Question 1

Certificates of deposit are insured by the

Accepted Answer

A) SPIC. 
B) CFTC. 
C) Lloyds of London. 
D) FDIC. 
A) SPIC. 
B) CFTC. 
C) Lloyds of London. 
D) FDIC. D

Question 2

Brokers' calls

Accepted Answer

A) are funds used by individuals who wish to buy stocks on margin. 
B) are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
C) carry a rate that is usually about one percentage point lower than the rate on Canadian T-bills. 
D) are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
A) are funds used by individuals who wish to buy stocks on margin. 
B) are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. 
C) carry a rate that is usually about one percentage point lower than the rate on Canadian T-bills. 
D) are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so. D

Question 3

With regard to a futures contract, the long position is held by

Accepted Answer

A) the trader who bought the contract at the largest discount. 
B) the trader who has to travel the farthest distance to deliver the commodity. 
C) the trader who plans to hold the contract open for the lengthiest time period. 
D) the trader who commits to purchasing the commodity on the delivery date. 
A) the trader who bought the contract at the largest discount. 
B) the trader who has to travel the farthest distance to deliver the commodity. 
C) the trader who plans to hold the contract open for the lengthiest time period. 
D) the trader who commits to purchasing the commodity on the delivery date. D

Question 4

A municipal bond issued to finance an airport, hospital, turnpike, or port authority is typically a

Accepted Answer

A) revenue bond. 
B) general-obligation bond. 
C) industrial-development bond. 
D) revenue bond or general-obligation bond. 
A) revenue bond. 
B) general-obligation bond. 
C) industrial-development bond. 
D) revenue bond or general-obligation bond.

Question 5

Which of the following are characteristics of preferred stock? I) It pays its holder a fixed amount of income each year at the discretion of its managers.
II) It gives its holder voting power in the firm.
III) Its dividends are usually cumulative.
IV) Failure to pay dividends may result in bankruptcy proceedings.

Accepted Answer

A) I, III, and IV 
B) I, II, and III 
C) I and III 
D) I, II, and IV 
A) I, III, and IV 
B) I, II, and III 
C) I and III 
D) I, II, and IV

Question 6

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

Accepted Answer

A) 17.6% 
B) 27% 
C) 22.2% 
D) 19.8% 
A) 17.6% 
B) 27% 
C) 22.2% 
D) 19.8%

Question 7

Freddie Mac and Ginnie Mae were organized to provide

Accepted Answer

A) a primary market for mortgage transactions. 
B) liquidity for the mortgage market. 
C) a primary market for farm loan transactions. 
D) liquidity for the farm loan market. 
A) a primary market for mortgage transactions. 
B) liquidity for the mortgage market. 
C) a primary market for farm loan transactions. 
D) liquidity for the farm loan market.

Question 8

What does the term negotiable mean, with regard to negotiable certificates of deposit?

Accepted Answer

A) The CD can be sold to another investor if the owner needs to cash it in before its maturity date. 
B) The rate of interest on the CD is subject to negotiation. 
C) The CD is automatically reinvested at its maturity date. 
D) The CD has staggered maturity dates built in. 
A) The CD can be sold to another investor if the owner needs to cash it in before its maturity date. 
B) The rate of interest on the CD is subject to negotiation. 
C) The CD is automatically reinvested at its maturity date. 
D) The CD has staggered maturity dates built in.

Question 9

Which of the following securities is a money market instrument?

Accepted Answer

A) Treasury note 
B) Treasury bond 
C) Municipal bond 
D) Commercial paper 
A) Treasury note 
B) Treasury bond 
C) Municipal bond 
D) Commercial paper

Question 10

A 5.5%, 20-year municipal bond is currently priced to yield 7.2%.For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

Accepted Answer

A) 8.20%. 
B) 10.75%. 
C) 11.40%. 
D) 4.82%. 
A) 8.20%. 
B) 10.75%. 
C) 11.40%. 
D) 4.82%.

Question 11

If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?

Accepted Answer

A) The stock trading at the highest dollar price per share 
B) The stock having the greatest amount of debt in its capital structure 
C) The stock having the greatest amount of equity in its capital structure 
D) The stock having the lowest volatility 
A) The stock trading at the highest dollar price per share 
B) The stock having the greatest amount of debt in its capital structure 
C) The stock having the greatest amount of equity in its capital structure 
D) The stock having the lowest volatility

Question 12

The ____ is an example of a U.S.index of small firms.

Accepted Answer

A) S&P 500 
B) DJIA 
C) DAX 
D) Russell 2000 
A) S&P 500 
B) DJIA 
C) DAX 
D) Russell 2000

Question 13

The ____ index represents the performance of the Hong Kong stock market.

Accepted Answer

A) DAX 
B) FTSE 
C) Nikkei 
D) Hang Seng 
A) DAX 
B) FTSE 
C) Nikkei 
D) Hang Seng

Question 14

The largest component of the fixed-income market is _______ debt.

Accepted Answer

A) Treasury 
B) asset-backed 
C) corporate 
D) tax-exempt 
A) Treasury 
B) asset-backed 
C) corporate 
D) tax-exempt

Question 15

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

Accepted Answer

A) 33% 
B) 72% 
C) 15% 
D) 28% 
A) 33% 
B) 72% 
C) 15% 
D) 28%

Question 16

An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A) 6%; 8% 
B) 4.5%; 6% 
C) 4.5%; 8% 
D) 6%; 6% 
A) 6%; 8% 
B) 4.5%; 6% 
C) 4.5%; 8% 
D) 6%; 6%

Question 17

The ____ index represents the performance of the German stock market.

Accepted Answer

A) DAX 
B) FTSE 
C) Nikkei 
D) Hang Seng 
A) DAX 
B) FTSE 
C) Nikkei 
D) Hang Seng

Question 18

The smallest component of the money market is

Accepted Answer

A) repurchase agreements. 
B) small-denomination time deposits. 
C) savings deposits. 
D) money market mutual funds. 
E) commercial paper. 
A) repurchase agreements. 
B) small-denomination time deposits. 
C) savings deposits. 
D) money market mutual funds. 
E) commercial paper.

Question 19

The ____ index represents the performance of the Canadian stock market.

Accepted Answer

A) DAX 
B) FTSE 
C) S&P/TSX 
D) Hang Seng 
A) DAX 
B) FTSE 
C) S&P/TSX 
D) Hang Seng

Question 20

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

Accepted Answer

A) 97:50. 
B) 97:16. 
C) 97:80. 
D) 94:24. 
A) 97:50. 
B) 97:16. 
C) 97:80. 
D) 94:24.

Exam 2: Financial Markets, Asset Classes and Financial Instruments

Certificates of deposit are insured by the

Brokers' calls

With regard to a futures contract, the long position is held by

A municipal bond issued to finance an airport, hospital, turnpike, or port authority is typically a

In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

Freddie Mac and Ginnie Mae were organized to provide

What does the term negotiable mean, with regard to negotiable certificates of deposit?

Which of the following securities is a money market instrument?

A 5.5%, 20-year municipal bond is currently priced to yield 7.2%.For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?

The ____ is an example of a U.S.index of small firms.

The ____ index represents the performance of the Hong Kong stock market.

The largest component of the fixed-income market is _______ debt.

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

The ____ index represents the performance of the German stock market.

The smallest component of the money market is

The ____ index represents the performance of the Canadian stock market.

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

The Investment Environment

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioural Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

An investor purchases one municipal and one corporate bond that pay rates of return of 6% and 8%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.