Chapter 8

Money and Capital Markets

D1Interpretive
1. The __________________ serves as a practical reference point for all other securities markets. A) commercial paper market B) New York Stock Exchan e !) over"the"counter market #) $.S. overnment securities market Answer% #

D1Factual
&. 'hich of the followin $.S. overnment securities are nonmarketa(le) A) Treasur* (ills B) Treasur* notes !) Treasur* (on+s #) Savin s (on+s Answer% #

D1Factual
,. -arketa(le overnment securities consists of Treasur* (ills. A) Treasur* notes. an+ $.S. savin s (on+s. B) Treasur* notes. an+ Treasur* (on+s. !) Treasur* (on+s. an+ fe+eral fun+s. #) $.S. savin (on+s. an+ fe+eral fun+s. Answer% B

D1Factual
/. __________________ are issue+ with an ori inal maturit* of (etween one an+ ten *ears. A) Treasur* (ills B) Treasur* notes !) Treasur* (on+s #) None of the a(ove Answer% B

80

810itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
2. Amon marketa(le overnment securities. the lar est +ollar volume is in the form of A) Treasur* (on+s. B) Treasur* notes. !) Treasur* (ills. #) fe+eral fun+s. Answer% B

D2Interpretive
3. A oo+ purchase for an investor seekin a hi h +e ree of li4ui+it* with minimal market risk woul+ (e a $.S. A) Treasur* (ill. B) Treasur* (on+. !) Treasur* note. #) savin s (on+. Answer% A

D2Factual
5. The ori inal maturit* on $.S. Treasur* notes is (etween A) three months an+ one *ear. B) one an+ ten *ears. !) six months an+ three *ears. #) ten an+ thirt* *ears. Answer% B

D2Factual
6. The ori inal maturit* on $.S. Treasur* (ills is (etween A) three months an+ six months. B) one an+ ten *ears. !) six months an+ three *ears. #) ten an+ thirt* *ears. Answer% A

D2Interpretive
7. 'hich of the followin statements is incorrect) A) 8overnment securities +ealers often convert newl* issue+ Treasur* notes to 9ero"coupon form. B) -arketa(le $.S. overnment securities are wi+el* hel+ throu hout the worl+. !) A newl* issue+ 2"*ear Treasur* note can (e strippe+ into ten separate 9ero"coupon securities. #) The :e+eral 0eserve owns some overnment securities as a result of open market operations. Answer% !

!hapter 6-one* an+ !apital -arkets 82

D2Factual
1;. <irtuall* all :e+eral 0eserve open"market purchases an+ sales are con+ucte+ with overnment securities. mostl* A) Treasur* (ills. B) Treasur* notes. !) Treasur* (on+s. #) savin s (on+s. Answer% A

D3Interpretive
11. An investor wishin to minimi9e the risk of capital losses as a result of chan in interest rates shoul+ avoi+ A) $.S. savin s (on+s. B) $.S. Treasur* notes. !) $.S. Treasur* (ills. #) $.S. Treasur* (on+s. Answer% #

D2Factual
1&. A(out what percenta e of marketa(le $.S. overnment +e(t is hel+ (* forei ners) A) 2 percent B) 15 percent !) &5 percent #) ,5 percent Answer% #

D2Interpretive
1,. 0ecent $.S. (u+ et +eficits have ar ua(l* (een finance+ (* forei ners= if it were not for forei n __________________ of Treasur* securities. $.S. interest rate woul+ (e much . A) sales= hi her B) sales= lower !) purchases= hi her #) purchases= lower Answer% !

D2Factual
1/. 'hich t*pe of $.S. overnment securit* is a kin+ of 9ero"coupon securit*) A) :e+eral fun+s note B) $.S. Treasur* note !) $.S. Treasur* (ill #) $.S. Treasur* (on+ Answer% !

830itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
12. -ost overnment securities transactions take place in the A) futures market. B) commo+ities market. !) over"the"counter +ealer market. #) New York securities market. Answer% !

D2Factual
13. #ealers et much of their overnment securities inventories A) throu h +irect transfers from the Treasur*. B) throu h +irect transfers from the :e+eral 0eserve. !) (i++in at competitive auctions. #) throu h purchases from commercial (anks. Answer% !

D2Interpretive
15. 'hich of the followin statements is incorrect) A) Tra+in in overnment securities avera es more than twent* times a t*pical +a*>s tra+in on the New York Stock Exchan e. B) All marketa(le overnment securities are initiall* issue+ at auctions hel+ (* the :e+eral 0eserve. !) 8overnment securit* auction participants inclu+e overnment securities +ealers an+ lar e (anks. #) $.S. overnment securities are increasin l* tra+e+ aroun+ the clock on virtuall* a nonstop (asis. Answer% B

D2Applied
16. A one"*ear Treasur* (ill with a face value of ?1.;;; an+ a *iel+ to maturit* of 2 percent sells for approximatel* A) ?1.;;2. B) ?772. !) ?72&. #) ?7/6. Answer% !

D2Applied
17. A one"*ear Treasur* (ill with a *iel+ to maturit* of 1; percent an+ a price of ?7;7.;7 has a face value of A) ?7;;. B) ?1.;;;. !) ?76;. #) ?1.;&;. Answer% B

!hapter 6-one* an+ !apital -arkets 84

D2Applied
&;. A one"*ear Treasur* (ill that sells for ?7/,./; an+ has a face value of ?1.;;; has a *iel+ to maturit* of A) 6 percent. B) 5 percent. !) 3 percent. #) 2 percent. Answer% !

D2Applied
&1. A one"*ear Treasur* (ill that sells for ?72&.,6 an+ has a face value of ?1.;;; has a *iel+ to maturit* of A) 1; percent. B) 6 percent. !) 3 percent. #) 2 percent. Answer% #

D3Applied
&&. The coupon e4uivalent *iel+ on a three"month Treasur* (ill that has a ?1.;;; face value an+ a purchase price of ?762 is A) 3.1 percent. B) 3.2 percent. !) 5.& percent. #) 1.2 percent. Answer% A

D3Applied
&,. The coupon e4uivalent *iel+ on a six"month Treasur* (ill that has a ?1.;;; face value an+ sells for ?73; is A) 3.2 percent. B) 6., percent. !) 7.2 percent. #) 7.6 percent. Answer% B

D2Applied
&/. The coupon e4uivalent *iel+ of a one"*ear Treasur* (ill with a ?1.;;; face value an+ a current price of ?75; is __________________ percent. A) ,.1 B) ,.; !) 7.5 #) None of the a(ove Answer% A

850itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
&2. __________________ (i++ers in a Treasur* auction are uarantee+ their (i+s at the __________________ price resultin from the auction. A) !ompetitive= market"clearin B) Noncompetitive= hi hest !) !ompetitive= lowest #) Noncompetitive= market"clearin Answer% #

D2Factual
&3. The Treasur* (ill auction is over when the market reaches the A) hi hest (i+. B) stop"out price. !) +iscount price. #) optimal price. Answer% B

D2Factual
&5. All successful (i++ers in a Treasur* (ill auction pa* the __________________ price for their (i+s. A) market"clearin B) hi hest accepte+ !) avera e #) lowest accepte+ Answer% #

D1Factual
&6. The two kin+s of *iel+s use+ in the Treasur* (ill market are the A) coupon e4uivalent *iel+ an+ *iel+ on a +iscount (asis. B) face *iel+ an+ +iscount *iel+. !) nominal *iel+ an+ real *iel+. #) *iel+ to maturit* an+ coupon e4uivalent *iel+. Answer% A

D1 Factual
&7. The __________________ is calculate+ as the face value minus the purchase price +ivi+e+ (* the face value. A) coupon e4uivalent *iel+ B) (on+ e4uivalent *iel+ !) *iel+ on a +iscount (asis #) *iel+ to maturit* Answer% !

