According to the required readings for Ex 7 (Q6-Q8), a Social Graph or Social Network is

A. a model of a society's major transportation systems in which each key transportation hub is a node (point) and transport routes between hubs are indicated by lines linking their nodes

B. A model of a society's major trade relationships in which each trader is a node (point) and goods exchanges between traders are represented by lines linking their nodes

C. a model of a society's major kinship relationships in which each person is represented as a node (point) and the kin of a person are indicated by lines linking the person to his/her ancestors and descendents

D. a model of the social relationships among people in a society in which each person is represented as a node (point) and a social relationship between 2 people is indicated by a line linking their nodes

D. a model of the social relationships among people in a society in which each person is represented as a node (point) and a social relationship between 2 people is indicated by a line linking their nodes

According to the bond market theory in Mishkin Chapter 5, all else equal, the Fed's decision to BUY $600 billion in long-term U.S. Treasury bonds from private sector investors as part of its QE2 initiative should __

A. lower the market price of these bonds, hence lower their yield to maturity

B. increase the market price of these bonds, hence lower their ytm

C. lower the market price of these bonds, hence increase their yield to maturity

D. increase the market price of these bonds, hence increase their ytm

 As discussed in the required readings for Ex 5 (Q6-Q8), key criticisms of the two “Government Sponsored Enterprises” (GSEs) Fannie Mae and Freddie Mac prior to their takeover by the U.S. government in 2008 included

A. During the housing boom leading up to 2007, these GSEs lowered their standards for loan purchases in order to increase their share of the profits flowing from subprime mortgage lending

B. The special credit lines these GSEs had with the U.S. Treasury gave them an unfair advantage relative to strictly private firms in the mortgage securities business.

C. It is estimated that the interest rates of residential mortgage borrowers were about 1/4% higher than they would have been in the absence of the GSEs.

D. All of the above

E. only A and B above

According to Mishkin Chapter 7, the EFFICIENT MARKETS HYPOTHESIS in its strongest form implies

A. There is no adverse selection in financial markets

B. the price of each stock share equals its fundamental value, i.e., the discounted value of its future dividend payments

C. the prices of securities cannot exhibit sudden large changes

D. technical analysis is the preferred mode for determining financial investments

the price of each stock share equals its fundamental value, i.e., the discounted value of its future dividend payments.

The key assumption characterzing Rational Expections is that

A. people do not make sudden changes in their expectations.

B. people do not make use of past observations because these observations are out-of-date

C. people make optimal use of their information when forming their expectations

D. people are able to forecast things w/o error

C. people make optimal use of their information when forming their expectations

Suppose the Fed Chairman Ben Bernanke suddenly makes a credible announcement today that the INFLATION RATE will be LOWER a year from now than previously expected. The bond market theory in Mishkin Chapter 5 predicts (all else equal) that the most likely result today will be in the equilibrium bond price and in the equilibrium quantity of bonds sold.

A.a rise; an ambiguous (uncertain) change

B. an ambiguous (uncertain) change; a rise

C. a fall; an ambiguous (uncertain) change

D. a fall; a rise

E. a rise; a fall

 In the ONE-PERIOD VALUATION MODEL FOR STOCK SHARES, the current price of a stock share is assumed to equal the discounted value of

A.All future dividend payments to the shareholder

C.next period’s dividend payment to the shareholder

D.next period's expected share price

B. next period’s dividend payment plus next period’s expected share price.

C.

In the GENERALIZED STOCK VALUATION MODEL, the current price of a stock share is assumed to equal the discounted value of

A. all future dividend payments to the shareholder.

B. next period’s dividend payment discounted by the required return on equity net of the dividend growth rate.

C. the future revenues of the issuing corporation.

D. the future profits of the issuing corporation.

A.

all future dividend payments to the shareholder.

 By definition, a PRICE BUBBLE is said to exist for a stock if

A.the share price of the stock exhibits high volatility over time.

B. the current share price of the stock differs from the discounted value of its stream of future expected dividend payments.

