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solution

Which of the following
is not an advantage of investing in bonds?

A. Bond investments are
relatively safe compared to equities.

B. Bondholders receive
their payments before shareholders can be compensated.

O C. Bonds have
unlimited profit potential.

D. Bondholders receive
higher returns compared to holding cash.

QUESTION 2

Which of the following
sequences lists financial assets from least risky to most risky?

O A. Stocks, bonds,
Treasury bills.

B. Treasury bills,
bonds, stocks.

O C. Treasury bills,
stocks, bonds.

O D. Bonds, Treasury
bills, stocks.

The liquidity premium
can be explained by the fact that

O A. Lenders are usually
indifferent between lending at the short-term and long-term end of the market.

O B. Investors expect
the yield curve to fall in the short term.

O C. Borrowers are
prepared to pay a premium to lenders for longer term loans.

O D. Investors believe
that the government s budget deficit will remain unchanged in the future.

QUESTION 4

Which of the following
is/are false according to the pure expectations theory? (i) It provides biased
estimates of expected future short rates. (ii) It always overestimates the
expected future short rates. (iii) It always underestimates the expected future
short rates.

O A. (i) only

O B. (i) and (ii)

O C. (i) and (iii)

OD. (i), (ii) and (iii)

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