!hapter 6-one* an+ !apital -arkets 86

D3Applied
,;. A 71"+a* ?1;.;;; Treasur* (ill is sellin for ?7.;;;. The (ill@s *iel+ on a +iscount (asis is __________________ percent. A) ,.,3 B) ,.73 !) 5.71 #) 1;.; Answer% B

D3Applied
,1. A 71"+a* ?1;.;;; Treasur* (ill is sellin for ?7.;;;. The (ill@s coupon e4uivalent *iel+ is __________________ percent. A) ,.73 B) /./3 !) 6.;& #) 1;.; Answer% B

D3Applied
,&. A Treasur* (ill with an ori inal maturit* of six months currentl* sells for ?75&.26. The (ill was issue+ ,; +a*s a o. An investor who purchases this (ill to+a* woul+ have a *iel+ on a +iscount (asis of __________________ percent. A) 3.26 B) 2.2; !) 2./& #) 3./7 Answer% #

D3Applied
,,. A Treasur* (ill with an ori inal maturit* of six months currentl* sells for ?75&.26. The (ill was issue+ ,; +a*s a o. An investor who purchases this (ill to+a* woul+ have a (on+ e4uivalent *iel+ of __________________ percent. A) 3./7 B) 3.55 !) 2.26 #) 2.32 Answer% B

D2Factual
,/. The __________________ is alwa*s lar er than the __________________. A) *iel+ on a +iscount (asis= coupon e4uivalent *iel+ B) *iel+ on a +iscount (asis= (on+ e4uivalent *iel+ !) coupon e4uivalent *iel+= *iel+ on a +iscount (asis #) None of the a(ove Answer% !

870itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
,2. The +ifference in the sellin an+ purchase prices of overnment securities in a t*pical overni ht repurchase a reement is set to reflect A) the +ifference in the auction price of the securities an+ their current market price. B) the overni ht cost of fun+s. !) ABBC0. #) the +iscount on Treasur* (ills. Answer% B

D2Factual
,3. The repo market is most closel* relate+ to the A) fe+eral fun+s market. B) Treasur* (on+ market. !) Treasur* note market. #) commercial paper market. Answer% A

D2Factual
,5. An important market for overni ht (orrowin an+ len+in is the A) commercial paper market. B) repo market. !) Treasur* (ill market. #) Treasur* (on+ market. Answer% B

D2Factual
,6. The main +ifference (etween a repo an+ fe+eral fun+s transaction is that A) the repo transaction uses the securities for collateral while the fe+eral fun+s transaction +oes not have collateral. B) the fe+eral fun+s transaction uses securities for collateral while the repo transaction +oes not have collateral. !) the repo transaction has an a ree+ upon interest rate while the fe+eral fun+s transaction has a sprea+ (etween the sale an+ purchase price of securities. #) the fe+eral fun+s transaction is normall* overni ht while the t*pical repo a reement is for 7; to 16; +a*s. Answer% A

D2Interpretive
,7. The fe+eral fun+s rate is alwa*s __________________ the repo rate. A) a(ove B) (elow !) the same as #) None of the a(ove Answer% A

!hapter 6-one* an+ !apital -arkets 88

D2Interpretive
/;. 'hich of the followin statements is not true with re ar+ to repurchase a reements) A) Bn a t*pical repo. an entit* sells overnment securities an+ a rees to repurchase them at a hi her price the next +a*. B) A reverse 0D involves (orrowin fun+s overni ht. !) The repo market has evolve+ into maturities ran in from one +a* to three months. #) Bn practice. a repo is use+ to raise fun+s for an*thin the (orrower chooses. Answer% B

D2Factual
/1. 'hich of the followin usuall* has the hi hest *iel+ at a iven point in time) A) !orporate (on+s B) -unicipal (on+s !) !ommercial paper #) $.S. Treasur* (on+s Answer% A

D2Factual
/&. 'hich of the followin is most risk* at a time of fluctuatin interest rates) A) !ommercial paper B) $.S. Treasur* (ill !) !orporate (on+ #) Aar e ne otia(le (ank !# Answer% !

D2Factual
/,. A EFum(oG !# is one in excess of A) ?1.;;;. B) ?1;.;;;. !) ?2;.;;;. #) ?1;;.;;;. Answer% #

D2Factual
//. !urrentl* challen in Treasur* (ills as the centerpiece of the mone* market is Hare) A) fe+eral fun+s. B) Euro+ollars. !) commercial paper. #) ne otia(le !#s. Answer% B

D2Factual
/2. The Euro+ollar market is an alternative wa* for __________________ to len+ or (orrow. A) overnments B) corporations !) (anks #) pension plans Answer% !

890itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D1Factual
/3. The rate at which (anks will len+ Euro+ollars is A) the prime rate. B) ABBC0. !) the +iscount rate. #) ABBB#. Answer% B

D1Factual
/5. Bf an issuer has the ri ht to pa* off a (on+ (efore its maturit*. the (on+ is A) converti(le. B) speculative. !) calla(le. #) reversi(le. Answer% !

D2Interpretive
/6. A corporation is likel* to EcallG a (on+ if A) it oes (ankrupt. B) it has short"term li4ui+it* pro(lems. !) interest rates fall sharpl*. #) interest rates rise sharpl*. Answer% !

D1Factual
/7. Iol+ers of __________________ (on+s can exchan e their (on+s into shares of the compan*>s common stock at a pre+etermine+ price. A) calla(le B) converti(le !) investment ra+e #) Junk Answer% B

D2Interpretive
2;. !ompare+ with other (on+s. converti(le (on+s usuall* have A) less li4ui+it*. B) a hi her price. !) a hi her *iel+. #) low tax pa*ments. Answer% B

D2Interpretive
21. !ompare+ with other (on+s. calla(le (on+s usuall* have A) less li4ui+it*. B) a hi her price. !) a hi her *iel+. #) low tax pa*ments. Answer% !

!hapter 6-one* an+ !apital -arkets 90

D2Factual
2&. -oo+*@s ives Junk (on+s a ratin (elow A) Aaa. B) Aa. !) A. #) Baa. Answer% #

D2Applied
2,. #rexel Burnham Aam(ert pioneere+ the wi+esprea+ issuance of A) Junk (on+s. B) commercial paper. !) calla(le (on+s. #) converti(le (on+s. Answer% A

D2Factual
2/. A maJor purchaser of corporate (on+s is A) state an+ local overnments. B) mone* market mutual fun+s. !) pension an+ retirement fun+s. #) the :e+eral 0eserve. Answer% !

D2Factual
22. Funk (on+s are +efine+ as those (on+s the ratin services consi+er to (e A) investment ra+e. B) hi h risk or speculative ra+e. !) financial ra+e. #) in +efault. Answer% B

D2Factual
23. Because the* com(ine hi h *iel+ an+ hi h risk. Junk (on+s A) shoul+ never (e consi+ere+ soun+ investments. B) ma* increase the overall *iel+ of a portfolio containin stocks without an un+ue increase in risk. !) shoul+ (e purchase+ onl* (* risk lovers. #) None of the a(ove Answer% B

D2Factual
25. -ost corporate (on+ tra+in takes place on the A) New York Stock Exchan e. B) over"the"counter market. !) Dacific Stock Exchan e. #) Nas+a4. Answer% B

910itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
26. Almost all corporate (on+s are sol+ throu h A) auction markets. B) (rokers. !) commercial (anks. #) un+erwritin s*n+icates. Answer% #

D3Factual
27. Bn corporate (on+ market 4uotations. the current *iel+ on converti(le (on+s is usuall* A) inclu+e+ as a ratio to the previous +a*>s hi h. B) inclu+e+ as a ratio to the previous +a*>s low. !) inclu+e+ as a ratio to the previous +a*>s close. #) omitte+. Answer% #

D2Interpretive
3;. :or investors. commercial paper is a close su(stitute for A) $.S. Treasur* (ills. B) $.S. Treasur* (on+s. !) corporate (on+s. #) municipal (on+s. Answer% A

D2Applied
31. 'hich of the followin is least likel* to issue commercial paper) A) 8eneral -otors Acceptance !orporation B) A lar e (ank hol+in compan* !) 8eneral Electric #) The $.S. Treasur* Answer% #

D1Factual
3&. B* convention. commercial paper issuers are +ivi+e+ into A) in+ivi+uals an+ corporations. B) private institutions an+ overnment institutions. !) lar e (usinesses an+ small (usinesses. #) financial companies an+ nonfinancial companies. Answer% #

D1Applied
3,. 'hich of the followin is least likel* to (e a (u*er of commercial paper) A) -one* market mutual fun+s B) State an+ local overnment !) Bn+ivi+uals #) Nonfinancial firms Answer% !

!hapter 6-one* an+ !apital -arkets 92

D2Factual
3/. !ommercial paper is most commonl* issue+ with a maturit* of __________________ +a*s. A) 2 B) 1; !) ,; #) &5; Answer% !