C. the share price of the stock has sharply increased over the past few periods and is now suddenly in sharp decline.

 D. the current share price of the stock is higher than the average current share price of all stocks.

the current share price of the stock differs from the discounted value of its stream of future expected dividend payments.

 The U.S. financial crisis that began in August 2007 led to a downward revision in growth prospects for corporate profits (hence in the growth rate g of dividend payments) as well as increased worries about the riskiness of owning stock (hence an increase in the required return ke on investment in equity). Given these two events, all else equal, the prediction of the GORDON GROWTH MODEL is

A. that stock prices will fluctuate more widely.

B.that stock prices will deviate from their fundamental values.

C. that stock prices will become harder to predict.

D. that stock prices will fall.

E. that stock prices will have to rise in compensation.

D. that stock prices will fall.

 If a corporation with a positive share price has not paid out any dividends to date, this indicates

A. the fundamental view of stock price determination is definitely refuted.

B. the behavioral finance view of stock price determination is definitely refuted.

C. the share price is a “price bubble” that will definitely burst soon.

D. investors could be expecting future dividend payments and/or a future appreciation in the stock share price.

D. investors could be expecting future dividend payments and/or a future appreciation in the stock share price.

Expectations formed by taking a weighted average of past observations are known as

A. perfect forsignt expectations

B. adaptive expectations

C. extrapolated expectations

D. rational expectations

 Suppose that, in response to a speech today by Fed Chairman Ben Bernanke, people now expect the yield to maturity on U.S. Treasury bonds to DECREASE by the end of next year. The bond market theory in Mishkin Chapter 5 predicts (all else equal) that the most likely result today will be a ___ equilibrium bond price and ___equilibrium quantity of bonds sold today.

A. higher; a lower

Suppose 15-year bonds are newly issued today. Suppose something suddenly happens that causes lenders to expect a HIGHER yield to maturity on these bonds ONE YEAR FROM NOW. Then one would expect to see the lenders’ demand curve for bonds today because shift to the left; lenders expect a lower capital gain over the coming year.

A. shift to the right; lenders expect a lower capital gain over the coming year.B. shift to the left; lenders expect a higher capital gain over the coming year.shift to the right; lenders expect a higher capital gain over the coming year.

C.

D.

If bonds are in EXCESS DEMAND, then standard demand/supply theory predicts the current

market price of these bonds is .

A.

In a SECONDARY bond market, all else equal, the SUPPLY of bonds is higher at higher bond prices because

A. lenders anticipate they will receive higher interest payments

B. bond sellers anticipate that they will receive higher interest payments

C. borrowers anticipate that their interest payments will be higher

D. bond sellers receive a higher return rate on each bond sold

Suppose the current nominal interest rate on bank deposit accounts is 2%, and the inflation rate over the coming year is expected to be 3%. Suppose you plan to store $1000 in a hole in your back yard for the entire next year. Then, all else equal, the NOMINAL return rate you should expect to earn on this $1000 over the coming year is and the REAL return rate you should expect to earn on this $1000 over the coming year is

A. 2%, 3%

B. 3%, 2%

C. 0%,-3%

D. -3%, 0%

E. 2%, -3% 

C. 0%; -3%

Which of the following situations would a rational person prefer to be in if he is PLANNING TO LEND:

A. the nominal interest rate is 4% and the expected inflation rate is 4%.

B.The nominal interest rate is 2% and the expected inflation rate is 4%

 The U.S. government agency that regulates security markets to ensure participants adhere to standard accounting principles and properly disclose information 

A. The securities Supervision and Accountancy board

D the Securities and Exchange Commission.

 Which statements below regarding BOND FINANCIAL PAGES reported in major newspapers such as the Wall Street Journal and the New York Times are TRUE:

A. For a Treasury bond or note, the asked price is typically higher than the bid price.

B. For a Treasury bill, the entry in the asked column is typically lower than the entry in the bid column because these entries are the discount yield (based on asked price) and the discount yield (based on bid price) that vary inversely with price.

