181. An asset began the year with a price of £2.50. It paid income of 30p and finished the year at a price of £2.75. Over the year its rate of return was:
Correct answer: (E)
22%
182. An increase in (i) the price level and (ii) the rate of inflation:
Correct answer: (D)
Cause the demand for money (i) to rise; (ii) to fall
183. As the level of interest rates in the economy falls, the demand for money, ceteris paribus:
Correct answer: (C)
Increase
184. Asset A has a variance of 25 while asset B has a variance of 9. The covariance of returns is -15. The proportion of a two asset portfolio that would have to be invested in A in order to create a perfectly riskless portfolio is:
Correct answer: (A)
0.375
185. Assume that a central bank is willing to buy 14 day repos for $1m, with a repurchase price of $1,002,000. What rate of interest is the central bank charging?
Correct answer: (B)
5.21%
186. Assume that the central bank's main responsibility is to minimise the rate of inflation. A release of economic data suggests that inflationary pressure is increasing. In the circumstances the yield curve is likely to:
Correct answer: (A)
Become steeper
187. Bank deposit insurance was set up:
Correct answer: (D)
Following the bank collapses of the 1930s
188. Because their flows of funds are largely contractual, life assurance companies can hold:
Correct answer: (E)
A lower liquid assets ratio than deposit-taking institutions
189. By taking out insurance cover an individual:
Correct answer: (A)
Converts the possibility of large loss to certainty of a small one
190. Corporate bonds have higher yields than government bonds because:
Correct answer: (A)
Corporate bonds have higher risk