Question 1

TIPS adjust for inflation by adjusting the rate of interest paid on the bond.

Accepted Answer

A) True 
 B)False  False

Question 2

An unsecured bond is known as a:

Accepted Answer

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

Question 3

The earnings retention rate is calculated as 1 - dividend yield.

Accepted Answer

A) True 
 B)False  True

Question 4

Callable bonds attract investors because they can be redeemed early.

Accepted Answer

A) True 
 B)False

Question 5

If a call option has a $10 strike price, and the underlying stock is trading at $11, then the option is considered:

Accepted Answer

A)  in the money. 
B)  at the money. 
C)  out of the money. 
D)  worthless. 
A)  in the money. 
B)  at the money. 
C)  out of the money. 
D)  worthless.

Question 6

Bonds called in are likely to be:

Accepted Answer

A)  bonds already in default 
B)  reissued as new bonds with a lower interest rate 
C)  reissued as new bonds with a higher interest rate 
D)  junk bonds 
A)  bonds already in default 
B)  reissued as new bonds with a lower interest rate 
C)  reissued as new bonds with a higher interest rate 
D)  junk bonds

Question 7

Which of the following 10-year, AAA rated bonds would have the lowest yield?

Accepted Answer

A)  corporate bond. 
B)  insured municipal bond. 
C)  U.S. Treasury bond. 
D)  mortgage-backed bond. 
A)  corporate bond. 
B)  insured municipal bond. 
C)  U.S. Treasury bond. 
D)  mortgage-backed bond.

Question 8

Explain how writing option contracts (both puts and calls) can generate income for owners of the underlying stock.

Accepted Answer

The writer keeps the

Question 9

Rank (lowest to highest) the following securities in terms of the risk-expected return tradeoff from the investors' viewpoint: common stock, corporate bonds, U. S. Treasury bonds, options, preferred stock..

Accepted Answer

U. S. Treasury bonds

Question 10

The largest single institutional owner of common stocks is:

Accepted Answer

A)  mutual funds. 
B)  insurance companies. 
C)  pension funds 
D)  commercial banks 
A)  mutual funds. 
B)  insurance companies. 
C)  pension funds 
D)  commercial banks

Question 11

Most futures contracts are not exercised.

Accepted Answer

A) True 
 B)False

Question 12

In the case of a corporate bankruptcy, bondholders are paid before any distributions are paid to preferred or common stockholders.

Accepted Answer

A) True 
 B)False

Question 13

The rate spreads between the different money market securities of the same term tend to be quite large.

Accepted Answer

A) True 
 B)False

Question 14

Interest on bonds is typically paid:

Accepted Answer

A)  monthly 
B)  quarterly 
C)  semiannually 
D)  annually 
A)  monthly 
B)  quarterly 
C)  semiannually 
D)  annually

Question 15

Treasury bills are traded in the --------------------- .

Accepted Answer

A)  money market. 
B)  capital market. 
C)  government market. 
D)  regulated market. 
A)  money market. 
B)  capital market. 
C)  government market. 
D)  regulated market.

Question 16

Money market securities generally carry a low chance of default.

Accepted Answer

A) True 
 B)False

Question 17

Nonmarketable investments would include savings accounts at banks and Treasury bills.

Accepted Answer

A) True 
 B)False

Question 18

If a preferred stock issue is cumulative, this means:

Accepted Answer

A)  unpaid preferred stock dividends are paid at the end of the year 
B)  unpaid preferred stock dividends are legally binding on the corporation 
C)  unpaid preferred stock dividends must be paid in the future before common stock dividends can be paid 
D)  unpaid preferred stock dividends are never repaid 
A)  unpaid preferred stock dividends are paid at the end of the year 
B)  unpaid preferred stock dividends are legally binding on the corporation 
C)  unpaid preferred stock dividends must be paid in the future before common stock dividends can be paid 
D)  unpaid preferred stock dividends are never repaid

Question 19

A corporate bond with a rating of BBB- is considered to be which of the following?

Accepted Answer

A)  non-investment grade 
B)  investment grade 
C)  speculative grade 
D)  junk, or high-yield 
A)  non-investment grade 
B)  investment grade 
C)  speculative grade 
D)  junk, or high-yield

Question 20

The capital market includes both fixed-income and equity securities.

Accepted Answer

A) True 
 B)False

Exam 2: Investment Alternatives: Generic Principles All Investors Must Know

TIPS adjust for inflation by adjusting the rate of interest paid on the bond.

An unsecured bond is known as a:

The earnings retention rate is calculated as 1 - dividend yield.

Callable bonds attract investors because they can be redeemed early.

If a call option has a $10 strike price, and the underlying stock is trading at $11, then the option is considered:

Bonds called in are likely to be:

Which of the following 10-year, AAA rated bonds would have the lowest yield?

Explain how writing option contracts (both puts and calls) can generate income for owners of the underlying stock.

Rank (lowest to highest) the following securities in terms of the risk-expected return tradeoff from the investors' viewpoint: common stock, corporate bonds, U. S. Treasury bonds, options, preferred stock..

The largest single institutional owner of common stocks is:

Most futures contracts are not exercised.

In the case of a corporate bankruptcy, bondholders are paid before any distributions are paid to preferred or common stockholders.

The rate spreads between the different money market securities of the same term tend to be quite large.

Interest on bonds is typically paid:

Treasury bills are traded in the --------------------- .

Money market securities generally carry a low chance of default.

Nonmarketable investments would include savings accounts at banks and Treasury bills.

If a preferred stock issue is cumulative, this means:

A corporate bond with a rating of BBB- is considered to be which of the following?

The capital market includes both fixed-income and equity securities.

Investing Is an Important Activity Worldwide

Indirect Investing: a Global Activity

Securities Markets Matter to All Investors

All Financial Markets Have Regulations and Trading Practices

Return and Risk: the Foundation of Investing Worldwide

Portfolio Theory Is Universal

Portfolio Selection for All Investors

Asset Pricing Principles

Common Stock Valuation Lessons for All Investors

Managing a Stock Portfolio: a Worldwide Issue

What Happens If Markets Are Efficient or Not?

Economy/ market Analysis Must Be Considered by All Investor

Sector/ industry Analysis

Company Analysis

Technical Analysis

Fixed Income Securities Are Available Worldwide

Managing Bond Portfolios: Some Issues Affect All Investors

Understanding Derivative Securities: Options

Understanding Derivative Securities: Futures

All Investors Must Consider Portfolio Management

Evaluation of Investment Performance: a Global Concept

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