Question 1

A form of short-term borrowing by dealers in government securities is

Accepted Answer

A)  reserve requirements. 
B)  repurchase agreements 
C)  banker's acceptances. 
D)  commercial paper. 
E)  brokers' calls. 
A)  reserve requirements. 
B)  repurchase agreements 
C)  banker's acceptances. 
D)  commercial paper. 
E)  brokers' calls. B

Question 2

Which of the following statements regarding the Dow Jones Industrial Average (DJIA)is false?

Accepted Answer

A)  The DJIA is not very representative of the market as a whole. 
B)  The DJIA consists of 30 blue chip stocks. 
C)  The DJIA is affected equally by changes in low and high priced stocks. 
D)  The DJIA divisor needs to be adjusted for stock splits. 
E)  The value of the DJIA is much higher than individual stock prices. 
A)  The DJIA is not very representative of the market as a whole. 
B)  The DJIA consists of 30 blue chip stocks. 
C)  The DJIA is affected equally by changes in low and high priced stocks. 
D)  The DJIA divisor needs to be adjusted for stock splits. 
E)  The value of the DJIA is much higher than individual stock prices. C

Question 3

Consider the following three stocks: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares outstanding } \
\hline  \text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$$
The price-weighted index constructed with the three stocks is

Accepted Answer

A)  30 
B)  40 
C)  50 
D)  60 
E)  70 
A)  30 
B)  40 
C)  50 
D)  60 
E)  70 B

Question 4

As a taxpayer,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% 
E)  Cannot tell from the information given 
A)  33% 
B)  72% 
C)  15% 
D)  28% 
E)  Cannot tell from the information given

Question 5

Treasury Inflation-Protected Securities (TIPS)

Accepted Answer

A)  pay a fixed interest rate for life. 
B)  pay a variable interest rate that is indexed to inflation. 
C)  provide a constant stream of income in real (inflation-adjusted)dollars. 
D)  have their principal adjusted in proportion to the Consumer Price Index. 
E)  provide a constant stream of income in real (inflation-adjusted)dollars and have their principal adjusted in proportion to the Consumer Price Index. 
A)  pay a fixed interest rate for life. 
B)  pay a variable interest rate that is indexed to inflation. 
C)  provide a constant stream of income in real (inflation-adjusted)dollars. 
D)  have their principal adjusted in proportion to the Consumer Price Index. 
E)  provide a constant stream of income in real (inflation-adjusted)dollars and have their principal adjusted in proportion to the Consumer Price Index.

Question 6

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%. 
E)  none of these. 
A)  8.20%. 
B)  10.75%. 
C)  11.40%. 
D)  4.82%. 
E)  none of these.

Question 7

Eurodollars have the following characteristics:

Accepted Answer

A)  They are dollar-denominated deposits in foreign banks 
B)  They are not subject to Regulation Q. 
C)  They are in banks exempt from U.S.reserve requirements. 
D)  They earn tax-free income. 
E)  a,b,and c 
A)  They are dollar-denominated deposits in foreign banks 
B)  They are not subject to Regulation Q. 
C)  They are in banks exempt from U.S.reserve requirements. 
D)  They earn tax-free income. 
E)  a,b,and c

Question 8

Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield.At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the municipal?

Accepted Answer

A)  15.4% 
B)  23.7% 
C)  39.5% 
D)  17.3% 
E)  12.4% 
A)  15.4% 
B)  23.7% 
C)  39.5% 
D)  17.3% 
E)  12.4%

Question 9

Commercial paper is a short-term security issued by ________ to raise funds.

Accepted Answer

A)  the Bank of Canada 
B)  commercial banks 
C)  large,well-known companies 
D)  the Toronto Stock Exchange 
E)  provincial and local governments 
A)  the Bank of Canada 
B)  commercial banks 
C)  large,well-known companies 
D)  the Toronto Stock Exchange 
E)  provincial and local governments

Question 10

The Dow Jones Industrial Average,the New York Stock Exchange Index,and the Value Line Index have unique characteristics.Discuss how these indices are calculated and any problems/advantages associated with the specific indices.

Accepted Answer

The Dow Jones Industrial Average (DJIA)i

Question 11

Which of the following is not a characteristic of a money market instrument?

Accepted Answer

A)  liquidity 
B)  marketability 
C)  long maturity 
D)  liquidity premium 
E)  c and d 
A)  liquidity 
B)  marketability 
C)  long maturity 
D)  liquidity premium 
E)  c and d

Question 12

The asked bank discount yield on a T-bill is 5 percent.What is the asked price of the bill if it matures in 60 days and has a face value of $10,000?

