A mutual fund manager shifts part of his portfolio from long-dated bonds to money market instruments even though yields are unchanged. Most likely he is expecting:
Detailed Answer
Correct answer: (D)
A rise in long-term interest rates
2
A retirement annuity is particularly attractive to someone who has:
Detailed Answer
Correct answer: (A)
High longevity risk
3
A share with a β-coefficient of 0.9 has a rate of return of 16%, when the whole market return is 17%. What return should it produce if the risk free rate rises from 7% to 8%, ceteris paribus.
Detailed Answer
Correct answer: (B)
17%
4
A sudden demand by depositors for notes and coin is an example of:
Detailed Answer
Correct answer: (D)
Liquidity risk
5
A treasury bill which matures in 62 days for £250,000 is currently trading at 248,000. The rate of discount on this bill is:
Detailed Answer
Correct answer: (D)
4.7%
6
A unit trust fund is established with assets of £200m divided into 150m units. The value of the underlying assets rises to £250m. The value of each unit is:
Detailed Answer
Correct answer: (A)
£1.66
7
According to the Fisher hypothesis, the nominal rate of interest consists of:
Detailed Answer
Correct answer: (B)
A stable real rate plus a variable inflation premium
8
According to the liquidity preference theory of interest, an increase in uncertainty, other things being equal, will:
Detailed Answer
Correct answer: (C)
Raise interest rates
9
According to the policy irrelevance theorem, why is policy irrelevant?
Detailed Answer
Correct answer: (C)
Because it can’t influence real variables
10
According to the rational expectations hypothesis:
Detailed Answer
Correct answer: (D)
People do not make avoidable mistakes in forecasting inflation