Mid-Term Review- Econ 3311
Chapter 2
What is the difference between direct and Indirect finance?
What is the difference between the primary and Secondary Markets?
Chapter 3
Are Bitcoin and other crypto currencies considered money?
Explain inflation, hyperinflation, and deflation
Chapter 4
Do bondholders fare better when the yield to maturity increases or when it decreases?
Why?
. Explain which information you would need to take into consideration when deciding to
receive $5,000 today or $5,500 one year from today.
If interest rates decline, which would you rather be holding, long-term bonds or shortterm bonds? Why? Which type of bond has the greater interest-rate risk?
Interest rates were lower in the mid-1980s than in the late 1970s, yet many economists
have commented that real interest rates were actually much higher in the mid-1980s than
in the late 1970s. Does this make sense? Do you think that these economists are right?
Retired persons often have much of their wealth placed in savings accounts and other
interest-bearing investments and complain whenever interest rates are low. Do they have
a valid complaint?
Consider a bond with a 4% annual coupon and a face value of $1,000. Complete the
following table. What relationships do you observe between years to maturity, yield to
maturity, and the current price?
2%
4%
4%
6%
Consider a coupon bond that has a $1,000 par value and a coupon rate of 10%. The bond
is currently selling for $1,044.89 and has two years to maturity. What is the bond’s yield to
maturity?
Chapter 5
Chapter 6
If a yield curve looks like the one shown in the figure below, what is the market predicting
about the movement of future short-term interest rates? What might the yield curve
indicate about the market's predictions for the inflation rate in the future?
Yield to
Maturity
Term to Maturity
If a yield curve looks like the one shown in the figure below, what is the market predicting
about the movement of future short-term interest rates? What might the yield curve
indicate about the market’s predictions for the inflation rate in the future?
Yield to
Maturity
Term to Maturity
Chapter 8
Chapter 12
How did a decline in housing prices help trigger the subprime financial crisis that began in
2007?
Why were consumer protection provisions included in the Dodd-Frank bill, a bill designed
to strengthen the financial system? What are some of the problems with these regulations?