1. Which of the following is an assumption of the pure expectations hypothesis?
a. Treasury bonds have a liquidity premium.
b. The maturity risk premium is zero.
c. The maturity risk premium is positive.
d. The maturity risk premium is negative.
2. Which of the following explains how can a yield curve be flat or downward sloping if a maturity risk premium exists?
a. Investors expect inflation to be higher in the future.
b. Investors expect inflation to be lower in the future.
c. Investors expect inflation to remain the same in the future.
d. Investores expect the real rate of interest to rise in the future.
3. Which of the following explains why 10-year Treasury bonds have higher nominal interest rates than US Treasury bills?
a. more maturity risk
b. more default risk
c. a higher inflation premium
d. a higher real rate of interest
4. Mac Power bought Intel stock for $32 a year ago and has received $1.09 in dividends. Intel's current price is $36 a share. What is Mac's rate of return if he sells Intel at the current price? (Express your answer as a percentage 0.1 = 10% or 10)
5. What price would you pay if you were to buy a share of stock on the NASDAQ?
a. the bid price
b. the ask price
c. the average of the bid and ask price
d. None of the above
6. Which of the following would be an example of a primary market transaction?
a. Buying shares of a closed-end mutual fund
b. Buying shares of an open-ended mutual fund
c. Buying a share of Berkshire Hathaway from your grandma.
d. None of the above
7. Which of the following would be an example of a defined benefit pension plan?
a. Social Security
b. A 401K Plan
c. An IRA
d. None of the above