1. Which of the following bonds generally has the lowest interest rate?

Treasury bonds

Corporate Baa bonds

Municipal Aaa bonds

Corporate Aaa bonds

2. The expectation of accelerating inflation and rising interest rates could logically be expected to:

raise short term interest rates relative to long term rates

raise bond prices

flatten the yield curve

cause borrowers to shun/avoid short term borrowing

3. "An approximation of the yield to maturity that equals the yearly coupon payment divided by the price of a coupon bond" --- this definition best describes:

yield on a discount basis

current yield

actual return to investors

truncated annual return

none of the above

4. The explicit cost incurred in making an exchange is called:

waiting costs

fiat costs

transactions cost

seignoriage

5. The difference in yields of a corporate Aaa bond versus a Treasury bond is due primarily to:

default risk

interest rate risk

reinvestment risk

6. To say that stock prices follow a "random walk" is to argue that:

stock prices rise, then fall, then rise again-sequentially

stock prices rise, then fall in a predictable pattern

stock prices tend to follow trends

stock prices cannot be predicted based on past trends

7. Your full service stock broker would (assuming that he knows some finance):

prefer to have you think that financial markets are highly efficient

prefer to have you think that financial markets are inefficient

not care any whether you think financial markets are efficient or inefficient

prefer that you believe there is no way that a "January effect" could exist

8. Mean reversion refers to the observation that

stock prices overreact to news announcements

stock prices are more volatile than fluctuations in their fundamental value would predict

stocks with low returns are likely to have high returns in the future

stocks with low returns are likely to have even lower returns in the future

9. According to the efficient market hypothesis, the current price of a financial security

is the discounted net present value of future interest payments

is determined by the highest successful bidder

fully reflects all available relevant information

is the result of none of the above