Objective type questions on bond valuation

1. Other things remaining equal, which of the following will increase the demand (shift the demand curve to the right) for bond J?

a. An increase in the interest rate on bond K.

b. An increase in the risk level of bond J.

c. An increase in the level of wealth in the economy.

d. An increase in the interest rate on bond J.

2. The theory of asset demand tells us that

a. Risky assets bring higher returns.

b. Risky assets have higher liquidity.

c. The higher the return on an asset, the lower the liquidity.

d. The demand for an asset will increase if the expected return on an asset rises.

3. At a bond price above the equilibrium,

a. there is an excess demand and the price will tend to rise.

b. there is an excess supply and the price will tend to fall.

c. there is an excess demand and the price will tend to fall.

d. there is an excess supply and the price will tend to rise.

4. Which of the following will cause a movement along the demand curve for bond J?

a. An increase in the risk of bond J.

b. An increase in the price of bond J.

c. An increase in the price of bond K.

d. An increase in the risk of bond K.

5. Suppose the price of bond J rises. This will:

a. increase the supply of bond K and increase the interest rate on bond K.

b. increase the demand for bond K and decrease the interest rate on bond K.

c. increase the demand for bond K and increase the interest rate on bond K.

d. increase the supply of bond K and reduce the interest rate on bond K.

6. Which of the following will increase the supply of bonds (shift the supply curve to the right)?

a. A business cycle expansion.

b. A decrease in the expected inflation rate.

c. A government budget surplus.

d. An increase in the bond prices.

7. An increase in the expected inflation rate will:

a. decrease the demand for bonds, increase the supply of bonds and increase the interest rate.

b. increase the demand for bonds, increase the supply of bonds and increase the interest rate.

c. increase the demand for bonds, decrease the supply of bonds and increase the interest rate.

d. decrease the demand for bonds, decrease the supply of bonds and increase the interest rate