Study Question of the Week: October 30, 2013 Edition

This week’s study question from the Solomon Online Exam Simulator question database is now available. Relevant to the Series 6, Series 7, Series 62, Series 65, Series 66, Series 79, and Series 82. –ANSWER POSTED– Continue reading

This week’s study question from the Solomon Online Exam Simulator question database is now available.

Study ? of the Week

Question (Relevant to the Series 6, Series 7, Series 62Series 65, Series 66, Series 79, and Series 82)

Johnny owns several U.S. Treasury Notes, he reads in the paper that the discount rate has fallen. What can Johnny safely infer about his Treasury Notes?

Answers:

A. On the market, the price of his Treasury Notes has fallen

B. On the market, the price of his Treasury Notes has risen

C. His annual interest from the Notes will increase

D. His annual interest from the Notes will decrease

Correct Answer: B. On the market, the price of his Treasury Notes has risen

Rationale: When the discount rate falls, this suggests that interest rates in general have lowered. This will make the Treasury Notes that Johnny is holding more attractive to buyers because they paid a higher interest rate than what new Treasury Notes are paying. Thus, the price of his Treasury Notes will have risen on the secondary market because buyers are willing to pay a premium for them. The annual interest paid on Treasury Notes is fixed so it will neither increase nor decrease.

Weekly study questions are from Solomon’s industry-leading Online Exam Simulator.

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