Accepted Answer

A)  $9,500.00 
B)  $9,916.67 
C)  $9,523.81 
D)  $8,753.14 
E)  $9,876.52 
A)  $9,500.00 
B)  $9,916.67 
C)  $9,523.81 
D)  $8,753.14 
E)  $9,876.52

Question 13

Consider the following three stocks: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares outstanding } \
\hline  \text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600
\end{array}$$
The value-weighted index constructed with the three stocks using a divisor of 100 is

Accepted Answer

A)  1.2 
B)  1200 
C)  490 
D)  4900 
E)  49 
A)  1.2 
B)  1200 
C)  490 
D)  4900 
E)  49

Question 14

Bond market indexes can be difficult to construct because

Accepted Answer

A)  they cannot be based on firms' market values. 
B)  bonds tend to trade infrequently,making price information difficult to obtain. 
C)  there are so many different kinds of bonds. 
D)  prices cannot be obtained for companies that operate in emerging markets. 
E)  corporations are not required to disclose the details of their bond issues. 
A)  they cannot be based on firms' market values. 
B)  bonds tend to trade infrequently,making price information difficult to obtain. 
C)  there are so many different kinds of bonds. 
D)  prices cannot be obtained for companies that operate in emerging markets. 
E)  corporations are not required to disclose the details of their bond issues.

Question 15

The index that includes the largest number of actively traded stock is:

Accepted Answer

A)  the NASDAQ Composite Index. 
B)  the NYSE Composite Index. 
C)  the Wilshire 5000 Index. 
D)  the Value Line Composite Index. 
E)  the Russell Index. 
A)  the NASDAQ Composite Index. 
B)  the NYSE Composite Index. 
C)  the Wilshire 5000 Index. 
D)  the Value Line Composite Index. 
E)  the Russell Index.

Question 16

Which one of the following terms best describes Eurodollars:

Accepted Answer

A)  dollar-denominated deposits 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 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.

Question 17

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. 
E)  The interest rate paid on the CD will vary with a designated market rate. 
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. 
E)  The interest rate paid on the CD will vary with a designated market rate.

Question 18

For a taxpayer in the 25% marginal tax bracket,a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of:

Accepted Answer

A)  7.33%. 
B)  10.75%. 
C)  5.5%. 
D)  4.125%. 
E)  6.45%. 
A)  7.33%. 
B)  10.75%. 
C)  5.5%. 
D)  4.125%. 
E)  6.45%.

Question 19

In calculating the Standard and Poor's stock price indices,the adjustment for stock split occurs:

Accepted Answer

A)  by adjusting the divisor. 
B)  automatically. 
C)  by adjusting the numerator. 
D)  quarterly,on the last trading day of each quarter. 
E)  none of these. 
A)  by adjusting the divisor. 
B)  automatically. 
C)  by adjusting the numerator. 
D)  quarterly,on the last trading day of each quarter. 
E)  none of these.

Question 20

Based on the information given,for a price-weighted index of the three stocks calculate:
a.the rate of return for the first period (t = 0 to t = 1).
b.the value of the divisor in the second period (t = 2).Assume that Stock A had a 2-1 split during this period.
c.the rate of return for the second period (t = 1 to t = 2).

Accepted Answer

a.The price-weighted index at time 0 is

Exam 2: Asset Classes and Financial Instruments

A form of short-term borrowing by dealers in government securities is

Which of the following statements regarding the Dow Jones Industrial Average (DJIA)is false?

Consider the following three stocks: Stock Price Number of shares outstanding Stock A \ 40 200 Stock B \ 70 500 Stock C \ 10 600 The price-weighted index constructed with the three stocks is

As a taxpayer,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?

Treasury Inflation-Protected Securities (TIPS)

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:

Eurodollars have the following characteristics:

Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield.At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the municipal?

Commercial paper is a short-term security issued by ________ to raise funds.

The Dow Jones Industrial Average,the New York Stock Exchange Index,and the Value Line Index have unique characteristics.Discuss how these indices are calculated and any problems/advantages associated with the specific indices.

Which of the following is not a characteristic of a money market instrument?

The asked bank discount yield on a T-bill is 5 percent.What is the asked price of the bill if it matures in 60 days and has a face value of $10,000?

Consider the following three stocks: Stock Price Number of shares outstanding Stock A \ 40 200 Stock B \ 70 500 Stock C \ 10 600 The value-weighted index constructed with the three stocks using a divisor of 100 is

Bond market indexes can be difficult to construct because

The index that includes the largest number of actively traded stock is:

Which one of the following terms best describes Eurodollars:

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

For a taxpayer in the 25% marginal tax bracket,a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of:

In calculating the Standard and Poor's stock price indices,the adjustment for stock split occurs:

Investments: Background and Issues

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

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