Question 1

The bid price of a T-bill in the secondary market is

Accepted Answer

A)  the price at which the dealer in T-bills is willing to sell the bill. 
B)  the price at which the dealer in T-bills is willing to buy the bill. 
C)  greater than the asked price of the T-bill. 
D)  the price at which the investor can buy the T-bill. 
E)  never quoted in the financial press. 
A)  the price at which the dealer in T-bills is willing to sell the bill. 
B)  the price at which the dealer in T-bills is willing to buy the bill. 
C)  greater than the asked price of the T-bill. 
D)  the price at which the investor can buy the T-bill. 
E)  never quoted in the financial press.

Question 2

A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond.

Accepted Answer

A)  convertible 
B)  secured 
C)  unsecured 
D)  callable 
E)  Yankee 
A)  convertible 
B)  secured 
C)  unsecured 
D)  callable 
E)  Yankee

Question 3

Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

Accepted Answer

A)  $10,000 
B)  $100,000 
C)  $250,000 
D)  $500,000 
A)  $10,000 
B)  $100,000 
C)  $250,000 
D)  $500,000

Question 4

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. 
E)  the trader who commits to delivering 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. 
E)  the trader who commits to delivering the commodity on the delivery date.

Question 5

An investor pays $104,280 for a treasury bond. The price mostly listed in the Wall Street Journal show as the ask price will be _________.

Accepted Answer

A)  98.20 
B)  100.00 
C)  104.28 
D)  106.33 
E)  108.00 
A)  98.20 
B)  100.00 
C)  104.28 
D)  106.33 
E)  108.00

Question 6

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 24% 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%; 6.08% 
A)  6%; 8% 
B)  4.5%; 6% 
C)  4.5%; 8% 
D)  6%; 6.08%

Question 7

The yield to maturity reported in the financial pages for Treasury securities

Accepted Answer

A)  is calculated by compounding the semiannual yield. 
B)  is calculated by doubling the semiannual yield. 
C)  is also called the bond equivalent yield. 
D)  is calculated as the yield-to-call for premium bonds. 
E)  is calculated by doubling the semiannual yield and is also called the bond equivalent yield. 
A)  is calculated by compounding the semiannual yield. 
B)  is calculated by doubling the semiannual yield. 
C)  is also called the bond equivalent yield. 
D)  is calculated as the yield-to-call for premium bonds. 
E)  is calculated by doubling the semiannual yield and is also called the bond equivalent yield.

Question 8

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A)  8%; 10% 
B)  8%; 7.8% 
C)  6.4%; 8% 
D)  6.4%; 10% 
E)  10%; 10% 
A)  8%; 10% 
B)  8%; 7.8% 
C)  6.4%; 8% 
D)  6.4%; 10% 
E)  10%; 10%

Question 9

A call option allows the buyer to

Accepted Answer

A)  sell the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
A)  sell the underlying asset at the exercise price on or before the expiration date. 
B)  buy the underlying asset at the exercise price on or before the expiration date. 
C)  sell the option in the open market prior to expiration. 
D)  sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration. 
E)  buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

Question 10

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the

Accepted Answer

A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  call money rate. 
E)  money market rate. 
A)  prime rate. 
B)  discount rate. 
C)  federal funds rate. 
D)  call money rate. 
E)  money market rate.

Question 11

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 12

Unsecured bonds are called

Accepted Answer

A)  junk bonds. 
B)  debentures. 
C)  indentures. 
D)  subordinated debentures. 
E)  either debentures or subordinated debentures. 
A)  junk bonds. 
B)  debentures. 
C)  indentures. 
D)  subordinated debentures. 
E)  either debentures or subordinated debentures.

Question 13

Which of the following is true regarding a firm's securities?

Accepted Answer

A)  Common dividends are paid before preferred dividends. 
B)  Preferred stockholders have voting rights. 
C)  Preferred dividends are usually cumulative. 
D)  Preferred dividends are contractual obligations. 
E)  Common dividends can usually be paid if preferred dividends have been skipped. 
A)  Common dividends are paid before preferred dividends. 
B)  Preferred stockholders have voting rights. 
C)  Preferred dividends are usually cumulative. 
D)  Preferred dividends are contractual obligations. 
E)  Common dividends can usually be paid if preferred dividends have been skipped.

Question 14

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a seller of the bond, what is the dollar price you expect to receive?

Accepted Answer

A)  $1,048.00 
B)  $1,042.50 
C)  $1,041.25 
D)  $1,041.75 
E)  $1,040.40 
A)  $1,048.00 
B)  $1,042.50 
C)  $1,041.25 
D)  $1,041.75 
E)  $1,040.40

Question 15

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. 
E)  97:75. 
A)  97:50. 
B)  97:16. 
C)  97:80. 
D)  94:24. 
E)  97:75.

Question 16

In order for you to be indifferent between the after-tax returns on a corporate bond paying 7% and a tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be?

Accepted Answer

A)  22.6% 
B)  21.4% 
C)  26.2% 
D)  19.8% 
E)  Cannot be determined from the information given. 
A)  22.6% 
B)  21.4% 
C)  26.2% 
D)  19.8% 
E)  Cannot be determined from the information given.

Question 17

For a taxpayer in the 24% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

Accepted Answer

A)  7.24%. 
B)  10.75%. 
C)  5.5%. 
D)  4.125%. 
A)  7.24%. 
B)  10.75%. 
C)  5.5%. 
D)  4.125%.

Question 18

Certificates of deposit are insured by the

Accepted Answer

A)  SPIC. 
B)  CFTC. 
C)  Lloyds of London. 
D)  FDIC. 
E)  All of the options are correct. 
A)  SPIC. 
B)  CFTC. 
C)  Lloyds of London. 
D)  FDIC. 
E)  All of the options are correct.

Question 19

You purchased a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

Accepted Answer

A)  $1375.00 
B)  −$1375.00 
C)  −$27.50 
D)  $27.50 
A)  $1375.00 
B)  −$1375.00 
C)  −$27.50 
D)  $27.50

Question 20

Which one of the following terms best describes Eurodollars?

Accepted Answer

A)  Dollar-denominated deposits only in European banks. 
B)  Dollar-denominated deposits at branches of foreign banks in the U.S. 
C)  Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S. 
D)  Dollar-denominated deposits at American banks in the U.S. 
E)  Dollars that have been exchanged for European currency. 
A)  Dollar-denominated deposits only in European banks. 
B)  Dollar-denominated deposits at branches of foreign banks in the U.S. 
C)  Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S. 
D)  Dollar-denominated deposits at American banks in the U.S. 
E)  Dollars that have been exchanged for European currency.

Exam 2: Asset Classes and Financial Instruments

The bid price of a T-bill in the secondary market is

A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond.

Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

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

An investor pays $104,280 for a treasury bond. The price mostly listed in the Wall Street Journal show as the ask price will 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 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

The yield to maturity reported in the financial pages for Treasury securities

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

A call option allows the buyer to

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the

The smallest component of the money market is

Unsecured bonds are called

Which of the following is true regarding a firm's securities?

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. As a seller of the bond, what is the dollar price you expect to receive?

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

In order for you to be indifferent between the after-tax returns on a corporate bond paying 7% and a tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be?

For a taxpayer in the 24% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

Certificates of deposit are insured by the

You purchased a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

Which one of the following terms best describes Eurodollars?

The Investment Environment

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral 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 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.