Question 1

The bid price of a Treasury bill is ________.

Accepted Answer

A)  the price at which the dealer in Treasury bills is willing to sell the bill 
B)  the price at which the dealer in Treasury bills is willing to buy the bill 
C)  greater than the ask price of the Treasury bill expressed in dollar terms 
D)  the price at which the investor can buy the Treasury bill 
A)  the price at which the dealer in Treasury bills is willing to sell the bill 
B)  the price at which the dealer in Treasury bills is willing to buy the bill 
C)  greater than the ask price of the Treasury bill expressed in dollar terms 
D)  the price at which the investor can buy the Treasury bill

Question 2

Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called ________.

Accepted Answer

A)  certificates of deposit 
B)  repurchase agreements 
C)  bankers' acceptances 
D)  commercial paper 
A)  certificates of deposit 
B)  repurchase agreements 
C)  bankers' acceptances 
D)  commercial paper

Question 3

Which one of the following is a true statement regarding corporate bonds?

Accepted Answer

A)  A corporate callable bond gives its 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 convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. 
D)  Holders of corporate bonds have voting rights in the company. 
A)  A corporate callable bond gives its 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 convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. 
D)  Holders of corporate bonds have voting rights in the company.

Question 4

Preferred stock is like long-term debt in that ________.

Accepted Answer

A)  it gives the holder voting power regarding the firm's management 
B)  it promises to pay to its holder a fixed stream of income each year 
C)  the preferred dividend is a tax-deductible expense for the firm 
D)  in the event of bankruptcy preferred stock has equal status with debt 
A)  it gives the holder voting power regarding the firm's management 
B)  it promises to pay to its holder a fixed stream of income each year 
C)  the preferred dividend is a tax-deductible expense for the firm 
D)  in the event of bankruptcy preferred stock has equal status with debt

Question 5

A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?

Accepted Answer

A)  reverse repurchase agreement 
B)  bankers' acceptance 
C)  commercial paper 
D)  repurchase agreement 
A)  reverse repurchase agreement 
B)  bankers' acceptance 
C)  commercial paper 
D)  repurchase agreement

Question 6

A bond that has no collateral is called a ________.

Accepted Answer

A)  callable bond 
B)  debenture 
C)  junk bond 
D)  mortgage 
A)  callable bond 
B)  debenture 
C)  junk bond 
D)  mortgage

Question 7

The yield on tax-exempt bonds is ________.

Accepted Answer

A)  usually less than 50% of the yield on taxable bonds 
B)  normally about 90% of the yield on taxable bonds 
C)  greater than the yield on taxable bonds 
D)  less than the yield on taxable bonds 
A)  usually less than 50% of the yield on taxable bonds 
B)  normally about 90% of the yield on taxable bonds 
C)  greater than the yield on taxable bonds 
D)  less than the yield on taxable bonds

Question 8

When computing the bank discount yield, you would use ________ days in the year.

Accepted Answer

A)  260 
B)  360 
C)  365 
D)  366 
A)  260 
B)  360 
C)  365 
D)  366

Question 9

A tax free municipal bond provides a yield of 3.2%. What is the equivalent taxable yield on the bond given a 35% tax bracket?

Accepted Answer

A)  3.2% 
B)  3.68% 
C)  4.92% 
D)  5% 
A)  3.2% 
B)  3.68% 
C)  4.92% 
D)  5%

Question 10

The minimum tick size, or spread between prices in the Treasury bond market, is

Accepted Answer

A)  1/8 of a point. 
B)  1/16 of a point. 
C)  1/32 of a point. 
D)  1/128 of a point. 
A)  1/8 of a point. 
B)  1/16 of a point. 
C)  1/32 of a point. 
D)  1/128 of a point.

Question 11

The Standard & Poor's 500 is ________ weighted index.

Accepted Answer

A)  an equally 
B)  a price- 
C)  a value- 
D)  a share- 
A)  an equally 
B)  a price- 
C)  a value- 
D)  a share-

Question 12

An individual who goes short in a futures position ________.

