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1. If a security can easily be converted to cash without a loss in value, it a. is liquid. b. has a high after-tax yield. c. has high default risk. d. is illiquid. 2. Debt instruments that offer liquidity will need to offer a yield. a. lower; higher b. lower; lower c. higher; higher d. liquidity and yield do not affect each other 3. The yield offered on a debt security is related to the prevailing risk-free rate and related to the security's risk premium. a. negatively; negatively b. positively; positively c. negatively; positively d. positively; negatively 4. Which of the following is not a characteristic affecting the yields on debt securities? a. default risk b. liquidity c. term to maturity d. all of the above affect yields on debt securities 5. The rate is the interest rate charged on Fed district bank loans to depository institutions. a. federal funds b. prime c. primary credit lending d. real 6. Which of the following is an action that the Fed uses to increase or decrease the money supply? a. buying or selling Treasury securities in the secondary market b. adjusting the tax rate imposed on income earned on Treasury securities c. adjusting the coupon rate on Treasury bonds d. selling Treasury securities in the primary market