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M: Finance, 4e (Cornett)
Chapter 6 Understanding Financial Markets and Institutions
1) Which of these provide a forum in which demanders of funds raise funds by issuing new
financial instruments, such as stocks and bonds?
A) investment banks
B) money markets
C) primary markets
D) secondary markets
Answer: C
Difficulty: 1 Easy
Topic: Primary and secondary markets
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
Learning Goal: 06-01 Differentiate between primary and secondary markets and between
money and capital markets.
2) In the United States, which of these financial institutions arrange most primary market
transactions for businesses?
A) investment banks
B) asset transformer
C) direct transfer agents
D) over-the-counter agents
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
1
Copyright ©2019 McGraw-Hill
3) Primary market financial instruments include stock issues from firms allowing their equity
shares to be publicly traded on the stock market for the first time. We usually refer to these first-
time issues as which of the following?
A) initial public offerings
B) direct transfers
C) money market transfers
D) over-the-counter stocks
Answer: A
Difficulty: 1 Easy
Topic: Initial public offerings
Bloom's: Remember
4) Once firms issue financial instruments in primary markets, these same stocks and bonds are
then traded in which of these?
A) initial public offerings
B) direct transfers
C) secondary markets
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
5) Which of these feature debt securities or instruments with maturities of one year or less?
A) money markets
B) primary markets
C) secondary markets
Answer: A
Difficulty: 1 Easy
Topic: Money and capital markets
Bloom's: Remember
2
6) Which of the following is NOT a money market instrument?
A) treasury bills
B) commercial paper
C) corporate bonds
D) bankers' acceptances
Answer: C
Difficulty: 1 Easy
Topic: Money market securities
Bloom's: Remember
Learning Goal: 06-02 List the types of securities traded in money and capital markets.
7) Which of these money market instruments are short-term funds transferred between financial
institutions, usually for no more than one day?
A) treasury bills
B) federal funds
C) commercial paper
D) banker acceptances
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
8) Which of the following is NOT a capital market instrument?

