Question 1

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

Accepted Answer

A)  Treasury bill 
B)  Negotiable certificate of deposit 
C)  Commercial paper 
D)  Treasury bond 
E)  Eurodollar account 
A)  Treasury bill 
B)  Negotiable certificate of deposit 
C)  Commercial paper 
D)  Treasury bond 
E)  Eurodollar account

Question 2

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. Bond trading is often "thin," making prices stale (or not current). 
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. Bond trading is often "thin," making prices stale (or not current).

Question 3

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

Accepted Answer

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

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 
E)  I, II, III, and IV Only I and III are true. 
A)  I, III, and IV 
B)  I, II, and III 
C)  I and III 
D)  I, II, and IV 
E)  I, II, III, and IV Only I and III are true.

Question 6

Federally-sponsored agency debt

Accepted Answer

A)  is legally insured by the U.S. Treasury. 
B)  would probably be backed by the U.S. Treasury in the event of a near-default. 
C)  has a small positive yield spread relative to U.S. Treasuries. 
D)  would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries. 
E)  is legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S. Treasuries. Federally sponsored agencies are not government owned. These agencies'debt is not insured by the U.S. Treasury, but probably would be backed by the Treasury in the event of an agency near-default. As a result, the issues are very safe and carry a yield only slightly higher than that of U.S. Treasuries. 
A)  is legally insured by the U.S. Treasury. 
B)  would probably be backed by the U.S. Treasury in the event of a near-default. 
C)  has a small positive yield spread relative to U.S. Treasuries. 
D)  would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries. 
E)  is legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S. Treasuries. Federally sponsored agencies are not government owned. These agencies'debt is not insured by the U.S. Treasury, but probably would be backed by the Treasury in the event of an agency near-default. As a result, the issues are very safe and carry a yield only slightly higher than that of U.S. Treasuries.

Question 7

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

Accepted Answer

A)  the Federal Reserve Bank 
B)  commercial banks 
C)  large, well-known companies 
D)  the New York Stock Exchange 
E)  state and local governments 
A)  the Federal Reserve Bank 
B)  commercial banks 
C)  large, well-known companies 
D)  the New York Stock Exchange 
E)  state and local governments

Question 8

If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would be

Accepted Answer

A)  99:50. 
B)  99:16. 
C)  99:80. 
D)  99:24. 
E)  99:32. 
A)  99:50. 
B)  99:16. 
C)  99:80. 
D)  99:24. 
E)  99:32.

Question 9

Which of the following statements is true regarding a corporate bond?

Accepted Answer

A)  A corporate callable bond gives the holder the right to exchange it for a specified number of the company's common shares. 
B)  A corporate debenture is a secured bond. 
C)  A corporate indenture is a secured bond. 
D)  A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares. 
E)  Holders of corporate bonds have voting rights in the company. 
A)  A corporate callable bond gives the holder the right to exchange it for a specified number of the company's common shares. 
B)  A corporate debenture is a secured bond. 
C)  A corporate indenture is a secured bond. 
D)  A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares. 
E)  Holders of corporate bonds have voting rights in the company.

Question 10

The largest component of the money market is/are

Accepted Answer

A)  repurchase agreements. 
B)  money market mutual funds. 
C)  T-bills. 
D)  Eurodollars. 
E)  savings deposits. 
A)  repurchase agreements. 
B)  money market mutual funds. 
C)  T-bills. 
D)  Eurodollars. 
E)  savings deposits.

Question 11

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. 
A)  by adjusting the divisor. 
B)  automatically. 
C)  by adjusting the numerator. 
D)  quarterly on the last trading day of each quarter.

Question 12

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 13

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 14

Consider the following three stocks: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600 \
\hline
\end{array}$$ 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 15

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 16

A U.S. dollar-denominated bond that is sold in Singapore is a(n)

Accepted Answer

A)  Eurobond. 
B)  Yankee bond. 
C)  Samurai bond. 
D)  Bulldog bond. 
A)  Eurobond. 
B)  Yankee bond. 
C)  Samurai bond. 
D)  Bulldog bond.

Question 17

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)  Long maturity and liquidity premium 
A)  Liquidity 
B)  Marketability 
C)  Long maturity 
D)  Liquidity premium 
E)  Long maturity and liquidity premium

Question 18

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 20% 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%; 8% 
C)  6.4%; 8% 
D)  6.4%; 10% 
E)  10%; 10% 
A)  8%; 10% 
B)  8%; 8% 
C)  6.4%; 8% 
D)  6.4%; 10% 
E)  10%; 10%

Question 19

A put option allows the holder to

Accepted Answer

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

Question 20

Consider the following three stocks: $$\begin{array} { l c c } 
\text { Stock } & \text { Price } & \text { Number of shares } \
\text { Stock A } & \$ 40 & 200 \
\text { Stock B } & \$ 70 & 500 \
\text { Stock C } & \$ 10 & 600 \
\hline
\end{array}$$ 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.

Exam 2: Asset Classes and Financial Instruments

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

Bond market indexes can be difficult to construct because

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

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

Federally-sponsored agency debt

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

If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would be

Which of the following statements is true regarding a corporate bond?

The largest component of the money market is/are

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

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

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

Consider the following three stocks: Stock Price Number of shares 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

Certificates of deposit are insured by the

A U.S. dollar-denominated bond that is sold in Singapore is a(n)

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

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 20% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

A put option allows the holder to

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

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

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 8% and 10%, respectively. If the investor is in the 20% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.