C. Treasury bills, Treasury notes, and Treasury bonds are all lumped together for reporting purposes because they all take the form of discount bonds.

D. All of the above.

E. Only A and B above.

Which of the following statements are true:

A. Dealers handling secondary T-bond/note trades attempt to make profits by buying low and selling high

B. The coupon rate of a coupon bond is less than the yield to maturity for the bond if and only if the purchase price of the bond is less than the bond’s face value.

C. For a coupon bond, the longer its maturity, the more closely its current yield approximates its yield to maturity.

Suppose you bought a bond B one year ago whose maturity date is one year from now. An INCREASE in B’s yield-to-maturity TODAY then results in a___ in B’s return rate OVER THE PAST YEAR because it implies a ___in B’s market price today.

A. increase;decrease

B. decrease;decrease

C. decrease;increase

D. increase; increase

Given a world divided between HC and ROW, INTEREST PARITY asserts that

A. interest rates in the HC and ROW are equalized by the profit-seeking activities of HC

and ROW investors.

B. the HC savings rate must equal the ROW savings rate.

C. the demand and supply for HC bonds are equalized by the profit-seeking activities of

HC and ROW lenders.

D. the expected returns on HC and ROW deposit accounts are equalized by the profitseeking

The basic motivation for the PURCHASING POWER PARITY (PPP) CONDITION is that in equilibrium, there should be no opportunities for arbitrage

A. through currency swaps between HC and ROW.

B. through financial asset trades between HC and ROW.

C. through HC speculative investment in ROW stocks.

D. through trades in goods and services between HC and ROW

Consider a coupon bond with an annual coupon payment C = $200, a face value F = $4,000, and a maturity date 4/1/2014. Suppose you BUY this bond on 4/1/2011 for Pb = $3,000 and you SELL it one year later on 4/1/2012 for $2,900. Which of the following statement are TRUE for this transaction:

A. Your current yield is C/Pb

B. Your return rate from 4/1/2011 to 4/1/2012 is your current yield plus the rate of your capital gain or loss

C. Your return rate is MORE than your current yield

D. All of the above are true

E. only A and B are true

Given a world divided between HC and ROW, the PURCHASING POWER PARITY (PPP) CONDITION asserts

B. the HC and ROW have the same inflation rates.

C.the HC real exchange rate is equal to one.

D. the HC nominal exchange rate equals the ROW nominal exchange rate

Smart investors need to understand the distinction between the YTM on a financial asset and its Return Rate because

A.the yield to maturity ignores capital gain or loss that might accrue to an investor whosells a financial asset prior to maturity.

B. the return rate for any given holding period takes into account capital gain or loss over the holding period as well as payments over the holding period.

C. the return rate calculated for a holding period less than the financial asset’s maturity fully takes into account all remaining payments until maturity.

D. All of the above

E. only A and B

Given a world divided between HC and ROW, the HC REAL EXCHANGE RATE measures

A. the price of HC output in terms of ROW output (a goods-for-goods price).

B.the difference in inflation rates between ROW and HC.

C. the relative size of net exports in the ROW versus the HC.

D. the relative amount of currency in the ROW versus the HC.

A. the price of HC output in terms of ROW output (a goods-for-goods price).

In a two-country world divided between HC and ROW, in order to OFFSET an APPRECIATION of HC currency, the HC central bank could HC currency in the Foreign Exchange Market, which would tend to shift .

A.sell; the supply curve for HC currency to the right

B. sell; the demand curve for HC currency to the right

C. buy; the demand curve for HC currency to the right

D. sell; the supply curve for HC currency to the left

E. buy; the demand curve for HC currency to the left

sell; the supply curve for HC currency to the right

If the euro-U.S.$ nominal exchange rate changes from 0.80 euros per U.S.$ to 1.43 euros per U.S.$, then

A. the euro has appreciated and the U.S.$ has depreciated

B. the euro has appreciated and the U.S.$ has appreciated

C. the euro has depreciated and the U.S.$ has appreciated

D. the euro has depreciated and the U.S.$ has depreciated

The assumption that people exploit all available profit opportunities is frequently used in financial economics to  derive conditions for prediction purposes. Examples of such conditions include:

A. bond market equilibrium (demand=supply) for prediction of movements in bond prices and quantities of bonds bought and sold.

