[aLuchs]

1) Suppose banks must adhere to a required reserve ratio of 8% on their deposits. Now: the Federal Reserve initiates an open market purchase--buying $150 million in securities.

Find the ultimate change in bank deposits--in the entire banking system.

A) decrease of $162 million
B) increase of $162 million
C) increase of $1,875 million
D) decrease of $12 million
E) increase of $12 million
F) decrease of $1,875 million


2) What is the approach to valuing stocks:

A) employed the measure knowns as "duration"
B) relied strictly on "book" values--as displayed on a company's balance sheet
C) was to determine the replacement cost of a company's production facilities
D) was to discount coupon and "face" payments on the company's bonds
E) was to discount expected dividends


We know that a _________ required rate of return on a bond will result in a _________ fair present value of the bond.
Question options:

A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower
E) (A) and (B)
F) (C) and (D)

Consider a bond with the following characteristics:

face value = $1,000
coupon interest pmt. = $65 per year
coupons paid just once per year--at end of year
maturity = 2 years
yield to maturity = 5%
current price = $1,027.89

What is this bond's duration?

A) 0.06
B) 1.00
C) 2.24
D) 1.94
E) 2.00