative to that of an
alternative asset,
holding everything else
unchanged, raises the
quantity demanded of
the asset.
13) The more liquid an Answer: TRUE

asset is relative to
alternative assets,
holding everything else
unchanged, the more
desirable it is, and the
greater the quantity
demanded.
14) A movement along Answer: FALSE

the demand (or supply)
curve occurs when the
quantity demanded (or
supplied) changes at
each given price (or
interest rate) of the
bond in response to a
change in some other
factor besides the
bond's price or interest
rate.
1) Identify and explain ...

the four factors that
influence asset demand.
Which of these factors

affect total asset
demand and which
influence investors to
demand one asset over
another?
Topic: Chapter 4.1
Determining Asset
Demand
2) How is the ...

determined in the bond
market? Explain why the
interest rate will move
toward equilibrium if it
is temporarily above or
below the equilibrium
rate.
Topic: Chapter 4.3
Changes in Equilibrium
Interest Rates
3) Use the bond ...

demand and supply
framework to explain
the Fisher effect and
why it occurs.
Topic: Chapter 4.3
Interest Rates
4) If investors perceive ...

greater interest rate
risk, what will happen to
rate in the bond
market? Explain using
the bond demand and
supply framework.
Topic: Chapter 4.3
Interest Rates
5) How will a decrease ...

in the federal
government's budget
deficit affect the
in the bond market?
Explain using the bond
demand and supply
framework.
Topic: Chapter 4.3
Interest Rates
6) What is the expected ...

return on a bond if the
return is 9% two-thirds
of the time and 3% one-
third of the time? What
is the standard
deviation of the returns
on this bond? Would
you prefer this bond or
one with an identical
expected return and a
standard deviation of
4.5? Why?
Topic: Chapter 4.1
Determining Asset
Demand
7) Identify and describe ...

three factors that cause
the supply curve for
bonds to shift.
Topic: Chapter 4.2
Supply and Demand in
the Bond Market

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9/1/2018 Chapter 4 FINC 3700 Flashcards | Quizlet

Chapter 4 FINC 3700 84 terms Jody_Gorham

Terms in this set (84)

2) The supply curve for D) rises; quantity supplied

3) When the price of a C) supply; fall

4) When the price of a A) demand; rise

When the price of a B) above; fall

6) When the price of a D) below; rise

7) When the interest B) demand; fall

8) When the interest D) supply; rise

9) When the interest A) above; demand; fall

C) below; supply; fall

10) When the interest C) below; supply; rise

11) When the demand D) decreases; increases

12) When the demand B) increases; decreases

13) When the demand A) increases; decreases

14) When the demand D) decreases; increases

15) Factors that E) all of the above.

16) The demand for an A) risk relative to other assets

17) The higher the A) greater; risk

18) Diversification C) reducing risk.

19) In a recession when B) falls; left

20) During business C) rises; right

21) Higher expected C) decrease; left

22) Lower expected B) increase; right.

23) When people begin A) right; falls

24) When people begin D) left; rises

25) An increase in the B) reduce; real; demand

26) A decrease in the D) raise; real

27) When the expected D) decreases; increases; rises

28) When the expected C) increases; decreases; falls

29) When bond prices D) decreases; rises

30) When bond prices B) increases; falls

31) When prices in the B) right; falls

32) When stock prices D) left; rises

33) When bonds B) right; falls

34) When bonds D) left; rises

35) Factors that cause D) all of the above.

36) Factors that cause C) an increase in the liquidity of stocks.

37) During an economic B) increases; right

38) During a recession, C) decreases; left

39) An increase in B) increase; right

40) When the federal D) supply; right

41) When the federal C) supply; left

42) When the inflation A) demand for; demand

C) supply of; demand

43) When the inflation D) supply of; supply

44) In Figure 4.4, the C) an increase in the expected inflation rate.

45) In Figure 4.4, the A) increase; expected inflation rate

46) In Figure 4.4, the B) a decrease in the expected inflation rate.

47) Factors that can A) an expansion in overall economic activity.

D) all of the above.

49) The economist A) rise; increases

50) An increase in the B) fall; rise

51) A decrease in the C) rise; fall

52) When the economy B) decreases; decreases; falls

53) When the economy A) increases; increases; rises

55) In Figure 4.2, one A) an increase in economic growth.

56) In Figure 4.2, one C) a decrease in economic growth.

81) _______ is the total B) Wealth

82) A ________ prefers B) risk-averse person

83) When the quantity C) a market equilibrium.

84) Determining asset C) asset market approach.

85) What is the model A) Econometric model