Financial Theory Final Exam

1. Finance is most fundamentally concerned with:

2. In economics, utility refers to:

3. Market equilibrium occurs when:

4. Present value is best defined as:

5. If the discount rate increases while future cash flows stay the same, present value will generally:

6. Irving Fisher's impatience theory argues that interest exists largely because:

7. The yield curve describes the relationship between:

8. Yield curve arbitrage seeks profit from:

9. Dynamic present value differs from static present value because it:

10. Overlapping generations models are most useful for analyzing:

11. Population aging can pressure equity markets when:

12. Rational expectations assumes that market participants:

13. Backward induction is primarily used to:

14. Collateral is valuable to a lender because it:

15. A callable bond gives the issuer the right to:

16. Mortgage prepayment risk matters because it:

17. Leverage in finance means using borrowed money to:

18. The subprime mortgage crisis intensified because risky loans were:

19. In a leverage cycle, margin calls often:

20. Risk quantification is mainly about measuring:

21. Diversification is most effective at reducing:

22. The real interest rate is approximately equal to:

23. If expected inflation rises while a bond's nominal yield is unchanged, the investor's real return will:

24. A pay-as-you-go social security system depends primarily on:

25. Adverse selection happens when:

26. Moral hazard occurs when:

27. Hedging is best described as:

28. A term premium is generally compensation for:

29. Higher capital requirements can reduce systemic risk because they:

30. One major financial lesson from The Merchant of Venice is that: