Series 65: Exercise

Exercise

Answer the Following Questions

1. 1. Order the reported interest rates from highest to lowest:
2. A. Federal funds rate, discount rate, broker call rate, prime rate
3. B. Prime rate, broker call rate, discount rate, federal funds rate
4. C. Prime rate, broker call rate, federal funds rate, discount rate
5. D. Broker call rate, prime rate, federal funds rate, discount rate
6. 2. When interest rates rise, all of the following typically occur except:
7. A. Bond prices rise because investors can purchase new bonds at higher interest rates.
8. B. Stock prices fall as investors pull out of the stock market in favor of the bond market.
9. C. Many investors move from stocks into bonds.
10. D. The economy may slowdown.
11. 3. Regarding bond yields, which of the following is not true?
12. A. A yield curve illustrates a liquidity spread.
13. B. Liquidity spread is the concept that bonds with longer maturities tend to pay higher yields than bonds with shorter maturities.
14. C. Spreads widen during expansionary periods of the business cycle and narrow during periods of contraction.
15. D. A bond’s credit spread increases, relative to a benchmark, such as Treasury bills, when its credit rating declines
16. 4. Which of the following statements are true regarding yield curves?
17. I. A steep yield curve means investors see the future as particularly uncertain or volatile.
18. II. An inverted yield curve means investors think interes