D2Factual
32. !ompare+ to Treasur* (ills. commercial paper A) has no +efault risk. B) +oes not have much of a secon+ar* market. !) has a lower *iel+. #) sells at a hi her price for. Answer% B

D2Factual
33. -ost municipal (on+s are issue+ in A) serial maturit* form. B) sin le maturit* form. !) converti(le form. #) commercial form. Answer% A

D1Factual
35. __________________ (on+s are municipal (on+s that are (acke+ (* the eneral taxin power of the state or local overnment. A) 8eneral o(li ation B) 0evenue !) Tax"anticipation #) Bon+"anticipation Answer% A

D2Factual
36. -ost municipal (on+s are A) eneral o(li ation (on+s. B) revenue (on+s. !) calla(le (on+s. #) sin le maturit* (on+s. Answer% A

930itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Applied
37. A municipal (on+ issue+ (* the state of !olora+o to construct a new toll hi hwa* is a __________________ (on+. A) revenue B) collaterali9e+ !) eneral o(li ation #) Treasur* Answer% A

D2Applied
5;. A (on+ issue+ (* a local overnment to (uil+ a convention center that is to (e finance+ (* fees char e+ to users is an example of A) commercial paper. B) a eneral o(li ation (on+. !) a collaterali9e+ (on+. #) a revenue (on+. Answer% #

D2Factual
51. All secon+ar* tra+in of municipal (on+s occurs A) throu h commercial (anks. B) in the over"the"counter market. !) throu h life insurance companies. #) in the New York -unicipal Bon+ -arket. Answer% B

D2Factual
5&. :or lon "term stop ap financin of lar e proJects. cit* overnments can issue A) tax"anticipation notes. B) (on+"anticipation notes. !) eneral o(li ation (on+s. #) revenue (on+s. Answer% B

D2Factual
5,. To (orrow fun+s (etween tax pa*ment +ates. cit* overnments can issue A) tax anticipation notes. B) corporate (on+s. !) eneral o(li ation (on+s. #) revenue (on+s. Answer% A

!hapter 6-one* an+ !apital -arkets 94

D2Factual
5/. Securities +ealers re+uce the uncertaint* associate+ with mort a e +e(t cash flows throu h the +evelopment of A) converti(le mort a es. B) calla(le mort a es. !) collaterali9e+ mort a e o(li ations. #) tax"exempt commercial paper. Answer% !

D2Factual
52. Tra+in in collaterali9e+ mort a e o(li ations H!-Cs) takes place in the __________________ market (etween __________________. A) primar*= specialists B) or ani9e+ exchan e= +ealers !) over"the"counter= +ealers #) primar*= +ealers Answer% !

D2Factual
53. The main reason for the risin market value of corporate stock is A) fallin interest rates. B) chan es in tax laws. !) increases in the prices of existin stock. #) the increase+ suppl* of new stock. Answer% !

D2Factual
55. 'hich of the followin is not a maJor institutional investor in the stock market) A) -utual fun+s B) Dension fun+s !) Bnsurance companies #) !ommercial (anks Answer% #

D2Factual
56. The NYSE is also calle+ A) the over"the"counter market. B) the Bi Boar+. !) the !entral -arket. #) the Exchan e. Answer% B

950itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
57. Cn the New York Stock Exchan e. the role of maintainin or+erl* markets is carrie+ out (* A) +ealers. B) (rokers. !) specialists. #) the SE!. Answer% !

D2Factual
6;. Smaller companies t*picall* +o not tra+e on the A) New York Stock Exchan e. B) American Stock Exchan e. !) !hica o Boar+ of Cptions. #) Securities an+ Exchan e -arket. Answer% A

D2Factual
61. The over"the"counter market is locate+ in A) New York. B) Aos An eles. !) !hica o. #) None of the a(ove Answer% #

D2Applied
6&. A stock is expecte+ to pa* a +ivi+en+ of ?&.2; per share in+efinitel*. The stock is expecte+ to enerate a return of 6 percent in the foreseea(le future. Base+ on this information. a fair price of this stock woul+ (e A) ?&2.;;. B) ?,1.&2. !) ?&;.;;. #) !annot (e +etermine+ without a++itional information Answer% B

