201772018 2 Course Money and Banking Cohort Name ID Number U

??????201772018?? ?2?????? Course Money and Banking Cohort Name ID Number Unit I Total Mark I. Multiple Choice (10%) Directions: For each of questions, there are four cholees marked A, B, C, and D. You should decide on the best choice and write the corresponding letter on Answer Shert. 1. Compared to an economy that uses a medium of exchange, in a barter economy A) transaction costs are higher C) liquidity costs are higher B) transaction costs are lower. D) liquidity costs are lower 2. Which of the following $1,000 face-value securities has the lowest yield to maturity? A) a 5 percent coupon bond selling for $1,000 B) a 10 percent coupon bond selling for $1,000 C) a 15 percent coupon bond selling for $1,000 D) a 15 percent coupon bond sElling for $900 3. Government regulations require publicly traded firms to provide information, educing_ A) transactions costs C) the adverse selection problem B) the need for diversification. D) economies of scale Page 1 of 4

Solution

Q. 1 Option A, under barter system it is difficult to establish a exchange mechanism and involves high transaction costs

Q. 2 option A, The formula,

=((Interest+(Face value - Market Price))/n)/((Face value + Market Price)/2)

=((0.05+(1000-1000))/1)/((1000+1000)/2) = 0.005%

Q.3 Option C. As the firms would hide some of the information which would lead to adverse selection