A) U.S. Treasury notes and bonds
B) U.S. Treasury bills
C) U.S. government agency bonds
D) corporate stocks and bonds
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
3
9) Which of these capital market instruments are long-term loans to individuals or businesses to
purchase homes, pieces of land, or other real property?
A) treasury notes and bonds
B) mortgages
C) mortgage-backed securities
D) corporate bonds
Answer: B
Difficulty: 1 Easy
Topic: Types of loans
Bloom's: Remember
10) Which of these markets trade currencies for immediate or for some future stated delivery?
A) money markets
B) primary markets
C) foreign exchange markets
Answer: C
Difficulty: 1 Easy
Topic: Foreign exchange markets
Bloom's: Remember
11) Which of these formalizes an agreement between two parties to exchange a standard quantity
of an asset at a predetermined price on a specified date in the future?
A) derivative security
B) initial public offering
C) liquidity asset
D) trading volume
Answer: A
Difficulty: 1 Easy
Topic: Derivatives and other securities
Bloom's: Remember
4
12) Which of these does NOT perform vital functions to securities markets of all sorts by
channelling funds from those with surplus funds to those with shortages of funds?
A) commercial banks
B) secondary markets
C) insurance companies
D) mutual funds
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
13) Which of these refer to the ease with which an asset can be converted into cash?
A) direct transfer
B) liquidity
C) primary market
D) secondary market
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
14) Which of the following is the risk that an asset's sale price will be lower than its purchase
price?
A) default risk
B) liquidity risk
C) price risk
D) trading risk
Answer: C
Difficulty: 1 Easy
Topic: Nominal interest rate factors
Bloom's: Remember
5
15) Which of these is the interest rate that is actually observed in financial markets?
A) nominal interest rates
B) real interest rates
C) real risk-free rate
D) market premium
Answer: A
Difficulty: 2 Medium
Topic: Nominal and real rates
Bloom's: Remember
Learning Goal: 06-06 Analyze specific factors that influence interest rates.
16) Which of these is the interest rate that would exist on a default-free security if no inflation
were expected?
A) nominal interest rate
B) real interest rate
C) default premium
D) market premium
Answer: B
Bloom's: Remember
17) Which of the following is the risk that a security issuer will miss an interest or principal
payment or continue to miss such payments?
A) default risk
B) liquidity risk
C) maturity risk
D) price risk
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
6
18) Which of these is NOT a participant in the shadow banking system?
A) structured investment vehicles (SIVs)
B) special purpose vehicles (SPVs)
C) limited-purpose finance companies
D) credit unions
Answer: D
Topic: Types of financial institutions
Bloom's: Remember
Learning Goal: 06-03 Identify different types of financial institutions and the services that each
provides.
19) How is the shadow banking system the same as the traditional banking system?
A) It intermediates the flow of funds between net savers and net borrowers.
B) It serves as a middle man.
C) The complete credit intermediation is performed through a series of steps involving many
nonbank financial service firms.
D) The complete credit intermediation is performed by a single bank.
Answer: A
Topic: Financial institution functions
Bloom's: Remember
provides.
20) Which of the following is the continual increase in the price level of a basket of goods and
services?
A) deflation
B) inflation
C) recession
D) stagflation
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
7
21) Which of these statements is true?
A) The higher the default risk, the higher the interest rate that securities buyers will demand.
B) The lower the default risk, the higher the interest rate that securities buyers will demand.
C) The higher the default risk, the lower the interest rate that securities buyers will demand.
D) The default risk does not impact the interest rate that securities buyers will demand.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
22) Which of these is a comparison of market yields on securities, assuming all characteristics
except maturity are the same?
A) liquidity risk
B) market risk
C) maturity risk
D) term structure of interest rates
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
23) According to this theory of term structure of interest rates, at any given point in time, the
yield curve reflects the market's current expectations of future short-term rates.
A) expectations theory
B) future short-term rates theory
C) term structure of interest rates theory
D) unbiased expectations theory
Answer: D
Topic: Interest rate theories
Bloom's: Remember
Learning Goal: 06-07 Offer different theories that explain the shape of the term structure of
interest rates.
8
24) Which of the following theories argues that individual investors and financial institutions
have specific maturity preferences, and to encourage buyers to hold securities with maturities
other than their most preferred requires a higher interest rate?
A) liquidity premium hypothesis
B) market segmentation theory
C) supply and demand theory
Answer: B
Bloom's: Remember
interest rates.
25) Which of these is the expected or "implied" rate on a short-term security that will originate at
some point in the future?
A) current yield
B) forward rate
C) spot rate
D) yield to maturity
Answer: B
Topic: Term structure of interest rates
Bloom's: Remember
Learning Goal: 06-08 Demonstrate how forward interest rates derive from the term structure of
interest rates.
26) Which of these is NOT a theory that explains the shape of the term structure of interest rates?
A) liquidity theory
B) market segmentation theory
C) short-term structure of interest rates theory
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
interest rates.
9
27) A particular security's default risk premium is 3 percent. For all securities, the inflation risk
premium is 2 percent and the real interest rate is 2.25 percent. The security's liquidity risk
premium is 0.75 percent and maturity risk premium is 0.90 percent. The security has no special
covenants. What is the security's equilibrium rate of return?
A) 1.78 percent
B) 3.95 percent
C) 8.90 percent
D) 17.8 percent
Answer: C
Explanation: ij* = 2.00% + 2.25% + 3.00% + 0.75% + 0.90% = 8.90%.
Difficulty: 1 Easy
Bloom's: Apply
AACSB: Analytical Thinking
28) You are considering an investment in 30-year bonds issued by a corporation. The bonds have
no special covenants. The Wall Street Journal reports that one-year T-bills are currently earning
3.50 percent. Your broker has determined the following information about economic activity and
the corporation bonds:
Real interest rate = 2.50 percent
Default risk premium = 1.75 percent
Liquidity risk premium = 0.70 percent
Maturity risk premium = 1.50 percent
What is the inflation premium? What is the fair interest rate on the corporation's 30-year bonds?
A) 1 percent and 1.49 percent, respectively
B) 1 percent and 6.45 percent, respectively
C) 1 percent and 7.45 percent, respectively
D) 3.50 percent and 9.95 percent, respectively
Answer: C
Explanation: Expected (IP) = i − RIR = 3.50% − 2.50% = 1.00%.
ij* = 1.00% + 2.50% + 1.75% + 0.70% + 1.50% = 7.45%.
Difficulty: 1 Easy
Bloom's: Apply
10
29) A corporation's 10-year bonds have an equilibrium rate of return of 7 percent. For all
securities, the inflation risk premium is 1.50 percent and the real interest rate is 3.0 percent. The
security's liquidity risk premium is 0.15 percent and maturity risk premium is 0.70 percent. The
security has no special covenants. What is the bond's default risk premium?
A) 1.40 percent
B) 1.65 percent
C) 5.35 percent
D) 9.35 percent
Answer: B
Explanation: 7.00% = 1.5% + 3% + DRP + 0.15% + 0.70%
=> DRP = 7.00% − (1.5% + 3% + 0.15% + 0.70%) = 1.65%.
Difficulty: 1 Easy
Bloom's: Apply
30) A two-year Treasury security currently earns 5.25 percent. Over the next two years, the real
interest rate is expected to be 3.00 percent per year and the inflation premium is expected to be
2.00 percent per year. What is the maturity risk premium on the two-year Treasury security?
A) 0.25 percent
B) 1.00 percent
C) 1.05 percent
D) 5.00 percent
Answer: A
Explanation: 5.25% = 2.00% + 3.00% + 0.00% + 0.00% + MP
=> MP = 5.25% − (2.00% + 3.00% + 0.00% + 0.00%) = 0.25%.
Difficulty: 1 Easy
Bloom's: Apply
11
31) Suppose that the current one-year rate (one-year spot rate) and expected one-year T-bill rates
over the following three years (i.e., years 2, 3, and 4, respectively) are as follows:
1R1 = 5%, E(2r1) = 5.5%, E(3r1) = 6.5%, E(4r1) = 7.0%
Using the unbiased expectations theory, what is the current (long-term) rate for four-year-
maturity Treasury securities?
A) 6.00 percent
B) 6.33 percent
C) 6.75 percent
D) 7.00 percent
Answer: A
Explanation: 1R4 = [(1 + 0.05)(1 + 0.055)(1 + 0.065)(1 + 0.07)]1/4 − 1 = 6%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
32) One-year Treasury bills currently earn 5.50 percent. You expect that one year from now,
one-year Treasury bill rates will increase to 5.75 percent. If the unbiased expectations theory is
correct, what should the current rate be on two-year Treasury securities?
A) 5.50 percent
B) 5.625 percent
C) 5.75 percent
D) 11.25 percent
Answer: B
Explanation: 1R2 = [(1 + 0.055)(1 + 0.0575)]1/2 − 1 = 5.62492604%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
12
one-year Treasury bill rates will increase to 5.75 percent. The liquidity premium on two-year
securities is 0.075 percent. If the liquidity theory is correct, what should the current rate be on
two-year Treasury securities?
A) 3.775 percent
B) 5.625 percent
C) 5.662 percent
D) 11.325 percent
Answer: C
Explanation: 1R2 = [(1 + 0.055)(1 + 0.0575 + 0.00075)]1/2 − 1 = 5.66237504%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
34) Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity
premiums for the next four years are expected to be as follows: Using the liquidity premium
theory, what is the current rate on a four-year Treasury security?
R1 = 6.65 %
E(r2) = 7.75 % L2 = 0.10 %
E(r3) = 7.85 % L3 = 0.20 %
E(r4) = 8.15 % L4 = 0.25 %
A) 7.736 percent
B) 7.600 percent
C) 7.738 percent
D) 8.400 percent
Answer: A
Explanation: 1R4 = [(1 + 0.0665)(1 + 0.0775 + 0.0010)(1 + 0.0785 + 0.0020)(1 + 0.0815 +
0.0025)]1/4 − 1 = 7.73548.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
13
35) One-year Treasury bills currently earn 3.15 percent. You expect that one year from now, 1-
year Treasury bill rates will increase to 3.65 percent and that two years from now, one-year
Treasury bill rates will increase to 4.05 percent. If the unbiased expectations theory is correct,
what should the current rate be on three-year Treasury securities?
A) 3.40 percent
B) 3.62 percent
C) 3.75 percent
D) 3.85 percent
Answer: B
Explanation: 1R3 = [(1 + 0.0315)(1 + 0.0365)(1 + 0.0405)]1/3 − 1 = 3.62%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
one-year Treasury bill rates will increase to 2.85 percent and that two years from now, one-year
Treasury bill rates will increase to 3.15 percent. If the unbiased expectations theory is correct,
what should the current rate be on 3-year Treasury securities?
A) 2.55 percent
B) 2.85 percent
C) 2.93 percent
D) 3.15 percent
Answer: B
Explanation: 1R3 = [(1 + 0.0255)(1 + 0.0285)(1 + 0.0315)]1/3 − 1 = 3.62%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
14
37) The Wall Street Journal reports that the rate on three-year Treasury securities is 7.00 percent,
and the six-year Treasury rate is 7.25 percent. From discussions with your broker, you have
determined that the expected inflation premium will be 1.75 percent next year, 2.25 percent in
year 2, and 2.40 percent in year 3 and beyond. Further, you expect that real interest rates will be
3.75 percent annually for the foreseeable future. What is the maturity risk premium on the six-
year Treasury security?
A) 0.83 percent
B) 0.983 percent
C) 1.10 percent
D) 1.233 percent
Answer: C
Explanation: 7.25% = 2.40% + 3.75% + MP
=> MP = 7.25% − (2.40% + 3.75%) = 1.10%
Bloom's: Apply
38) A corporation's 10-year bonds are currently yielding a return of 7.75 percent. The expected
inflation premium is 3.0 percent annually and the real interest rate is expected to be 3.00 percent
annually over the next 10 years. The liquidity risk premium on the corporation's bonds is 0.50
percent. The maturity risk premium is 0.25 percent on two-year securities and increases by 0.10
percent for each additional year to maturity. What is the default risk premium on the
corporation's 10-year bonds?
A) 0.18 percent
B) 0.20 percent
C) 0.22 percent
D) 0.27 percent
Answer: B
Explanation: 7.75% = 3.00% + 3.00% + DRP + 0.50% + (0.25% + (0.10% × 8))
=> DRP = 7.75% − (3.00% + 3.00% + 0.50% + (0.25% + (0.10% × 8))) = 0.20.
Bloom's: Apply
15
39) Suppose we observe the following rates: 1R1 = 6 percent, 1R2 = 7.5 percent. If the unbiased
expectations theory of the term structure of interest rates holds, what is the one-year interest rate
expected one year from now, E(2r1)?
A) 6.75 percent
B) 7.50 percent
C) 9.02 percent
D) 13.5 percent
Answer: C
Explanation: 1 + 1R2 = {(1 + 1R1)(1 + E(2r1))}1/2
1.075 = {1.06(1 + E(2r1))}1/2
1.155625 = 1.06(1 + E(2r1))
1.155625/1.06 = 1 + E(2r1)
1 + E(2r1) = 1.090212264
E(2r1) = 0.0902 = 9.02.
Bloom's: Apply
16
40) The Wall Street Journal reports that the rate on four-year Treasury securities is 4.75 percent
and the rate on five-year Treasury securities is 5.95 percent. According to the unbiased
expectations hypotheses, what does the market expect the one-year Treasury rate to be four years
from today, E(5r1)?
A) 1.11 percent
B) 5.95 percent
C) 10.70 percent
D) 10.89 percent
Answer: D
Explanation: 1 + 1R5 = {(1 + 1R4)4(1 + E(5r1))}1/5
1.0595 = {(1.0475)4(1 + E(5r1))}1/5
(1.0595)5 = (1.0475)4 (1 + E(5r1))
(1.0595)5/(1.0475)4 = 1 + E(5r1)
1 + E(5r1) = 1.108890541
E(5r1) = 10.89%.
Bloom's: Apply
interest rates.
17
41) The Wall Street Journal reports that the rate on three-year Treasury securities is 4.75 percent
and the rate on four-year Treasury securities is 5.00 percent. The one-year interest rate expected
in three years is E(4r1), 5.25 percent. According to the liquidity premium theory, what is the
liquidity premium on the four-year Treasury security, L4?
A) 0.0375 percent
B) 0.504 percent
C) 5.01 percent
D) 5.04 percent
Answer: B
Explanation: 1 + 1R4 = {(1 + 1R3)(1 + E(4r1) + L4)}1/4
1.0500 = {(1.0475)3(1 + 0.0525 + L4)}1/4
(1.0500)4 = (1.0475)3(1 + 0.0525 + L4)
(1.0500)4/(1.0475)3 = 1 + 0.0525 + L4
(1.0500)4/(1.0475)3 − 1.0525 = L4 = 0.0050358564 = 0.504%.
Bloom's: Apply
interest rates.
42) Suppose we observe the following rates: 1R1 = 8 percent, 1R2 = 10 percent, and E(2r1) = 8
percent. If the liquidity premium theory of the term structure of interest rates holds, what is the
liquidity premium for year 2, L2?
A) 1.02 percent
B) 4.04 percent
C) 6.15 percent
D) 12.03 percent
Answer: B
1.10 = {(1.08)(1 + 0.08 + L2)}1/2
(1.10)2 = (1.08)(1 + 0.08 + L2)
(1.10)2/(1.08) = 1 + 0.08 + L2
(1.10)2/(1.08) − 1.08 = L2 = 0.04037 = 4.04%.
Bloom's: Apply
interest rates.
18
43) You note the following yield curve in The Wall Street Journal. According to the unbiased
expectations hypothesis, what is the one-year forward rate for the period beginning one year
from today, 2f1?
Maturity Yield
One day 3.00%
One year 5.00
Two years 6.25
Three years 8.00
A) 1.01 percent
B) 1.19 percent
C) 5.625 percent
D) 7.51 percent
Answer: D
Explanation: 1R2 = 0.0625 = [(1 + 0.050)(1 + 2f1)]1/2 − 1
ψ [(1.0625)2/(1.050)] − 1 = 2f1 = 7.51%.
Bloom's: Apply
interest rates.
19
44) On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-
year zero-coupon Treasury security rates were as follows:
1R1 = 5.25%, 1R2 = 5.75%, 1R3 = 6.25%, 1R4 = 6.45%
Using the unbiased expectations theory, what is the one-year forward rate on zero-coupon
Treasury bonds for year 4 as of May 23, 20XX?
A) 5.925 percent
B) 6.45 percent
C) 7.05 percent
D) 10.32 percent
Answer: C
Explanation: 4f1 = [(1 + 1R4)4/(1 + 1R3)3] − 1 = [(1 + 0.0645)4/(1 + 0.0625)3] − 1 = 7.05%.
Bloom's: Apply
interest rates.
45) The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 6.75
percent, on 20-year Treasury bonds is 7.25 percent, and on a 20-year corporate bond is 8.50
percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity
risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond,
what is the current rate on a 10-year corporate bond.
A) 7.50 percent
B) 8.00 percent
C) 8.50 percent
D) 8.75 percent
Answer: B
Explanation: 20-year corporate bond: 8.5% = 7.25% + DRP + LRP + 0.00% => DRP + LRP =
8.5% − 7.25% = 1.25%.
10-year corporate bond: ij* = 6.75% + 1.25% = 8.00%.
Difficulty: 3 Hard
Bloom's: Apply
20
46) The Wall Street Journal reports that the current rate on 5-year Treasury bonds is 6.50 percent
and on 10-year Treasury bonds is 6.75 percent. Assume that the maturity risk premium is zero.
Calculate the expected rate on a 5-year Treasury bond purchased five years from today, E(5r1).
A) 6.625 percent
B) 6.75 percent
C) 7.00 percent
D) 7.58 percent
Answer: C
Explanation: 1 + 1R10 = {(1 + 1R5)5(1 + E(5r1))5}1/10 = 1.0675 = {(1 + 0.065)5(1 +
E(5r1))5}1/10
=> E(5r1) = {(1.0675)10/(1 + 0.065)5}1/5 − 1 = 7.00%.
Difficulty: 3 Hard
Bloom's: Apply
47) Suppose we observe the three-year Treasury security rate (1R3) to be 6 percent, the expected
one-year rate next year E(2r1) to be 3 percent, and the expected one-year rate the following year
E(3r1) to be 5 percent. If the unbiased expectations theory of the term structure of interest rates
holds, what is the one-year Treasury security rate, 1R1?
A) 3.00 percent
B) 10.13 percent
C) 14.00 percent
D) 19.88 percent
Answer: B
Explanation: 1.06 = {(1 + 1R1)(1 + E(2r1))(1 + E(3r1))}1/3
1.06 = {(1 + 1R1) × 1.03 × 1.05}1/3
(1.06)3 = (1 + 1R1) × 1.03 × 1.05
1 + 1R1 = 1.191016/(1.03 × 1.05)
1R1 = 0.10126 = 10.13%.
Difficulty: 3 Hard
Bloom's: Apply
interest rates.
21
expectations hypothesis, what does the market expect the two-year Treasury rate to be three
years from today, E(4r2)?
A) 6.35 percent
B) 6.75 percent
C) 7.25 percent
D) 7.45 percent
Answer: B
Explanation: 1 + 1R5 = {(1 + 1R3)3(1 + E(3r2))2}1/5 = 1.0645 = {(1 + 0.0625)3(1 + E(3r2))2}1/5
=> E(3r2) = {(1.0645)5/(1 + 0.0625)3}1/2 − 1 = 6.75.
Difficulty: 3 Hard
Bloom's: Apply; Analyze
interest rates.
Treasury bill rates will increase to 3.95 percent. The liquidity premium on two-year securities is
0.05 percent and on three-year securities is 0.15 percent. If the liquidity theory is correct, what
should the current rate be on three-year Treasury securities?
A) 3.25 percent
B) 3.55 percent
C) 3.62 percent
D) 4.10 percent
Answer: C
Explanation: 1R2 = [(1 + 0.0325)(1 + 0.0345 + 0.0005)(1 + 0.0395 + 0.0015)]1/3 − 1 = 3.62%.
interest rates.
22
Treasury bill rates will increase to 3.35 percent. The liquidity premium on two-year securities is
0.05 percent and on three-year securities is 0.15 percent. If the liquidity theory is correct, what
should the current rate be on three-year Treasury securities?
A) 2.95 percent
B) 3.15 percent
C) 3.22 percent
D) 3.35 percent
Answer: C
Explanation: 1R2 = [(1 + 0.0295)(1 + 0.0315 + 0.0005)(1 + 0.0335 + 0.0015)]1/3 − 1 = 3.22%.
interest rates.
51) Assume the current interest rate on a one-year Treasury bond (1R1) is 5.00 percent, the
current rate on a two-year Treasury bond (1R2) is 5.75 percent, and the current rate on a three-
year Treasury bond (1R3) is 6.25 percent. If the unbiased expectations theory of the term
structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills
during year 3, 3f1?
A) 5.00 percent
B) 5.67 percent
C) 7.26 percent
D) 8.00 percent
Answer: C
Explanation: 1R1 = 5.0%
1/2 − 1 Ψ f = 6.51%.
1R2 = 5.75% = [(1 + 0.05)(1 + 2f1)] 21
R = 6.25% = [(1 + 0.05)(1 + 0.0651)(1 + 1/3 − 1 Ψ f = 7.26.
1 3 3 1)]
f 31
Difficulty: 3 Hard
interest rates.
23
52) A recent edition of The Wall Street Journal reported interest rates of 3.10 percent, 3.50
percent, 3.75 percent, and 3.95 percent for three-year, four-year, five-year, and six-year Treasury
security yields, respectively, According to the unbiased expectation theory of the term structure
of interest rates, what are the expected one-year rates for year 6?
A) 3.575 percent
B) 3.95 percent
C) 4.96 percent
D) 5.33 percent
Answer: C
1.0395 = {(1.0375)5(1 + E(6r1))}1/6
(1.0395)6 = (1.0375)5(1 + E(6r1))
(1.0395)6/(1.0375)5 = 1 + E(6r1)
1 + E(6r1) = 1.04955798
E(6r1) = 4.96%.
Difficulty: 3 Hard
Bloom's: Apply
interest rates.
53) A particular security's default risk premium is 3 percent. For all securities, the inflation risk
premium is 1.75 percent and the real interest rate is 4.2 percent. The security's liquidity risk
premium is 0.35 percent and maturity risk premium is 0.95 percent. The security has no special
covenants. Calculate the security's equilibrium rate of return.
A) 8.50 percent
B) 6.05 percent
C) 10.25 percent
D) 9.90 percent
Answer: C
Explanation: 3 + 1.75 + 4.2 + 0.35 + 0.95 = 10.25.
Difficulty: 1 Easy
Bloom's: Apply
24
54) You are considering an investment in 30-year bonds issued by Moore Corporation. The
bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are
currently earning 3.55 percent. Your broker has determined the following information about
economic activity and Moore Corporation bonds:

