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Goldman Sachs operated with 40 to 1 leverage.”

This statement is consistent with which of the following:

Select one:

a. Goldman Sachs borrows 40 dollars for each dollar of capital.

b. Goldman Sachs must borrow 97.5% of total asset value.

c. Capital constitutes 2.5% of assets.

d. 2.5% loss in value would wipe out shareholder value.

e. All of the above.

This particular bond is considered to have no default risk.

Select one:

a. AAA rated corporate bonds

b. sovereign wealth bonds

c. zero risk bonds

d. US Treasury bonds

The figure above shows the interest rates (sometimes called yields) for two types of bonds: US 10-year Treasury bond and a risky corporate bond. The gap (i.e., vertical distance) between the US 10-year Treasury bond (red) and risky corporate bond (blue) lines is called:

Select one:

a. risk premium

b. yield gap

c. premium spread

d. default zone

An investor has $50,000 in cash to put a $5,000 down payment on 10 different homes valued at $50,000 each and will finance the rest of the investment. Soon after buying the homes she sold all 10 homes for $60,000 each and  earned a profit of $100,000 – an astounding 100% return on investment. This scenario is an example of:

Select one:

a. risk-return

b. interest rate spread

c. financial liquidity

d. leverage