Exercise
Answer the following questions.
1. Order the reported interest rates from highest to lowest:
A. Federal funds rate, discount rate, broker call rate, prime rate
B. Prime rate, broker call rate, discount rate, federal funds rate
C. Prime rate, broker call rate, federal funds rate, discount rate
D. Broker call rate, prime rate, federal funds rate, discount rate
2. When interest rates rise, all of the following typically occur except:
A. Bond prices rise because investors can purchase new bonds at higher interest rates.
B. Stock prices fall as investors pull out of the stock market in favor of the bond market.
C. Many investors move from stocks into bonds.
D. The economy may slowdown.
3. Which of the following is not true?
A. Inflation can result when demand for goods and services outstrips their supply.
B. Inflation usually occurs near the end of an expansionary phase.
C. Credit spreads widen during expansionary periods of the business cycle and narrow during periods of contraction.
D. A bond’s credit spread increases, relative to a benchmark, such as Treasury bills, when its credit rating declines.
4. Which of the following statements is true regarding yiel