What is the inflation premium?

A) 0.80 percent
B) 1.25 percent
C) 6.25 percent
D) 8.00 percent
Answer: A
Explanation: 3.55 − 2.75 = 0.80.
Difficulty: 1 Easy
Bloom's: Apply
25
55) You are considering an investment in 30-year bonds issued by Moore Corporation. The
bonds have no special covenants. The Wall Street Journal reports that one-year T-bills are
currently earning 3.55 percent. Your broker has determined the following information about
economic activity and Moore Corporation bonds:
What is the fair interest rate on Moore Corporation 30-year bonds?

A) 3.80 percent
B) 6.45 percent
C) 6.95 percent
D) 9.70 percent
Answer: C
Explanation: 1.05 + 0.5 + 1.85 + 3.55 = 6.95.
Difficulty: 1 Easy
Bloom's: Apply
56) Dakota Corporation 15-year bonds have an equilibrium rate of return of 9 percent. For all
securities, the inflation risk premium is 1.95 percent and the real interest rate is 3.65 percent. The
security's liquidity risk premium is 0.35 percent and maturity risk premium is 0.95 percent. The
security has no special covenants. Calculate the bond's default risk premium.
A) 2.10 percent
B) 3.05 percent
C) 3.40 percent
D) 2.45 percent
Answer: A
Explanation: 9 − 1.95 − 3.65 − 0.35 − 0.95 = 2.1.
Difficulty: 1 Easy
Bloom's: Apply
26
57) A two-year Treasury security currently earns 5.13 percent. Over the next two years, the real
interest rate is expected to be 2.15 percent per year and the inflation premium is expected to be
1.75 percent per year. Calculate the maturity risk premium on the two-year Treasury security.
A) 5.13 percent
B) 3.38 percent
C) 2.98 percent
D) 1.23 percent
Answer: D
Explanation: 5.13 − 1.75 − 2.15 = 1.23.
Difficulty: 1 Easy
Bloom's: Apply
1R1 = 5 percent,
E(2r1) = 7 percent,
E(3r1) = 7.5 percent
Using the unbiased expectations theory, calculate the current (long-term) rates for one-year and
two-year-maturity Treasury securities.
A) one-year: 5.00 percent,two-year: 5.50 percent
B) one-year: 5.00 percent, two-year: 6.00 percent
C) one-year: 5.50 percent, two-year: 6.15 percent
D) one-year: 5.50 percent, two-year: 5.75 percent
Answer: B
Explanation: 1R1 = 5% and 1R2 = [(1 + 0.05)(1 + 0.07)]1/2 − 1 = 6.0%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
27
over the following three years (i.e., years 2, 3, and 4 respectively) are as follows:
1R1 = 5 percent,
E(2r1) = 6 percent,
Using the unbiased expectations theory, calculate the current (long-term) rates for three-year-
and four-year-maturity Treasury securities.
A) one-year: 6.16 percent, two-year: 6.58 percent
B) one-year: 6.16 percent, two-year: 6.78 percent
C) one-year: 6.25 percent, two-year: 6.45 percent
D) one-year: 5.95 percent, two-year: 6.45 percent
Answer: A
Explanation: 1R3 = [(1 + 0.05)(1 + 0.06)(1 + 0.075)]1/3 − 1 = 6.16% and
1/4 − 1 = 6.58%.
1R4 = [(1 + 0.05)(1 + 0.06)(1 + 0.075)(1 + 0.0785)]
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
28
1R1 = 5 percent,
E(2r1) = 6 percent,
Using the unbiased expectations theory, calculate the current (long-term) rates for one-, two-,
three-, and four-year-maturity Treasury securities.
A) 5.00 percent, 5.50 percent, 6.16 percent, 6.33 percent
B) 5.00 percent, 5.25 percent, 6.10 percent, 6.27 percent
C) 5.00 percent, 5.50 percent, 6.10 percent, 6.23 percent
D) 5.00 percent, 5.25 percent, 6.16 percent, 6.49 percent
Answer: A
Explanation: 1R1 = 5%
1/2 − 1 = 5.5%.
1R2 = [(1 + 0.05)(1 + 0.06)]
1/3 − 1 = 6.16%.
1R3 = [(1 + 0.05)(1 + 0.06)(1 + 0.075)]
1/4 − 1 = 6.33%.
1R4 = [(1 + 0.05)(1 + 0.06)(1 + 0.075)(1 + 0.0685)]
Bloom's: Apply
interest rates.
one-year Treasury bill rates will increase to 4.15 percent. If the unbiased expectations theory is
correct, what should the current rate be on two-year Treasury securities?
A) 4.25 percent
B) 3.85 percent
C) 3.95 percent
D) 4.35 percent
Answer: C
Explanation: 1R2 = [(1 + 0.0375)(1 + 0.0415)]0.5 − 1 = 3.95%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
29
62) One-year Treasury bills currently earn 4.5 percent. You expect that one year from now, one-
year Treasury bill rates will increase to 6.65 percent. The liquidity premium on two-year
securities is 0.05 percent. If the liquidity theory is correct, what should the current rate be on
two-year Treasury securities?
A) 5.24 percent
B) 5.59 percent
C) 5.65 percent
D) 5.95 percent
Answer: B
Explanation: 1R2 = [(1 + 0.045)(1 + 0.0665 + 0.0005)]0.5 − 1 = 5.59%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
63) Based on economists' forecasts and analysis, one-year Treasury bill rates and liquidity
premiums for the next four years are expected to be as follows:
R1 = 5.95percent
E(r2) = 6.25percent L2 = 0.05percent
Using the liquidity premium theory, what should be the current rate on four-year Treasury
securities?
A) 6.59 percent
B) 6.75 percent
C) 6.82 percent
D) 7.13 percent
Answer: A
Explanation: 1R4 = [(1 + 0.0595)(1 + 0.0625 + 0.0005)(1 + 0.0675 + 0.0010)(1 + 0.0715 +
0.0012)]1/4 − 1 = 6.59%.
Difficulty: 1 Easy
Bloom's: Apply
interest rates.
30
determined that the expected inflation premium will be 2.25 percent next year, 2.50 percent in
year 2, and 2.50 percent in year 3 and beyond. Further, you expect that real interest rates will be
4.4 percent annually for the foreseeable future. Calculate the maturity risk premium on the 3-year
Treasury security.
A) 0.00 percent
B) 0.10 percent
C) 4.50 percent
D) 2.60 percent
Answer: B
Explanation: 7.00% = 2.50% + 4.40% + MP => MP = 7.00% − (2.50% + 4.40%) = 0.10%.
Bloom's: Apply
determined that the expected inflation premium will 2.25 percent next year, 2.50 percent in year
2, and 2.60 percent in year 3 and beyond. Further, you expect that real interest rates will be 3.4
percent annually for the foreseeable future. Calculate the maturity risk premium on the three-year
and the six-year Treasury security.
A) 3-year: 0.6 percent, 6-year: 0.80 percent
B) 3-year: 0.5 percent, 6-year: 0.90 percent
C) 3-year: 0.6 percent, 6-year: 1.20 percent
D) 3-year: 0.5 percent, 6-year: 0.80 percent
Answer: D
Explanation: Step 1: 6.50% = 2.60% + 3.40% + MP => MP = 6.50% − (2.60% + 3.40%) =
0.50%.
Step 2: 6.80% = 2.60% + 3.40% + MP => MP = 6.80% − (2.60% + 3.40%) = 0.80%.
Bloom's: Apply
31
66) Nikki G's Corporation's 10-year bonds are currently yielding a return of 9.25 percent. The
expected inflation premium is 2.0 percent annually and the real interest rate is expected to be
3.10 percent annually over the next 10 years. The liquidity risk premium on Nikki G's bonds is
0.1 percent. The maturity risk premium is 0.10 percent on two-year securities and increases by
0.05 percent for each additional year to maturity. Calculate the default risk premium on Nikki
G's 10-year bonds.
A) 2.55 percent
B) 5.65 percent
C) 3.55 percent
D) 1.85 percent
Answer: C
Explanation: 9.25% = 2.0% + 3.10% + DRP + 0.1% + (0.10% + (0.05% × 8))
DRP = 9.25% − (2.0% + 3.10% + 0.1% + 0.5%) = 3.55%.
Bloom's: Apply
67) Suppose we observe the following rates: 1R1 = 12 percent, 1R2 = 15 percent. If the unbiased
expectations theory of the term structure of interest rates holds, what is the one-year interest rate
expected one year from now, E(2r1)?
A) 13.5 percent
B) 14.2 percent
C) 15.6 percent
D) 18.0 percent
Answer: D
Explanation: 1 + 1R2 = {(1 + 1R1)(1 + E(2r1))}1/2
1.15 = {1.12(1 + E(2r1))}1/2
1.32 = 1.12(1 + E(2r1))
1.32/1.12 = 1 + E(2r1)
1 + E(2r1) = 1.18
E(2r1) = 0.18.
Bloom's: Apply
32
68) The Wall Street Journal reports that the rate on four-year Treasury securities is 7.50 percent
expectations hypothesis, what does the market expect the one-year Treasury rate to be four years
from today, E(5r1)?
A) 16.0 percent
B) 18.4 percent
C) 15.9 percent
D) 13.7 percent
Answer: A
1.0915 = {(1.075)4(1 + E(5r1))}1/5
(1.0915)5 = (1.075)4(1 + E(5r1))
(1.0915)5/(1.075)4 = 1 + E(5r1)
1 + E(5r1) = 1.1601
E(5r1) = 16.01%.
Bloom's: Apply
interest rates.
33
and the rate on four-year Treasury securities is 8.50 percent. The one-year interest rate expected
in three years is E(4r1), 4.10 percent. According to the liquidity premium theory, what is the
liquidity premium on the four-year Treasury security, L4?
A) 6.7 percent
B) 7.1 percent
C) 8.2 percent
D) 9.6 percent
Answer: C
1.0850 = {(1.0725)3(1 + 0.0410 + L4)}1/4
(1.0850)4 = (1.0725)3(1 + 0.0410 + L4)
(1.0850)4/(1.0725)3 = 1 + 0.0410 + L4
(1.0850)4/(1.0725)3 − 1.0410 = L4 = 0.0824 = 8.24%.
Bloom's: Apply
interest rates.
70) Suppose we observe the following rates: 1R1 = 13 percent, 1R2 = 16 percent, and E(2r1) = 10
percent. If the liquidity premium theory of the term structure of interest rates holds, what is the
liquidity premium for year 2, L2?
A) 8.7 percent
B) 9.1 percent
C) 9.7 percent
D) 10.0 percent
Answer: B
1.16 = {(1.13)(1 + 0.10 + L2)}1/2
(1.16)2 = (1.13)(1 + 0.10 + L2)
(1.16)2/(1.13) = 1 + 0.10 + L2
(1.16)2/(1.13) − 1.10 = L2 = 0.0908.
Bloom's: Apply
interest rates.
34
71) You note the following yield curve in The Wall Street Journal. According to the unbiased
expectations hypothesis, what is the one-year forward rate for the period beginning one year
from today, 2f1?
Maturity Yield
One day 2.00%
One year 6.00
Two years 7.50
Three years 9.00
A) 7.6 percent
B) 8.6 percent
C) 9.0 percent
D) 10.2 percent
Answer: C
Explanation: 1R2 = 0.075 = [(1 + 0.06)(1 + 2f1)]1/2 − 1; [(1.075)2/(1.06)] − 1 = 2f1 = 9.02%.
Topic: Interest rate forecasting
Bloom's: Apply
interest rates.
35
72) On May 23, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-
year zero-coupon Treasury security rates were as follows:
1R1 = 4.55 percent,

1R2 = 4.75 percent,
1R3 = 5.25 percent,
1R4 = 5.95 percent
Using the unbiased expectations theory, calculate the one-year forward rates on zero-coupon
Treasury bonds for years two, three, and four as of May 23, 20XX.
A) year 1: 4.95 percent, Year 2: 6.26 percent, Year 3: 8.08 percent
B) year 1: 3.75 percent, Year 2: 6.02 percent, Year 3: 9.00 percent
C) year 1: 4.95 percent, Year 2: 7.26 percent, Year 3: 8.08 percent
D) year 1: 3.65 percent, Year 2: 6.32 percent, Year 3: 11.08 percent
Answer: A
Explanation: 2f1 = [(1 + 1R2)2/(1 + 1R1)] − 1 = [(1 + 0.0475)2/(1 + 0.0455)] − 1 = 4.95%
3f1 = [(1 + 1R3) /(1 + 1R2) ] − 1 = [(1 + 0.0525) /(1 + 0.0475) ] − 1 = 6.26%
3 2 3 2
4f1 = [(1 + 1R4) /(1 + 1R3) ] − 1 = [(1 + 0.0595) /(1 + 0.0525) ] − 1 = 8.08%.
4 3 4 3
Bloom's: Apply
percent, on 20-year Treasury bonds is 7.95 percent, and on a 20-year corporate bond is 10.75
percent. Assume that the maturity risk premium is zero. If the default risk premium and liquidity
risk premium on a 10-year corporate bond is the same as that on the 20-year corporate bond,
calculate the current rate on a 10-year corporate bond.
A) 9.05 percent
B) 6.15 percent
C) 7.60 percent
D) 8.70 percent
Answer: A
Explanation: 20-year bond: 10.75% = 7.95% + DRP + LRP + 0.00% => DRP + LRP = 2.8%.
10-year bond: ij* = 6.25% + 2.8% = 9.05%.
Difficulty: 3 Hard
Bloom's: Apply
36
74) The Wall Street Journal reports that the current rate on five-year Treasury bonds is 6.45
percent and on 10-year Treasury bonds is 7.75 percent. Assume that the maturity risk premium is
zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today,
E(5r5).
A) 7.25 percent
B) 8.12 percent
C) 9.07 percent
D) 10.16 percent
Answer: C
E(5r5))5}1/10
E(5r5) = {(1.0775)10/(1 + 0.0645)5}1/5 − 1 = 9.07%.
Difficulty: 3 Hard
Bloom's: Apply
75) Suppose we observe the three-year Treasury security rate (1R3) to be 11 percent, the
expected one-year rate next year E(2r1) to be 4 percent, and the expected one-year rate the
following year E(3r1) to be 5 percent. If the unbiased expectations theory of the term structure of
interest rates holds, what is the one-year Treasury security rate, 1R1?
A) 18.57 percent
B) 10.19 percent
C) 23.19 percent
D) 25.24 percent
Answer: D
Explanation: 1.11 = {(1 + 1R1)(1 + E(2r1))(1 + E(3r1))}1/3
1.11 = {(1 + 1R1) × 1.04 × 1.05}1/3
(1.11)3 = (1 + 1R1) × 1.04 × 1.05
1 + 1R1 = 1.3676/(1.04 × 1.05)
1R1 = 0.2524 = 25.24%.
Difficulty: 3 Hard
Bloom's: Apply
interest rates.
37
76) Assume the current interest rate on a one-year Treasury bond (1R1) is 5.50 percent, the
current rate on a two-year Treasury bond (1R2) is 5.95 percent, and the current rate on a three-
year Treasury bond (1R3) is 8.50 percent. If the unbiased expectations theory of the term
structure of interest rates is correct, what is the one-year interest rate expected on Treasury bills
during year 3, 3f1?
A) 13.79 percent
B) 12.29 percent
C) 11.69 percent
D) 10.29 percent
Answer: A
Explanation: 1R1 = 5.5%
1/2 − 1; f = 6.40%.
1R2 = 5.95% = [(1 + 0.055)(1 + 2f1)] 21
1/3 − 1; f = 13.79%.
1R3 = 8.50% = [(1 + 0.055)(1 + 0.064)(1 + 3f1)] 31
Difficulty: 3 Hard
Bloom's: Apply
interest rates.
77) If the yield curve is downward sloping, what is the yield to maturity on a 30-year Treasury
bond relative to a 10-year Treasury bond?
A) The yield on the 10-year bond must be greater than the yield on the 30-year bond.
B) The yield on the 10-year bond must be less than the yield on the 30-year bond.
C) The yields on the two bonds are equal.
D) We need to know the other risk premiums to answer this question.
Answer: A
Topic: Treasury yield curve
Bloom's: Understand
38
78) One-year Treasury bill rates in 20XX averaged 5.15 percent and inflation for the year was
7.3 percent. If investors had expected the same inflation rate as that realized, calculate the real
interest rate for 20XX according to the Fisher effect.
A) 0.00 percent
B) −2.15 percent
C) 2.15 percent
D) 3.95 percent
Answer: B
Explanation: 5.15 − 7.3 = −2.15%.
Topic: Fisher effect
Bloom's: Apply
79) Assume that you observe the following rates on long-term bonds:
U.S. Treasury bonds = 4.15 percent AAA

Corporate bonds = 6.2 percent BBB
Corporate bonds = 7.15 percent
The main reason for the differences in the interest rates is:
A) maturity risk premium
B) inflation premium
C) default risk premium
D) convertibility premium
Answer: C
Bloom's: Remember
39
80) Which of the following statements is correct?
A) According to the unbiased expectations theory, the return for holding a two-year bond to
maturity is equal to the nominal rate divided by the real interest rate.
B) The rate on a 10-year Corporate bond can never be less than the rate on a 10-year Treasury.
C) We usually observe the inverted yield curve.
D) The rate on a three-year Treasury can never be less than the rate on a 15-year Treasury.
Answer: B
Difficulty: 3 Hard
Bloom's: Remember
Learning Goal: 06-06 Analyze specific factors that influence interest rates.; 06-07 Offer
different theories that explain the shape of the term structure of interest rates.
81) One-year interest rates are 3 percent. The market expects one-year rates to be 5 percent one
year from now. The market also expects one-year rates to be 7 percent two years from now.
Assume that the unbiased expectations theory holds. Which of the following is correct?
A) The yield curve is downward sloping.
B) The yield curve is flat.
C) The yield curve is upward sloping.
D) We need the maturity risk premiums to be able to answer this question.
Answer: C
Difficulty: 1 Easy
Bloom's: Apply
interest rates.

