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

Which of the following statements regarding money market instruments is not true?

An example of indirect investing would be buying shares in a mutual fund.

Do the stock options markets help stabilize or destabilize the stock markets? Explain.

The deeper the discount on a zero-coupon bond, the lower the effective return.

Bonds trade on an accrual interest basis. This means an investor:

An investor who pays taxes at the 28% marginal tax rate would need to earn what coupon rate on a corporate bond similar in all respects other than taxes to a 5% coupon municipal bond:

Who benefits from a futures contract, a call contract, and a put contract, if prices fall?

What is the major difference between municipal bonds and other types of bonds?

Investors in high tax brackets would be unlikely to invest in municipal bonds.

How do asset-backed securities improve the flow of funds from savers to borrowers?

For U.S. companies, dividends are typically paid:

Convertible bonds give their investors the right to convert the bond into common stock whenever they choose.

The money market security most often used a benchmark for the risk-free rate is money market deposit account rate.

Savings accounts are ---------- but are not------------.

What will a bond be worth on the day it matures?

What are some advantages of asset-backed securities to investors?

A municipal bond issue that was sold to finance a toll bridge would most likely be a:

The par value on common stock sets the value that stockholders will receive in case of bankruptcy.

A corporate investor in a 34% marginal income tax bracket can buy bonds issued by a petroleum exploration company yielding 10.606%. The investor should be willing to buy tax-exempt municipal bonds of similar quality yielding what percent or higher?

The return on a zero-coupon bond is derived from the difference between the purchase price of the bond and its par value.