D2Interpretive
6,. Bf overnment (on+ rates __________________. stock prices enerall* __________________. A) fall= rise B) increase= rise !) fall= fall #) None of the a(ove Answer% A

!hapter 6-one* an+ !apital -arkets 96

D2Factual
6/. Theor* su ests that stock prices shoul+ (e positivel* relate+ to A) overnment (orrowin . B) the unemplo*ment rate. !) the interest rate. #) the mone* suppl*. Answer% #

D2Applied
62. Accor+in to economic theor*. a risin mone* suppl* influences stock prices throu h aHn) __________________ in the __________________ stock. A) increase= +eman+ for B) +ecrease= +eman+ for !) increase= suppl* of #) +ecrease= suppl* of Answer% A

D2Factual
63. Empirical evi+ence reveals aHn) __________________ relationship (etween mone* an+ stock prices. A) positive an+ consistent B) ne ative an+ consistent !) completel* in+epen+ent #) inconsistent Answer% #

D2Factual
65. The #ow Fones Bn+ustrial Avera e is compute+ (ase+ on A) thirt* (lue"chip stocks. B) five hun+re+ (lue"chip stocks. !) all stocks sol+ on the NYSE. #) all stocks sol+ on all or ani9e+ exchan es in the $.S. Answer% A

D2Factual
66. -ost stock market experts a ree that monetar* polic* A) has virtuall* no impact on stock prices. B) has a minor impact on stock prices. !) has a si nificant impact on stock prices. #) is the onl* +eterminant of stock prices. Answer% !

970itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
67. A Treasur* securit* with an ori inal maturit* of twent* *ears is calle+ a A) (on+. B) note. !) (ill. #) +e(enture. Answer% A

D2Factual
7;. A newl*"issue+ ei hteen"*ear Treasur* securit* can (e strippe+ into __________________ separate 9ero coupon securities. A) two B) ei hteen !) thirt*"seven #) sevent*"three Answer% !

D2Factual
71. EABBB#G is the rate at which $.S. (anks A) len+ to their (est customers. B) (orrow Euro+ollar market. !) len+ in the Euro+ollar market. #) (orrow in the Jum(o !# market. Answer% !

D2Factual
7&. EABBC0G is the rate at which $.S. (anks A) len+ to their (est customers. B) (orrow in the Euro+ollar market. !) len+ in the Euro+ollar market. #) (orrow in the Jum(o !# market. Answer% B

D2Applied
7,. An insurance compan* hol+in a sin le"home mort a e shoul+ (e most concerne+ a(out the mort a e>s __________________ risk. A) +efault B) prepa*ment !) price fluctuation #) collateral Answer% B

!hapter 6-one* an+ !apital -arkets 98

D2Factual
7/. Bn terms of cash flows. a E(alloonG mort a e resem(les A) an amorti9e+ loan. B) a Treasur* (ill. !) a conventional (on+. #) a 9ero"coupon (on+. Answer% !

D2Factual
72. The se ments of a !-C are also calle+ A) tranches. B) coupons. !) o(li ations. #) revenues. Answer% A

D2Applied
73. Suppose a share of stock is expecte+ to pa* an annual +ivi+en+ of ?1& forever. At a +iscount rate of 7./ percent. the share@s market price shoul+ (e A) ?1&.55. B) ?1,.1,. !) ?11&.6;. #) ?1&5.33. Answer% #

D2Applied
75. Suppose a share of stock is expecte+ to pa* an annual +ivi+en+ of ?1; forever. At a +iscount rate of 2 percent. the share@s market price shoul+ (e A) ?166.&/. B) ?&;;.;;. !) ?&7.3;. #) ?1;.6;. Answer% B

D2Interpretive
76. Suppose the *iel+ on overnment (on+s rises. This shoul+ cause __________________ in the +iscount factor in the stock price valuation formula an+ __________________ in stock prices. A) a fall= a rise B) a rise= a fall !) a fall= a fall #) no chan e= no chan e Answer% B

990itter1Sil(er1$+ell Money, Banking, and Financial Markets . Eleventh E+ition

D2Factual
77. A re+uce+ risk premium __________________ the +iscount factor in the stock price valuation formula. an+ __________________ stock prices. A) raises= raises B) raises= lowers !) lowers= raises #) lowers= lowers Answer% !