A) If the unbiased expectations theory is correct, we could see an inverted yield curve.
B) If a yield curve is inverted, long-term bonds have higher yields than short-term bonds.
C) If the maturity risk premium is zero, the yield curve would be flat.
D) If the unbiased expectations theory is correct, the maturity risk premium is zero.
Answer: D
Bloom's: Remember
interest rates.
40
83) The Wall Street Journal states that the yield curve for Treasuries is downward sloping and
there is no liquidity premium or maturity risk premium. Given this information, which of the
following statements is correct?
A) A 30-year corporate bond must have a higher yield than a five-year corporate bond.
B) A five-year corporate bond must have a higher yield than a 30-year Treasury bond.
C) A five-year Treasury bond must have a higher yield than a five-year corporate bond.
D) All of these choices are correct.
Answer: B
Bloom's: Remember
interest rates.

A) An IPO is an example of a primary market transaction.
B) Money markets are subject to wider price fluctuations and are therefore more risky than
capital market instruments.
C) A direct transfer of funds is more efficient than utilizing financial institutions.
D) The market segmentation theory argues that the different investors have different risk
preferences which determine the shape of the yield curve.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
money and capital markets.; 06-02 List the types of securities traded in money and capital
markets.; 06-05 Understand how equilibrium interest rates are determined.
41
85) In 20XX, the 10-year Treasury rate was 4.5 percent while the average 10-year Aaa corporate
bond debt carried an interest rate of 6.0 percent. What is the average default risk premium on
Aaa corporate bonds?
A) 0.75 percent
B) 1.5 percent
C) 1.95 percent
D) 2.25 percent
Answer: B
Explanation: 6.0 − 4.5 = 1.5.
Difficulty: 1 Easy
Bloom's: Apply

A) The default risk premium of Baa 20-year corporate bonds over Aaa 20-year corporate bonds
does not vary.
B) The market segmentation theory assumes that borrowers and investors do not want to shift
from one maturity sector to another without an interest rate premium.
C) Real interest rates are the rates that are quoted in the news.
Answer: B
Bloom's: Remember
Learning Goal: 06-06 Analyze specific factors that influence interest rates.; 06-05 Understand
how equilibrium interest rates are determined.
42
87) All of the following are types of financial institutions EXCEPT
A) insurance companies.
B) pension funds.
C) thrifts.
D) Federal reserve
Answer: D
Difficulty: 1 Easy
Topic: Types of financial institutions
Bloom's: Remember
provides.
88) All of the following are benefits that financial institutions provide to our economy EXCEPT
A) increased liquidity.
B) increased monitoring.
C) increased dollar amount of funds flowing from suppliers to fund users.
D) increased price risk.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
provides.
89) All of the following are factors that affect nominal interest rates EXCEPT
A) time to maturity.
B) real interest rate.
C) convertibility features.
D) foreign exchange.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
43
A) A flat yield curve occurs when the yield-to-maturity is virtually unaffected by the term-to-
maturity.
B) Real interest rates are generally lower than nominal interest rates.
C) Liquidity risk is the risk that a security may be difficult to sell on short notice for its true
value.
Answer: D
Bloom's: Remember
91) Which of the following statements is incorrect?

A) Governments affect foreign exchange rates indirectly by altering prevailing interest rates
within their own countries.
B) Foreign currency exchange rates vary with the day-to-day demand and supply of the two
foreign currencies.
C) Central governments can intervene in foreign exchange markets directly and value their
currency at high rates relative to another currency.
Answer: D
Difficulty: 1 Easy
Topic: Exchange rates
Bloom's: Remember
44
92) The theory that argues that individual investors and financial institutions have specific
maturity preferences is called the
A) market segmentation theory.
B) unbiased expectations theory.
C) liquidity preference theory.
D) inverted forward theory.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
interest rates.
93) The theory that states that the yield curve reflects the market's current expectations of future
short-term rates is called the
A) market segmentation theory.
B) liquidity premium theory.
C) unbiased expectations theory.
D) inverted forward theory.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
interest rates.
94) Which of the following statements is incorrect?

A) The over-the-counter market operates in a fixed location to conduct trades for local stocks.
B) Liquidity is the ease with which an asset can be converted into cash.
C) An initial public offering is an example of a primary market transaction.
D) Money market instruments have maturities of less than one year.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
money and capital markets.; 06-02 List the types of securities traded in money and capital
markets.; 06-06 Analyze specific factors that influence interest rates.
45
95) All of the following are secondary market transactions EXCEPT
A) GE sells $30 million of new preferred stock.
B) Microsoft sells $2 million of IBM preferred stock out of its marketable securities portfolio.
C) The Magellan Fund buys $100 million of Apple previously issued bonds.
D) Allstate Insurance Co. sells $5 million in IBM bonds.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
96) Which of the following is NOT correct with respect to derivative securities?
A) They are among the riskiest of securities in the financial securities markets.
B) They can be used for hedging purposes.
C) Examples of derivatives include futures, options, and swaps.
Answer: D
Difficulty: 1 Easy
Topic: Derivatives and other securities
Bloom's: Remember
97) Which of the following is NOT correct with respect to financial institutions?
A) Financial institutions channel funds from those with shortages to those with surplus funds.
B) Commercial banks, insurance companies, and mutual funds are examples of financial
institutions.
C) Financial institutions reduce monitoring costs and liquidity costs.
D) Financial institutions reduce price risk.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
provides.
46
98) All of the following are factors that influence interest rates for individual securities EXCEPT
A) the security's term to maturity.
B) inflation.
C) special provisions regarding the use of funds raised by a particular security issuer.
D) the home mortgage rate.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
99) The real interest rate is

A) the rate charged to the corporations with the best credit rating or least amount of default risk.
B) the rate that a security would pay if no inflation were expected over its holding period.
C) the rate that a security would pay if the security had no maturity risk.
Answer: B
Difficulty: 1 Easy
Bloom's: Remember
100) All of the following special provisions benefit security holders EXCEPT
A) tax-free status.
B) convertibility.
C) callability.
Answer: C
Bloom's: Remember
47
101) An example of an illiquid asset is
A) U.S. Treasury bill.
B) bonds issued by GM.
C) common stock issued by Apple Inc.
D) common stock issued by a small but financially strong firm.
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
102) All of the following are common shapes for the yield curve EXCEPT
A) elliptical.
B) upward-sloping.
C) flat.
D) inverted.
Answer: A
Difficulty: 1 Easy
Bloom's: Remember
103) The Wall Street Journal reports that the current rate on five-year Treasury bonds is 2.85
zero. Calculate the expected rate on a five-year Treasury bond purchased five years from today,
E(5r5).
A) 3.60 percent
B) 5.85 percent
C) 7.20 percent
D) 8.28 percent
Answer: B
Explanation: 1 + 1R10 = {(1 + 1R5)5(1 + E(5r5))5}1/10 = 1 .0435 = {(1 + 0.0285)5(1 +
E(5r5))5}1/10
=> E(5r5) = {(1.0435)10/(1 + 0.0285)5}1/5 − 1 = 5.85%.
Difficulty: 3 Hard
Bloom's: Remember
48
zero. Calculate the expected rate on a 10-year Treasury bond purchased 10 years from today,
E(10r10).
A) 2.25 percent
B) 4.38 percent
C) 7.80 percent
D) 8.75 percent
Answer: C
E(10r10))10}1/20
=> E(10r10) = {(1.0550)20/(1 + 0.0325)10}1/10 − 1 = 7.80%.
Difficulty: 3 Hard
Bloom's: Remember
105) Which of the following are suppliers of loanable funds?

A) households
B) government units
C) foreign investors
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
Learning Goal: 06-04 Know the main suppliers and demanders of loanable funds.
49
106) Which of the following do foreign suppliers of funds in the U.S. financial market assess?
A) interest rates offered on financial securities
B) their total wealth
C) foreign investors
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
107) Which of the following are demanders of loanable funds?

A) households
B) businesses
C) governments
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
108) Why would foreign participants borrow from U.S. financial markets?
A) They look for the cheapest source of funds.
B) They look at the economic conditions of their home country.
C) All of these choices are correct.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
50
109) Which of the following factors cause the supply of funds curve to shift?
A) total wealth risk of the financial security
B) future spending needs
C) All of these choices are correct.
Answer: C
Difficulty: 1 Easy
Bloom's: Remember
Learning Goal: 06-05 Understand how equilibrium interest rates are determined.
110) When monetary policy objectives are to contract the economic growth, which of the
following occurs?
A) The Federal Reserve decreases the supply of funds available in the financial markets.
B) At every interest rate the supply of loanable funds increases.
C) The supply curve shifts down and to the right.
D) The equilibrium interest rate rises.
Answer: A
Bloom's: Remember
111) Which of the following factors cause the demand for funds curve to shift?
A) utility derived from asset purchased with borrowed funds
B) restrictiveness of nonprice conditions of borrowing
C) domestic and foreign economic conditions
Answer: D
Difficulty: 1 Easy
Bloom's: Remember
51
112) Which of the following occurs as the utility derived from an asset purchased with borrowed
funds increases?
A) The willingness of market participants to borrow decreases.
B) The absolute dollar value borrowed increases.
C) At every interest rate the demand for loanable funds decrease.
Answer: B
Bloom's: Remember
113) Which of the following occurs as the nonprice restrictions put on borrowers as a condition
of borrowing increase?
A) The willingness of market participants to borrow decreases.
B) The absolute dollar value borrowed increases.
C) At every interest rate the demand for loanable funds increases.
Answer: A
Bloom's: Remember
114) Which of the following occurs as domestic economic conditions experience a period of
growth especially relative to other countries?
A) Market participants are willing to borrow more heavily.
B) At every interest rate the supply of loanable funds increases.
C) At every interest rate the demand for loanable funds increases.
Answer: D
Bloom's: Remember
Learning Goal: 06-05 Understand how equilibrium interest rates are determined.; 06-04 Know
the main suppliers and demanders of loanable funds.
52
Another random document with
no related content on Scribd:
The Project Gutenberg eBook of Life in the
forests of the Far East (vol. 2 of 2)
This ebook is for the use of anyone anywhere in the United
States and most other parts of the world at no cost and with
almost no restrictions whatsoever. You may copy it, give it away
or re-use it under the terms of the Project Gutenberg License
included with this ebook or online at www.gutenberg.org. If you
are not located in the United States, you will have to check the
laws of the country where you are located before using this
eBook.
Title: Life in the forests of the Far East (vol. 2 of 2)
Author: Sir Spenser St. John
Release date: September 27, 2023 [eBook #71739]
Language: English
Original publication: London: Smith, Elder and Co, 1862
Credits: Peter Becker, Karin Spence and the Online Distributed

Proofreading Team at https://www.pgdp.net (This file
was produced from images generously made available
by The Internet Archive)
*** START OF THE PROJECT GUTENBERG EBOOK LIFE IN THE

FORESTS OF THE FAR EAST (VOL. 2 OF 2) ***
LIFE IN THE FORESTS
OF
THE FAR EAST.

