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    Demand, Supply, Price, Business Cycle, Interest Rates and Yield

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    1. When the demand for bonds _________ or the supply of bonds _________, interest rate rise.
    A. decreases; increases
    B. decreases; decreases
    C. increases; decreases
    D. increases; increases

    2. When the price of a bond is _________ the equilibrium price, there is an excess demand for bonds and the price will _________.
    A. below; rise
    B. above; fall
    C. below; fall
    D. above; rise

    3. The demand for an asset rises if _________ falls.
    A. liquidity relative to other assets
    B. risk relative to other assets
    C. expected return relative to other assets
    D. wealth

    4. During business cycle expansions when income and wealth are rising, the demand for bonds _________ and the demand curve shifts to the _________.
    A. falls; right
    B. rises; right
    C. rises; left
    D. falls; left

    5. With an interest rate of 8 percent, the present value of $100 received one year from now is approximately
    B. $108.
    C. $100.
    D. $96

    6. The interest rate that financial economists consider to be the most accurate measure is the
    A. current yield.
    B. coupon rate.
    C. yield on a discount basis.
    D. yield to maturity.

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    Solution Preview

    1. A. decreases; increases
    If the demand decreases then price would have to fall and so interest rate will rise or when the supply increases ...

    Solution Summary

    The solution determines the demand, supply, price, business cycle, interest rates and yield.