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21.If the real rate of interest is 4% and the expected inflation rate is 7%, a loan at 12%

a.would reward the lender at the borrower’s expense

b.would reward the borrower at the lender’s expense

c.would penalize the lender at the borrower’s expense

d.none of the above

22.If the actual rate of inflation is less than the rate expected during a period,

a.borrowers benefited at the expense of lenders.

b.lenders benefited at the expense of borrowers.

c.both borrowers and lenders benefited.

d.neither borrowers nor lenders benefited.

23.If expected inflation in a period exceeds actual inflation

a.borrowers will benefit.

b.savers will lose purchasing power.

c.SSUs will benefit at the expense of DSUs.

d.interest rates are likely to increase in the future.

24.Interest rates should decease if

a.The economy is in a boom.

b.Inflationary expectations have decreased.

c.The Federal Reserve has decreased M1 and the supply of loanable funds.

d.Business investment demand has decreased significantly.

25.A decrease in interest rates may best be related to

a.a recession and a decline in inflationary expectations.

b.an acceleration in the growth rate of M1.

c.decreased real investment opportunities.

d.all of the above

26.An investor received an 8 percent coupon rate last year on a $1000 bond purchased at par. The inflation rate during the year was 4 percent and is expected to be 5 percent next year.  The realized real rate earned by the investor last year was:

a.   8%

b.  3%

c.  4%

d.  -1 percent.

27.An investor earned 12 percent last year, a year when actual inflation was 9 percent and was expected to have been 6 percent.  The investor realized real rate of return was:

a.   3%

b.  6%

c.  18%

d.  12%

28.Which of the following is more likely to affect long-term bond yields?

a.announcement of the last year's inflation rate

b.announcement of this month's inflation rate

c.a forecast of next month's inflation rate

d.a forecast of inflation for the next five years

29.Which of the following is more likely to adversely affect long-term bond prices?

a.a forecast of lower inflation in the future.

b.a forecast of a slower economy next year.

c.a forecast of higher inflation in the future.

d.a forecast of lower government budget deficits.

30.Negative realized real rates of interest are associated with periods where

a.   inflation forecasts significantly underestimate inflation.

b.nominal interest rates were too high relative to actual inflation.

c.prior inflation forecasts overestimated inflation.

d.bond prices were priced too low relative to actual inflation.

 

 

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