F. Jones, lith.
Published by Smith, Elder & Co. Day & Son, Lithrs to the Queen
65 Cornhill, London
SHOOTING THE CATARACT—LIMBANG RIVER.
LIFE IN THE FORESTS
OF
THE FAR EAST.

BY
SPENSER ST. JOHN, F.R.G.S., F.E.S.,

FORMERLY H.M.’S CONSUL-GENERAL IN THE GREAT ISLAND OF BORNEO,
AND NOW
H.M.’s CHARGÉ D’AFFAIRES TO THE REPUBLIC OF HAYTI.
WITH NUMEROUS ILLUSTRATIONS.
IN TWO VOLUMES.
VOL. II.
LONDON:
SMITH, ELDER AND CO., 65, CORNHILL.
M.DCCC.LXII.
[The right of Translation is reserved.]

CONTENTS.
Chapter I.
EXPEDITIONS TO EXPLORE THE INTERIOR TO THE SOUTH AND SOUTH-EAST OF
THE CAPITAL.
PAGE
Preliminary Expeditions—The Limbang River—Stories
connected with it—The Madalam—River flowing under a Pile
of Rocks—Caverns—Batu Rikan—The River issuing from
under the Mountain of Molu—Ascend the Precipices—No
Water—Long Roots—No Soil—Second Expedition—A Flood—
Dangerous Position—Wakeful Night—Beautiful Flowers—
Palms and Rhododendrons—Old Kayan Encampment—
Detached Rocks—Ascent of Molu—Two new Species of
Nepenthes—Difficult Climbing—New Rhododendrons—
Stopped by a Precipice—Sharp-edged Rocks—Descent—
Limestone Rock—Cave—Heavy Rain—Swollen River—Quick
Return—Prepare for a distant Expedition—Alarm of the
Brunean Government—Warnings—Preparations—Boats—My
Headman, Musa—A Travelled Dayak—Stories of Molu—
Weapons—Merchandise 1
Chapter II.
MY LIMBANG JOURNAL.
Start—Discovery of Bones and ancient Ornaments—At the Site 16
of the Old City—At the Stone Fort—At Sarawak—The Trusan,
or connecting Passage—Apathy of the Government and
People—Sago—Method of preparing it for the Market—The
Limbang River—The Inhabitants—Winding Stream—The
Orang Kaya Upit of Kruei—Sampirs—Gadong Hill—Scenery—
Molu—The Raman Palm—Delays—Cholera—Orang Kaya
Napur—Panglima Prang—The Weather—State of the River—
Origin of the Ponds—Native Geographical Information—The
Upper Country—Cataract—Enchanted Mountain—Native
Travelling—Dreams and Omen Birds—Religion of Pakatans—
Cause of Head-hunting—The Wild Boar—Trouble in procuring
Guides—Pengkalan Tarap—Desolation of the Country—
Causes of it—Selling Children—Kayan Barbarity—Chinese at
Batang Parak—Site of Burnt Villages—Posts of Houses—Two
kinds of Sago Palm—Their Growth—Kayan Encampment—
Cultivation—The River—Rocks—Salt Springs—Native
Explanation—Anecdote—Time to halt—Birds—Rare, except in
certain Districts—Monkeys—Alligators—The Man-eater—A
Challenge accepted—Disappearance of the Siol Alligator—
Combat with two in a Cave—Method of Capturing them in
Siam—Laying Eggs in the Jungle—Ducks and Drakes—Malay
Cookery—Very tasty—Blachang—How to make a Curry—
Anecdotes of Bornean Rule—Attack on the Limpasong Village
—Insurrection of the Aborigines—Forced Trade—Qualities
necessary in a Malay Ruler—The great Mountain of Tilong—
Discomfort of possessing a large Diamond—Diamonds found
in Borneo
Chapter III.
MY LIMBANG JOURNAL—Continued.
Wet Morning—Wild Cattle—A Night Adventure—View of Molu 49
Mountain—A Pebbly Flat—Moose Deer—Our Tents—Kayan—
Their Attack—Desolation—Course they pursue to invade these
Districts—Difficulties—Attack the Lepuasing Muruts—Fearful
Retaliation—Attacks on the Villages of the Lower Limbang—
Makota’s Treachery—His Cupidity—Surprise of Balat Ikan—
Alarm Signal—Advance—Fresh Kayan Marks—Inundations—
Unskilful Sportsmen—Difficult Rapids—The Sertab Hills—
Enter the Limestone District—A New Kayan Hut—High Pork
—Effect of Pebbles on the Rock—Agreeable Evening—Omen
Birds—Japer’s Method of easing a sore Heart—The Punan
Tribe—The Spy—The Alligator Omen—The Bird Omen—
Attack the Village—Poisoned Arrows—Destruction of a Tribe—
Effect of such Forays on the Country—The Ghosts on the
Tapang Tree—Numerous Bees’ Nests—Sand Flies—Seribas
Omen Bird—The Salindong—Kayan Resting-place—Traces of
Captives taken—Precautions—Difficulties increase—
Limestone Country—Severe Toil—Accidents avoided—
Hauling the Boats—River narrows—A Fresh—Towing-ropes—
Story of the Death of Orang Kaya Apo—Enter the Sandstone
District again—Broader River—Snakes on Trees—The same
Colour as the Boughs and Foliage—Biawaks or Guanas—A
large One—Their Ways—The Fowls and the Cobra—Heavy
Day’s Work—Future Plans—Two Ways of reaching Adang—
The flying Foxes—Huge Frog—The Madihit—Leave our Boats
—Handsome Trees—Appearance of the Country—Sand Flies
—Preparations for the Overland Journey—Division of Food—
Our famous Hunters—A Cache—The Chinese on the Madihit
Chapter IV.
Start on the Land Journey—Our Course—Ascend the Rawan
Torrent—Attacked by Hornets—Native Remedy—Severe
Effect of Sting—Disturbed by Ants—Japer left behind—Fresh
Traces of Strangers in the Forest—Appearance of the Country
—Water Snake killed—Our Adventure with One—The
Swimming Cobra—Romantic but timely Meeting—Story of
Pangeran Mumein and the Murut Concubine—Malay Revenge
—Punishment of an Offender—Cause of the Borneans being
converted to Mahomedanism—Capturing the Daughter of
Johore—Independent Position of the Pablat Borneans—Reach
the Wax-seekers’ Hut—Flesh of the Wild Boar—The Adang
Muruts—Their Sumpitans—The Poison on the Arrows—
Melted in hot Water—Weapons purchased, not made by them
—Dress of the Muruts—Japer rejoins us—Continue our
Journey with new Guide—Method of catching Fish—Effect of
Loss of Blood by Leeches—Extraordinary Insect—The
Freshwater Turtle—Its Description—Curious Fly—Poisoning
the River—Getting short of Provisions—Galton’s Method of
dividing Food—Adopt it—Improvidence of the Malays—Cry of
the Wahwah—Rejoin the Limbang—Omen Bird—Prepare for
Enemies—Quarrel among the Guides—Divide the Party—
Hard Walking—The Otter—A Fight with my Dogs—Still beyond
the Mountain—Find good Huts—The Stragglers—The last of
the Food—Ascend the Mountains—Exhaustion of the Guides
—The Remains of the Ham—Its Effects—Reach the Summit—
Descend to the Farms—Meet the Adang Muruts—Hearty
“Welcome—Names—Recent History of these Villagers—
Kayan Attacks—Driven from the Limbang—The Geography of
the Country—The Houses—Cold, and Fire-places—Arrival of
my Followers—Sir James Brooke—The Friend of the
Aborigines—His Fame had preceded me—How Reports
spread—The Tigers’ Cave—Curious Story 80
Chapter V.
Women’s Ornaments—Adorning in Public—Confidence shown 109
by a young Girl—Geography—Leech Bites—Tapioca—The
Manipa Stream—The False and True Brayong—Nothing but
Rice to be purchased—Wild Raspberries—Good Shots—The
Rifle Carbine—Death of a Kite—Picking a Cocoa-nut—Curious
Statement—A Village of Runaways—Proposed Slave Hunt—
Disappointment—Appearance of the Women—Old Look of the
Children—Devoid of Drapery—Preparing the Plantations—No
Goods for Sale—Edible Bird’s-nest Cave—Difficulties in
penetrating farther—Determine to return—Climate—New
Route—Custom in Drinking similar to the Chinese—Anecdote
of Irish Labourers—Change of Plans—Fashion of wearing
Brass Wire—Start on a Tour among the Villages—The Burning
Path—Village of Purté—Refreshing Drink—The Upper Trusan
—Distant Ranges—Inviting and receiving Invitations—Fatal
Midnight Revel—Tabari’s Village—Alarm of Orang Kaya Upit—
Suspension Bridge—Inhabitants—Scheme of the Adangs to
return to their old Districts—Deers’ Horns—Mourning—Difficult
Walking—The Tiger’s Leap—Meet Si Puntara—No Real
Enemies—Murud—The Gura Peak—The Main Muruts—Salt
as well as Slave Dealers—Bearskin Jacket—White Marble—
Uncertainty whence procured—Leaden Earrings—
Unbecoming Custom—Lofty Mountains—Lawi Cloud-hidden—
Muruts busy Farming—Two Harvests a Year—Agricultural
Produce plentiful—Obtain a Goat—Dress of the Men—Bead
Petticoats—Custom of burying on the Tops of the Lofty Hills—
Desecration of Graves—Jars—Discovery of one in Brunei—
Similar Millanau Customs
Chapter VI.
Commence the return Journey—Kayan Embassy—Indian Corn 131
—Confidence of the People—Ophthalmia—Old Jar—Gratitude
rarely shown—Anecdote—Warning to Amateur Doctors—
Bezoar Stones—Arrangements at Si Lopong’s—A Nightcap—
Desertion of our Guides—Murut Music—Start for the Adang—
Warned of Difficulties—Abundance of Rice—Cross the Adang
Mountains—Active Girls—The Anœctochilus—Attack of Fever
—Arrangements in case of its continuance—Loss of Chamber
to Revolver—Reach the Adang—Legend—Construct four
Rafts—Pleasant Movement—Trying Position of one of the Men
—The first Rapid passed—Difficulties at the second—Bold
Swimmer—A Whirlpool—Danger of Drowning—Our Raft
tested—Abandoned—The rest wrecked—Pass the Umur—
Reach the Limbang—Construct fresh Rafts—Uneasy
Anticipations—Heavy Fresh—Fine Specimen of a Raft—Push
off—Dangers and Troubles—The Rafts ungovernable—The
Roaring of Waters—Overhanging Cliffs—The Cataract—Awe
of the Men—Shoot the Cataract—Narrow Escape—Its Height
—The Men recover their Voice—Ineffectual Attempts to stop
the Raft—Caught in a Whirlpool—Safety—Arrival of the other
Rafts—Dangers ahead—Walk—Abandon the Rafts—State of
Provisions—Nearly all consumed—Ahtan’s Secret Store—
Rocks—Advance over the Kalio Hills—Sparing the Food—
Exhausting climbing—“Jog on”—Feed on the Cabbages of the
Bengkala Palm—Almost a Mutiny—Facing the Difficulty—
Reach the Summit of the Paya Paya, or “very difficult” Hills—
Night on the Summit—Our Tent—The last Fowl—Molu—The
greatest Difficulties passed—Country more open—Follow the
Banks of the River—Distress of the Men—Improvidence—
Curious Sounds in the old Forests—Cry of the Argus Pheasant
—Of the Jelatuk—Rending of a Mighty Tree—Danger from
Decaying Trees—Cock-fights among the Argus Pheasants
Chapter VII.
MY LIMBANG JOURNAL—Concluded.
Stopped for a Day—Five Start for Provisions—The Sick Men left 154
behind join us—No Shoes—Weakness from want of Food—
Leeches—Stop again—Collect Food—Anecdote of Female
Orang Utan and Murut—Again construct Rafts—Present of a
Cup full of Rice—Start on the Rafts—Abandon them—A Bear
—The River—Immense Pebbly Flats—Long Walks—Traces of
the Advance Party—Wild Fruit—Sour Oranges—Recognize a
Hill—Fruit of the Jintawan, or India-rubber Plant—Find
Remains of Bees’-nest—The British Flag—Reach the Madihit
—Bad Conduct of the Advance Party—Food nearly all
consumed—An unfeeling Father—Proposed Punishment—
Ravages of the Bears—Anecdote of Ahtan—Return in the
Boats—The Herd of Wild Cattle—Wound a Bull, but do not get
it—A slight Supper—Start in a Sampir—Ahtan ill—The last of
the Food—News from Brunei—Reach the Town—Arrival of the
rest of the Party—Bornean travelling—Measure Distance by
Fatigue—Slow Progress necessary—Active Murut—Average
Rate of Advance—Great Mistakes made in the Estimates of
Distance—Instances—Mr. Motley’s Account of his advance up
the Limbang—Mr. De Crespigny’s Mistake in the Latitude of
the River Damit and Position of the Mountain of Molu—
Remarks on the Map—Causes of the continued Health of my
Followers—The Tents—Mistake in trusting to Native Huts—
Native Geographical Information tested—Found correct—
Arrival of the Orang Kaya Upit—Tragical Death of Pangeran
Mokata, the Shabandar—Two Years after—Sad Fate of a
Party of Adang Muruts—Murder by Orang Kaya Gomba—
Head-hunting—Heads valued, but none seen—Incident of
meeting Head-hunters—No treacherous Designs—Inefficient
Government—Desecration of the Graveyards—Chinese
Secret Societies, or Hués—Ahtan joins one—Robbery of the
Iron Chest from the Consulate—The Sultan’s Method of
extorting a Confession—Obstinacy of Ahtan—Officers of the
Secret Society—Chest restored—Prisoners released—The
Hué broken up—Treatment of Prisoners—Musa and the Priest
—Threats—Personal Regard for some of my Followers
Chapter VIII.
THE SULU ARCHIPELAGO.
FIRST VISIT.
Picturesque Islands—Balambañgan—An old English Settlement 178
—Large Monkeys—Optical Illusions—Flights of Birds—The
Curlew—The way we shot them in Sarawak—Game—
Banguey—Mali Wali—Cleared Hills—Fine Water—Sweet-
smelling Jasmine—Cagayan Sulu—Intercourse with the
Inhabitants—Appearance of the Country—Lovely Scenery—
Market—Inhabitants—Insolent Traders—The Crater Harbour—
Wall of Evergreen—Inner Lake—Climb the Cliff—Scenery—
Alligators numerous—Sulu—Appearance from the Ship—
Sugh, the Capital—Mr. Wyndham—The Watering-place—
Suspicious Natives—Fugitives from Balignini—Reports—A
Market—The Mountaineers civil—Walk to the Palace—The
Stockades—Armed Crowd—Audience Hall—Absurd Reports
—The Sultan and his Nobles—Dress—Politeness of the
Sultan—Return to the Ship—Datu Daniel—The Racecourse—
Effect of Dutch Shot—Tulyan Bay—Alarm of Villagers—Sulu
Government—Laws—Feuds—The Mahomedan and the Pork
—Population—Fighting-men—Slave Market—Dignified
carriage of the Nobles—Dress—The Balignini—Dutch Attack—
Appearance of the Country—Good position of Island—Tulyan
