Deck 2: Asset Classes and Financial Instruments

Question 1

Which of the following is not a money market instrument?

A)Treasury bond
B)Commercial paper
C)Preferred share
D)Banker's acceptance

Answer 1

C

Question 2

Treasury notes are financial instruments issued by ________ to raise funds.

A)commercial banks
B)the Australian Commonwealth Government
C)large corporations
D)state and city governments

Answer 2

B

Question 3

Money market securities are sometimes referred to as 'cash equivalent' because ________.

A)they are safe and marketable
B)they are not liquid
C)they are high risk
D)they are low denomination

Answer 3

A

Question 4

The most actively traded money market security is

A)Treasury notes
B)Bankers' Acceptances
C)Certificates of Deposit
D)Common shares

Question 5

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

A)Liquidity
B)Marketability
C)Low risk
D)Maturity greater than one year

Question 6

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

A)the Federal Reserve
B)commercial banks
C)large well-known companies
D)the New York Stock Exchange

Question 7

A dollar-denominated deposit at a London bank is called ________.

A)eurodollars
B)LIBOR
C)fed funds
D)banker's acceptance

Question 8

Which of the following mortgage scenarios will benefit the homeowner the most?

A)Adjustable rate mortgage when interest rate increases.
B)Fixed rate mortgage when interest rates falls.
C)Fixed rate mortgage when interest rate rises.
D)None of the answers given, as banker's interest will always be protected.

Question 9

________ is considered to be an emerging market country.

A)France
B)Norway
C)Brazil
D)Canada

Question 10

An investor in a T-note earns interest by ________.

A)receiving interest payments every 90 days
B)receiving dividend payments every 30 days
C)converting the T-note at maturity into a higher valued government bond
D)buying the note at a discount from the face value received at maturity

Question 11

________ voting of common share gives minority shareholders the most representation on the board of directors.

A)Majority
B)Cumulative
C)Rights
D)Proxy

Question 12

Which one of the following is a true description of the Dow Jones Industrial Average?

A)A value-weighted average of 30 large industrial shares
B)A price-weighted average of 30 large industrial shares
C)A price-weighted average of 100 large shares traded on the New York Stock Exchange
D)A value-weighted average of all shares traded on the New York Stock Exchange

Question 13

When setting the interest rate on loans, the commonly used measure is the ________-day bank bond rate.

A)120
B)90
C)60
D)30

Question 14

Treasury notes are offered for sale generally on a ________ basis.

A)daily
B)weekly
C)monthly
D)quarterly

Question 15

An individual who goes short in a futures position ________.

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 16

Which one of the following is a true statement?

A)Dividends on preferred shares are tax-deductible to individual investors but not to corporate investors.
B)Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred share.
C)Preferred shareholders have voting power.
D)Investors can sue managers for nonpayment of preferred dividends.

Question 17

The maximum maturity of certificate of deposits is

A)185 days
B)100 days
C)95 days
D)30 days

Question 18

A bond that has no collateral is called ________.

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

Question 19

Which of the following are true statements about T-notes?
I) T-notes are typically issued in denominations of $1 000 000
II) Income earned on T-notes is exempt from all taxes
III) T-notes are issued at a discount

A)I only
B)I and II only
C)I and III only
D)I, II and III

Question 20

A transaction where a dealer agrees to sell and subsequently repurchase a security from another deal is called ________.

A)a bank accepted bond
B)a repurchase agreement
C)a Treasury note
D)a time deposit

Question 21

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

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 22

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

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

Question 23

The interest rate charged by large banks in London to lend money among themselves is called ________.

A)the prime rate
B)the discount rate
C)the federal funds rate
D)LIBOR

Question 24

June call and put options on King Books Inc are available with exercise prices of $30, $35 and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value.

A)$40; $30
B)$30; $40
C)$35; $35
D)$40; $40

Question 25

Which of the following types of bonds are excluded from most bond indices?

A)Corporate bonds
B)Junk bonds
C)Government bonds
D)None of the above

Question 26

________ is not a money market instrument.

A)A certificate of deposit
B)A Treasury bill
C)A Treasury bond
D)Commercial paper

Question 27

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

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 share has equal status with debt

Question 28

The major share index of Australian market is the ________.

A)ASX 200
B)FTSE
C)GSE
D)TSE

Question 29

Which of the following does not approximate the performance of a buy and hold portfolio strategy?

A)An equally weighted index
B)A price weighted index
C)A value weighted index
D)Weights are not a factor in this situation

Question 30

A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.