B. purchasing power parity for prediction of movements in exchange rates and inflation rates.

C. interest parity for prediction of movements in exchange rates and interest rates.

D. all of the above

E. only B and C

The (ANNUAL) YIELD TO MATURITY on a 3-year COUPON BOND with a purchase price $450, a face value $500, and a 3-year coupon payment stream ($30,$40,$100) is the annual interest rate

A. a present value for ($30,$40,$100) that is equal to $500.

B. a present value for ($30,$40,$600) that is equal to $450.

C. a present value for ($30,$40,$600) that is equal to $500.

D. a present value for ($30,$40,$100) that is equal to $450.

present value for ($30,$40,$600) that is equal to $450.

In financial economics, an ARBITRAGE OPPORTUNITY is said to exist if

A. regulators are able to increase social welfare by suitably applied rules and regulations

B. a conflict arising between traders can be resolved by an arbitration process.

C.  starting from nothing, people are able to engage in a sequence of transactions from which they can earn positive profits for sure.

D. investors have a chance to increase their profits by investing in projects with high expected returns.

starting from nothing, people are able to engage in a sequence of transactions from which they can earn positive profits for sure.

Later evidence (“anomalies”) UNFAVORABLE to the Efficient Market Hypothesis included

A. evidence that insider trading based on information not available to the public at large could be profitable.

B. evidence that technical analysis (predicting future prices on the basis of past price patterns) was unable to persistently beat the market.

C. evidence that stock prices could fall after the receipt of good news.

D. evidence of excessive fluctuation in stock market prices relative to the fluctuations in their dividend payment streams.

PRESENT VALUE is considered to be one of the most important concepts ever articulated in financial economics because

A. it measures the implicit discount rate used by the market to price assets

B. it permits payment streams on different financial assets to be compared with each other in terms of a common unit of account (current dollars)

C. it corrects for changes in real purchasing power due to price effects.

D. it provides an accurate assessment for future return rates.

E. it provides a simple way to measure the value of a financial asset solely in terms of its current (present) payments, ignoring future payments.

B.  it permits payment streams on different financial assets to be compared with each other

in terms of a common unit of account (current dollars).

For a coupon bond, its purchase price is ___than its face value if and only if its coupon rate is __than its yield to maturity

A. greater;less

B. Less; greater

C. less; less

D. none of the above

Which of the following are COUPON BONDS:

A. Treasury Bills

B. 30 year residential mortgages

C. Treasury Notes

D. all of the above

E. only B and C above

Early evidence in FAVOR of the Efficient Market Hypothesis included

A.  evidence that stock prices reflected all insider information even if not available to the public at large.

B. evidence that announcements confirming previously anticipated events resulted in substantial movements in stock prices.

C. evidence that technical analysis (predicting future prices on the basis of past price patterns) was unable to persistently beat the market.

D. evidence that all price bubbles were rational.

evidence that technical analysis (predicting future prices on the basis of past price patterns) was unable to persistently beat the market.

Under the terms of a COUPON BOND, the borrower agrees to pay the lender

A. a periodic fixed payment until a specified maturity date, where the fixed payment includes both the principal and interest

B. the face value of the bond plus principal, both at the maturity date

C. a periodic coupon payment until a specified maturity date, plus the face value of the bond at the maturity date

D. only one payment, the face value of the bond at the maturity date

a periodic coupon payment until a specified maturity date, plus the face value of the bond at the maturity date.