—Basilan—Numerous Islets—Samboañgan —Spanish
Convict Settlement—Description of Country—Fort—Town—
Shops—The Church—The Men—The Women—The Corner
Shop—A Ball—Dancing difficult—Waltzes—Supplies at
Saraboañgan—A lonely Grave
Chapter IX.
THE SULU ISLANDS.
SECOND VISIT.
Reach Sugh—Mr. Wyndham comes on board—His News— 200
Commercial Rivalry—The Stockades—Visit the Audience Hall
—Appearance of the Sultan—Visit Datu Daniel’s Stockaded
House—Guns—Datu Daniel—Appearance of the principal
Chamber—The Bed—Boxes—Property—General look of
Discomfort—Spittoons—Dismounted Iron Guns—Taken from
the English—Excitement in the Town—Hereditary Hatred of
the Sulus to the Spaniards—Their Treaty with Spain—
Sandakan Bay—Supplies—Variegated Wood—Salute—
English popular—An Exception—Death of a Sulu Lady from
Grief—The Rumah Bechara—A Ship taken—Interview with the
Sultan—Rope—Character of Datus—The Balignini—Capture
an English Ship—Captives brought to Sulu—Result of the
Action of the Nemesis—The Lanuns—At Magindanau and
Cape Unsang—A narrow Escape—Mate to Lord Cochrane—
Capture of the Maria Frederica—Cold-blooded Murder of the
Captain—Jilolo Prahus—Their Rencontre with Sir Edward
Belcher—Pirates off the Arru Group—Sulu Justice—
Appearance of the People—Attack on the Spanish Gunboats
—Public Audience with the Sultan—Private Visit to the House
of his Bride—The Women—Opium-smoking—Invitation to
revisit Sulu—The Spanish Gunboats—Samboañgan—The
Corner Shop—Sunday’s Amusements—Appearance of the
Neighbourhood—A Breakfast in the Country—Long Walks—
People comfortable—Story of the Loss and Re-capture of the
Dolphin—The Dolphin sails for Maludu Bay—Quarrels—
Surprised—Death of Mr. Burns and the Captain—Murder of a
Woman—Injury to Trade—Datu Badrudin’s Monopolies—The
Tungku Pirates—Visit the chief Town of Maludu—Sherif
Hasin’s Account of the Surprise of the Dolphin—The Re-
capture of the Vessel by Sherif Yasin—Arrival at Benggaya—
Dolphin delivered up—Visit the Village of Sherif Yasin—His
Appearance—His Account of the Re-capture—His Position—
Smoking over Powder—Delivery of the Cargo—Return to the
Ship—Argus Pheasants—Meet with Baju Boats—Pearl
Fishers—Retaliation—Fishing for Pearls—Mr. Edwardes’ Pearl
—Story of the Datu, and his great good Fortune—The
Mermaid Pearl—Present State of Piracy on the North-West
Coast—Cruise of the Balignini in 1861—Ransom of Inchi Ngah
—Names of present Haunts of the Balignini—A Mangrove
Swamp—Present System of Balignini—Escape of a Native—
The Lanuns—A Dayak’s Experience—A Slave Mart—Spanish
Attack on Sugh—Severe Fight—Bravery of the Sulus—
Capture of the Town—The Sulu Government retire to the Hills,
and refuse to submit—A Teak Forest burnt—No Teak in
Borneo—Elephants extinct in Sulu
Chapter X.
THE KINGDOM OF BORNEO PROPER.
Its Nominal Extent—Its Government—The Sultan—The Viziers— 244
The Shabandar—The inferior Officers—Their Influence—“The
Abode of Peace”—Poverty-stricken Gentlemen—Possessions
of the Nobles—The Country parcelled out among them—
Distant Dependencies becoming independent—Oppression of
the surrounding Districts—Divisions among the Nobles—
Poverty of the Nobles—Population of Brunei—System of
Plunder—Sale of Children—Handsome Brass Guns—Their
Fate—No Justice—Crime nominally punished—No Possibility
of Improvement—Anecdotes—System of Local Self-
government—The Parishes—Their Names, and the
Occupation of their Inhabitants—Fishing—Shell Heaps—
Asylum—Treatment of a Slave Girl—Political Parties—
Religious Schism—An attempted Explanation—Followers of
each Party—Difference of Length of Fast Month—Visiting the
Graves of Ancestors—A pretty Custom—Search after
Excitement—Story Tellers—Conjurors—Their Arts—Practice of
Abortion—The Egg-cooking Trick—The Sultan’s Palace—Its
Inhabitants—His Wife and his Concubines—Their Treatment—
Bold Lovers—Anecdote—Tragical Termination—The Women
deceive their Lords—The Inverted Language—Education
neglected—Sight of a Harim—Mutual Disappointment—
Rajah’s pleasant Companions—Their Customs—Tenacious of
Rank—Decay of Brunei—Exactions suffered by the Aborigines
—The Kadayans—Tradition—Hill Men united—Commotion—
Kadayans have great Influence—Lovely Country—Kadayans
removed to Labuan—Short Description of that Colony—
Excellent Position—Coal—Telegraphic Communication—Good
Effect of our Colony—Trade Increasing—Pepper—Exports—
Cotton—Fine Jungle—Method of Collecting the Camphor and
the Gamboge in Siam—The Coal-fields—Revenue of the
Sultan—Brunei Government no Power—Crime unpunished—A
Bold Thief—Makota and the Fire—Nominal Punishments—
Cutting off the Hand—The Fall of Ashes—Singing Fish—
Curious Method of Catching Prawns—Tuba Fishing—
Superstition—Money—Coinage of the Capital—Cloth—Iron—
Gun-metal—Good Manufactures of Brass Ordnance—A 12-
pounder—Similarity of Customs—The Sultan—The Heir to his
Subjects—Makota and his Gold
Chapter XI.
SARAWAK AND ITS DEPENDENCIES.
First Visit—Appearance of the Country—Scenery—Lovely Isles 280
—Turtle—Method of securing their Eggs—Their Enemies—
Fish—The Dugong—Method of capturing them—Graves of
Englishmen at Po Point—First Evening in Borneo—A
Welcome to the Rajah—Boats—Salute and Manning Yards—
The Muaratabas Entrance—The River—The Town of Kuching
—Sunset—Arrival—A noisy Procession—Extent of Sarawak—
A well-watered Country—The Rejang—Extent of fertile Soil
adapted to Sugar—Its Inhabitants—Different Races and Tribes
—Population—Kuching, the Capital—Increase—Trade—Sago
Districts—Cotton—Seed sent by the Cotton Supply
Association—Imported Labour required—Increased
Production—Inferior Cultivation—Soil adapted to most Tropical
Productions— Water Communication—Minerals—Coal,
Antimony, and Gold—Indications of other Minerals—Former
Condition of the Country—Difficulties of Management—Forced
Trade—Comfortable Position of the Dayaks—Influence of New
System on the Malays—Distant Voyages—Remarkable
Honesty—Anecdote—System of Government—An
unteachable Chief—Sons of Patinggi Ali—Their good Conduct
—Effect of associating the Natives in the Government—The
System introduced into all the Dependencies—Effect of Sir
James Brooke’s Government—Anecdote of an old Chief—
Gradual Developments—Necessity for Support—The Chinese
an Industrious and Saving Nation—Soundness in the System
of Government—England with a Chinese Colony—Future of
Borneo—Chinese amalgamate with Native Population—
Female Emigration from China—Administration of Justice—
The Sarawak Courts—Character of the Malays
Chapter XII.
THE CHINESE IN BORNEO.
Intercourse between China and the Northern Part of Borneo— 308
References to the Chinese—Names of Places and Rivers—
Sites of Gardens and Houses—One of the original Settlers—
The Sultan’s Recollections—Chinese numerous in his Youth—
Reasons for their Disappearing—Anecdote of a Murut Chief—
Aborigines speaking Chinese—Mixed Breed—Good Husbands
—Chinese at Batang Parak—At Madihit—Pepper Planters—
Origin of the Borneans—Chinese Features observed also
among the Aborigines—Careful Agriculture—A remnant of
Chinese Teaching—Traditions of a Chinese Kingdom—Effect
of Treaty with Brunei—Unsuccessful attempt to revive Pepper
Planting—Chinese scattering on the North-west coast—A
Spark of Enlightenment—Attempt to prevent Intercourse
between the Chinese and Aborigines—Decay of Junk Trade—
Cochin Chinese—Conduct of the Chinese—Papar—Anecdote
—Fatal result of Insulting a Woman—Skirmish—
Misrepresented in Labuan—Question of British Protection to
the Chinese—Their Insolence—Anecdote—Unpleasant
Position—A Check—Difficulty of obtaining Information—Cause
of former Disputes—Insurrection of the Chinese of Brunei—
Sarawak—Early efforts of the Chinese to establish themselves
there—Lawless Malays—A Murder—Retaliation—Defeat of
the Chinese—Arrival of Sir James Brooke—Mixed Breed in
Sambas—Form Self-governing Communities—Defeat of the
Dutch Forces—Subjugation of the Chinese—The Pamangkat
Agriculturists—Flight into Sarawak—Change in the
appearance of the Country—Mission School—Visit the Interior
—Kunsis, or Gold Companies—Appearance of the Country—
Method of Gold-working—The Reservoir—The Ditch—The
Sluice—Wasteful method of working—Abundance of Gold—
Impetus—Failure of first Agricultural Schemes—A great Flood
—Troublesome Gold-workers—Successful Scheme—
Disturbance in Sambas—Flight of Chinese—Illiberal
Regulation—Tour through the Chinese Settlements—
Agriculture—Siniawan—Chinese Workings—Hot Spring—Gold
at Piat in Quartz—Antimony Works—Extensive Reservoirs—
Arrival of Chinese from Sambas—Denial by the Kunsi—Hard
Work at the Gold Diggings—Scenery—Path to Sambas—
Chinese Station—Numbers of the Chinese before the
Insurrection
Chapter XIII.
THE CHINESE INSURRECTION.
Secret Societies—Extensive Intercourse—Smuggling—The Gold 336
Company Fined—Punishment of Three of its Members—
Arrogance of the Kunsi—A Police Case—Real Causes of the
insurrection—An Emissary from the Tien Ti Secret Society—
Reported Encouragement given by the Sultan of Sambas—
Sambas Nobles speak Chinese—Their Nurses—The Nobles
Conspiring—An Emissary arrives in Brunei—Proposal—
Knowledge of the Intended Insurrection—Proposed Attack on
the Consulate—The Tumanggong’s Threat—The Emissary
before the Court—Letter from the Tien Ti Hué—Rumours of
Intended Insurrection—Preparations and Inquiries—
Commencement of the Revolt—Useless Warnings—Surprise
of the Government House— Danger of the Rajah—Cowardice
of the Chinese—Escape—Swims the River—Death of Mr.
Nicholets—Attacks on the other Houses—On the Stockade—
Gallant Conduct of Mr. Crymble and the Malay Fortmen—
Warm Reception of the Rebels—Death of a Madman—A
Bravo Corporal—Escape of Mr. Crymble—His last Blow—
Fortmen again behave well—Confusion in the Town—Peaceful
Assurances—Attempt to organize a Defence—Panic-striken—
Departure—Conduct of the People—Next Morning—Killed and
Wounded—The Chinese in Power—The Court-house—A
Check to Joy—Oath of Fidelity—Courage Shown by Abang
Patah—A Blow struck—Second Descent of the Chinese—A
Boat Action—Gallant Attack—Deaths—Anecdote—The
Second Retreat—The Town in Flames—The Steamer—The
Capital recovered—Pursuit of the Chinese—They retire to the
Interior—Attacks of the Land Dayaks—Foray of the Chinese—
Their Fort taken by the Datu Bandhar—Pursuit—Disorderly
Retreat—Critical Position—Brave Girls—Pass the Frontier—
The Men of the Kunsi—A Quarrel—Stripped of Plunder—
Results of the Insurrection—Forces at the Disposal of the
Sarawak Government—Conduct of the People—Disastrous to
the Chinese—New System—Arrival of Armed Chinese from
Sambas—Dutch and English Assistance—Revisit Sarawak—
Change—Conduct of the Rajah—Its Effect on the People—
Secret Society at Labuan—Dangers from the Secret Societies
and their Defenders—Curious Incident—Thoughtful Care of
the Rajah
Chapter XIV.
THE MISSIONS: ROMAN CATHOLIC AND PROTESTANT.
Arrival of the Roman Catholic Mission in Labuan—Signor
Cuarteron its Head—Curious Reports—His real History—
Finding the Treasure—Turns Priest—Ostensible Object of the
Mission—Not attempted—Ease with which Captives could
escape—No Inclination to do so—Turned Mahomedans—
Return of Signor Cuarteron—Courtesy of the Brunei
Government—Intentions of the Italian Priest—Model Village—
The Italian Priests—The Churches—Old Battery—Regret at
the Withdrawal of the Roman Catholic Mission—Protestant
Mission at Sarawak—Present Condition—Comparative Failure
—Partial Success at Lingga and Lundu—Mr. Chalmers and
the Land Dayaks—Causes of his Influence—Mistake in
establishing the Mission at Kuching—The Reasons—
Objectionable Position for Schools—Proper Position for the
Mission—Suitable Spots—Waste of Funds in Boats and
Plantations—Deplorable Secession of Missionaries—Reasons
to account for it—Present Management faulty—Mr. Gomez in
Lundu—Christian Dayaks warn the Government—Missionaries
always welcome in Sarawak—Important political effect—The
Church should be among the Dayaks—Suitable Men for
Missionaries—What the Head of a Mission should be—What
he too often is, and should not be—Five Recommendations to
increase Efficiency—Unoccupied Room for a great Increase of
the Number of Missionaries—Method of distributing them—
Personal Character—Dayaks an interesting Race—A Tribe
half Mahomedans half Pagans—Use of eating Pork—Districts
unoccupied—Position of the Missionary in Sarawak—The
Bornean Mission an important one 365
APPENDICES.
Appendix A.—Dayak Languages. Sambas to Batang Lupar 383
„ B.—Ditto. Batang Lupar to Rejang 392
„ C.—Languages of Tribes between the Rejang and the Baram 399
„ D.—Languages of Northern Borneo 407
„ E.—Lanun Language 417

