Question 1. True / False and explain

1. Banks earn profits by selling securities with an attractive combination of liquidity, risk, and return, and using the proceeds to buy assets with a different set of characteristics
2. Buying shares in a mutual fund can be an example of indirect finance
3. The demand for gold increases, other things equal, when interest rates are expected to fall
4. Compared to an economy that uses a medium of exchange, in a barter economy, transaction costs of higher

Solution:

1. Banks earn profits by selling securities with an attractive combination of liquidity, risk, and return, and using the proceeds to buy assets with a different set of characteristics 

False. The correct answer is deposits instead of assets

Banks earn profits by selling securities with an attractive combination of liquidity, risk and return and using proceeds to buy deposits with a different set of characteristics

2. Buying shares in a mutual fund can be an example of indirect finance

True. Indirect finance, in which a financial intermediary borrows funds from lenders-savers and then uses these funds to make loans to borrowers-spenders

3. The demand for gold increases, other things equal, when interest rates are expected to fall
False. Because the demand for gold increases, another thing equal, the interest rate are expected to rise.

The correct answer is rise instead of fall

4. Compared to an economy that uses a medium of exchange, in a barter economy, transaction costs of higher

True. Economy means the area where production or manufacturing distribution, and consumption of products take place. The economy uses limited resources (time, money …..) in the best manner to complete the organization’s goal very effectively. Under the Barter system, transaction costs are higher be Questise this system requires double confidence of desire.

Question 2. Consider a bond with a 4% annual coupon and a face value of $1000 Complete the following table

Show your calculations

Solution:

Apply formula coupon bond