In its strongest form (as presented in Mishkin Chapter 7), the EFFICIENT MARKET HYPOTHESIS implies that

A. there are no price bubbles on stock shares

B. security prices never fall in response to good news

C. published reports of financial analysts are crucially important for investors to acquire and study carefully

D. buy and hold is NOT a rational investment strategy

E. all of the above

In its strongest form (as presented in Mishkin Chapter 7), the EFFICIENT MARKET HYPOTHESIS implies

A.  stock share prices continually adjust to ensure market equilibrium (demand equals supply).

B.  the price of each stock share equals the discounted value of its expected future dividend payments.

C. all investors have (strong form) rational expectations.

D. all of the above.

E. only B and C

The theory of RATIONAL EXPECTATIONS assumes that

rational people make optimal use of whatever information they have in forming their expectations.

The Gordon Growth Model predicts the price of a stock share will DECREASE if

A. its dividend growth rate DECREASES

B. its current dividend DECREASES.

C. its required return on equity DECREASES.

D. all of the above.

E. only A and B

If a private U.S. investor BUYS a newly issued 30-year U.S. Treasury bond from the U.S. government in return for currency, then

A. M1 stays the same and M2 decreases

B. M1 decreases and M2 stays the same

C. M1 increases and M2 increases

D. M1 decreases and M2 decreases

E. M1 increases and M2 decreases

M1 decreases and M2 decreases.

Which of the following financial assets ARE included in the M1 measure of the U.S. money supply

A. checkable deposit accounts at banks

B. currency

C. money market mutual fund shares

D. small denomination time deposits

E only A and B

Which of the following statements about FIAT Money are True

A. fiat money is back

B. fiat money is legal tender

C. fiat money must necessarily be issued by a govt

D. all of the above

E. only B and C

If the U.S. aggregate price level were to DECREASE by 50%, then (all else equal) the real value of a dollar would

A. double (increase by 100%).

B. decrease by 50 percent

C. more than double

D. increase by 50%

E. none of the above

Which of the following statements are TRUE:

A. The maturity of a financial asset is the length of time to the financial asset's expiration date

B. a U.S. treasury bill has a maturity between 1 and ten years

C. A stopck share has a maturity of one year

D. all of the above statments are true

E. only A and B above

By definition, SECURITIES are financial assets

A.  that have been approved for sale by the Federal Reserve Board

B. whose earnings have been underwritten (“made secure”) by some government agency.

C. that have been transformed into relatively liquid marketable assets by means of various legally enforceable guarantees.

D. that have been transformed into relatively liquid marketable assets by means of variouslegally enforceable guarantees.

E. whose market value is derived from some underlying pool of financial assets that have been packaged together and sold in the form of shares

In the absence of a price bubble, the GENERALIZED DIVIDEND (VALUATION) MODEL described by Mishkin (Chapter 7) predicts that the share price of a stock will be equal to

A. the discounted value of the expected future dividend payments to the shareholder.

B. next period’s expected dividend payment divided by the required return on equity net of the dividend growth rate.

C. the expected future revenues (per shareholder) of the issuing corporation.

D. the present value of expected future profits (per shareholder) of the issuing corporation.

the discounted value of the expected future dividend payments to the shareholder.

Consider stock shares having the following characteristics: The annual dividend paid per share is Div; the expected share price at the end of next year is PNext; and the

required return on equity investment is k. Let “*” denote multiplication, and let PNow denote

the current share price. According to the ONE-PERIOD STOCK VALUATION MODEL (with one period = one year), PNow should satisfy the formula 

A. PNow=(Div+PNext)*(1+k)

B. PNext-PNow=Div/(1+k)

C. PNext=(PNow+Div)*k

D. PNow=(Div+Pnext)/(1+k)

PNow = (Div + PNext)/(1 + k)

If the GENERALIZED DIVIDEND MODEL presented in Mishkin Chapter 7 [Page 149, EQUATION (3)] is valid for a particular stock S, this implies

A. stock S will definitely pay positive dividends to its shareholders in future time periods

B. there is no price bubble on stock S

C. investors in stock S have strong-form rational expectations

D. all of the above

E. only B and C

there is no price bubble on stock S.

The GORDON GROWTH MODEL simplifies the generalized dividend model by assuming

A. a constant required return on equity investment

B. a constant inflation rate

C. a constant dividend growth rate

D. a constant share price