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8) Which of the following is NOT a capital market instrument?

Real interest rate = 2.50 percent

Default risk premium = 1.75 percent

Liquidity risk premium = 0.70 percent

Maturity risk premium = 1.50 percent

1R1 = 5%, E(2r1) = 5.5%, E(3r1) = 6.5%, E(4r1) = 7.0%

1R1 = 5.25%, 1R2 = 5.75%, 1R3 = 6.25%, 1R4 = 6.45%

Real interest rate = 2.75 percent

What is the inflation premium?

Real interest rate = 2.75 percent

Default risk premium = 1.05 percent

Liquidity risk premium = 0.50 percent

Maturity risk premium = 1.85 percent

What is the fair interest rate on Moore Corporation 30-year bonds?

1R1 = 4.55 percent,

U.S. Treasury bonds = 4.15 percent AAA

82) Which of the following statements is correct?

84) Which of the following statements is correct?

86) Which of the following statements is correct?

91) Which of the following statements is incorrect?

94) Which of the following statements is incorrect?

99) The real interest rate is

105) Which of the following are suppliers of loanable funds?

107) Which of the following are demanders of loanable funds?

Title: Life in the forests of the Far East (vol. 2 of 2)

Author: Sir Spenser St. John

Release date: September 27, 2023 [eBook #71739]

Original publication: London: Smith, Elder and Co, 1862

Credits: Peter Becker, Karin Spence and the Online Distributed

*** START OF THE PROJECT GUTENBERG EBOOK LIFE IN THE

THE FAR EAST.

THE FAR EAST.

SPENSER ST. JOHN, F.R.G.S., F.E.S.,

WITH NUMEROUS ILLUSTRATIONS.

[The right of Translation is reserved.]

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