Accepted Answer

A)  commits to delivering the underlying commodity at contract maturity 
B)  commits to purchasing the underlying commodity at contract maturity 
C)  has the right to deliver the underlying commodity at contract maturity 
D)  has the right to purchase the underlying commodity at contract maturity 
A)  commits to delivering the underlying commodity at contract maturity 
B)  commits to purchasing the underlying commodity at contract maturity 
C)  has the right to deliver the underlying commodity at contract maturity 
D)  has the right to purchase the underlying commodity at contract maturity

Question 13

Deposits of commercial banks at the Federal Reserve are called ________.

Accepted Answer

A)  bankers' acceptances 
B)  federal funds 
C)  repurchase agreements 
D)  time deposits 
A)  bankers' acceptances 
B)  federal funds 
C)  repurchase agreements 
D)  time deposits

Question 14

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if ________.

Accepted Answer

A)  inflation is lower than anticipated over the investment period 
B)  inflation is higher than anticipated over the investment period 
C)  the U.S. dollar increases in value against the euro 
D)  the spread between commercial paper and Treasury securities remains low 
A)  inflation is lower than anticipated over the investment period 
B)  inflation is higher than anticipated over the investment period 
C)  the U.S. dollar increases in value against the euro 
D)  the spread between commercial paper and Treasury securities remains low

Question 15

Which of the following reforms were not included in 2014 regulations regarding money market funds?

Accepted Answer

A)  Institutional funds will "float" the prices of their shares. 
B)  Funds can limit redemptions or impose a 2% fee if assets fall by more than 30%. 
C)  increased disclosure of assets' values and liquidity 
D)  All of the options were included. 
A)  Institutional funds will "float" the prices of their shares. 
B)  Funds can limit redemptions or impose a 2% fee if assets fall by more than 30%. 
C)  increased disclosure of assets' values and liquidity 
D)  All of the options were included.

Question 16

If you thought prices of stock would be rising over the next few months, you might want to ________ on the stock.

Accepted Answer

A)  purchase a call option 
B)  purchase a put option 
C)  sell a futures contract 
D)  place a short-sale order 
A)  purchase a call option 
B)  purchase a put option 
C)  sell a futures contract 
D)  place a short-sale order

Question 17

What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001?

Accepted Answer

A)  no change, as both yields will remain the same 
B)  increase, as the spread usually increases in response to a crisis 
C)  decrease, as the spread usually decreases in response to a crisis 
D)  no change, as both yields will move in the same direction 
A)  no change, as both yields will remain the same 
B)  increase, as the spread usually increases in response to a crisis 
C)  decrease, as the spread usually decreases in response to a crisis 
D)  no change, as both yields will move in the same direction

Question 18

The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index?

Accepted Answer

A)  5.00 
B)  4.85 
C)  4.50 
D)  4.75 
A)  5.00 
B)  4.85 
C)  4.50 
D)  4.75

Question 19

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ________ per share.

Accepted Answer

A)  $0.55 
B)  $1.80 
C)  $0.45 
D)  $1.25 
A)  $0.55 
B)  $1.80 
C)  $0.45 
D)  $1.25

Question 20

Which one of the following provides the best example of securitization?

Accepted Answer

A)  convertible bond 
B)  call option 
C)  mortgage pass-through security 
D)  preferred stock 
A)  convertible bond 
B)  call option 
C)  mortgage pass-through security 
D)  preferred stock

Exam 2: Asset Classes and Financial Instruments

The bid price of a Treasury bill is ________.

Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called ________.

Which one of the following is a true statement regarding corporate bonds?

Preferred stock is like long-term debt in that ________.

A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?

A bond that has no collateral is called a ________.

The yield on tax-exempt bonds is ________.

When computing the bank discount yield, you would use ________ days in the year.

A tax free municipal bond provides a yield of 3.2%. What is the equivalent taxable yield on the bond given a 35% tax bracket?

The minimum tick size, or spread between prices in the Treasury bond market, is

The Standard & Poor's 500 is ________ weighted index.

An individual who goes short in a futures position ________.

Deposits of commercial banks at the Federal Reserve are called ________.

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if ________.

Which of the following reforms were not included in 2014 regulations regarding money market funds?

If you thought prices of stock would be rising over the next few months, you might want to ________ on the stock.

What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001?

A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ________ per share.

Which one of the following provides the best example of securitization?

Investments: Background and Issues

Securities Markets

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Evaluating Investment Performance

International Diversification

Hedge Funds

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

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