A)call option
B)futures contract
C)put option
D)interest rate swap

Question 31

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

A)Reverse repurchase agreement
B)Banker's acceptance
C)Commercial paper
D)Repurchase agreement

Question 32

Ownership of a put option entitles the owner to the ________ to ________ a specific share, on or before a specific date, at a specific price.

A)right, buy
B)right, sell
C)obligation, buy
D)obligation, sell

Question 33

A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.

A)call option
B)futures contract
C)put option
D)interest rate swap

Question 34

The Hang Seng index reflects market performance on which of the following major share markets?

A)Japan
B)Singapore
C)Taiwan
D)Hong Kong

Question 35

Ownership of a call option entitles the owner to the ________ to ________ a specific share, on or before a specific date, at a specific price.

A)right, buy
B)right, sell
C)obligation, buy
D)obligation, sell

Question 36

TIPS are treasury bonds that protect investors from inflation. Investors will earn higher rates of returns on TIPS than equivalent default risk standard bonds if ________.

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 37

Preferred share can be callable by the issuing firm, in which case it is said to be ________.

A)insolvent
B)redeemable
C)insufferable
D)delinquent

Question 38

The Dow Jones Industrial Average is ________.

A)a price weighted average
B)a value weight and average
C)an equally weighted average
D)an unweighted average

Question 39

The yield on tax-exempt bonds is ________.

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 40

The purchase of a futures contract gives the buyer ________.

A)the right to buy an item at a specified price
B)the right to sell an item at a specified price
C)the obligation to buy an item at a specified price
D)the obligation to sell an item at a specified price

Question 41

An investor purchases one corporate bond that pay rates of return of 6.40%. If the investor is in the 15% tax bracket, his after tax rates of return on the corporate bond would be

A)6.40%
B)5.44%
C)7.36%
D)6.25%

Question 42

In a ________ index changes in the value of the share with the greatest market value will move the index value the most everything else equal.

A)value weighted index
B)equal weighted index
C)price weighted index
D)bond price index

Question 43

Which of the following provides an important source of funding for the Australian Commonwealth Government?

A)Certificate of deposit
B)Treasury notes
C)Eurodollar deposits
D)Commercial paper

Question 44

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?

A)3.20%
B)3.68%
C)4.92%
D)9.00%

Question 45

You decide to purchase an equal number of shares of firms to create a portfolio. If you wished to construct an index to track your portfolio performance your best match for your portfolio would be to construct a/an ________.

A)value weighted index
B)equal weighted index
C)price weighted index
D)bond price index

Question 46

What are business firms most likely to use derivative securities for?

A)Hedging
B)Speculating
C)Doing calculus problems
D)Market making

Question 47

A typical bond price quote includes all but which one of the following?

A)Daily high price for the bond
B)Closing bond price
C)Yield to maturity
D)Dividend yield

Question 48

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

A)No change, as both yields will remain the same.
B)Increase, the spread usually increases in response to a crisis.
C)Decrease, the spread usually decreases in response to a crisis.
D)No change, as both yields will move in the same direction.

Question 49

Which of the following are not characteristic of common share ownership?

A)Residual claimant
B)Unlimited liability
C)Voting rights
D)Limited life of the security

Question 50

Eurodollars are ________.

A)dollar denominated deposits at any foreign bank or foreign branch of an American bank
B)dollar denominated bonds issued by firms outside their home market
C)currency issued by Euro Disney and traded in France
D)dollars that wind up in banks as a result of money laundering activities

Question 51

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 ________.

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

Question 52

If you thought prices of share would be rising over the next few months you may wish to ________ on the share.

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

Question 53

The Reserve Bank of Australia (RBA) directly controls which of the following interest rates?

A)Bankers' acceptances
B)Brokers' call
C)Cash rate
D)LIBOR

Question 54

Treasury notes have initial maturities between ________ weeks.

A)2 and 4
B)5 and 10
C)10 and 30
D)1 and 30

Question 55

Which of the following is most like a short-term collateralised loan?

A)Certificate of deposit
B)Repurchase agreement
C)Banker's acceptance
D)Commercial paper

Question 56

What is the tax exempt equivalent yield on a 9% bond yield given a marginal tax rate of 28%?

A)6.48%
B)7.25%
C)8.02%
D)9.00%

Question 57

A tax-exempt bond is priced to yield 6.25%. If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of ________.

A)4.50%
B)7.25%
C)8.68%
D)none of the answers given are correct

Question 58

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

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

Question 59

Which of the following is not considered a money market investment?

A)Bankers' acceptances
B)Treasury notes
C)Repurchase agreements
D)Eurobonds