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CH 2

Terms in this set (50)

1. Which of the following is/are not characteristic of a money market instrument?
E. Long maturity and liquidity premium
2. You sold a futures contract on oats at a futures price of 233.75 and at the time of expiration the price was 261.25. What was your profit or loss?
B. -$1375.00
3. Treasury Inflation-Protected Securities (TIPS)
E. provide a constant stream of income in real (inflation-adjusted) dollars and D have their principal adjusted in proportion to the Consumer Price Index.
4. Which one of the following is not a money market instrument?
D. A Treasury bond
5. T-bills are financial instruments initially sold by ________ to raise funds.
B. the U.S. government
6. The bid price of a T-bill in the secondary market is
B. the price at which the dealer in T-bills is willing to buy the bill.
7. The smallest component of the money market is
B. small-denomination time deposits
8. The smallest component of the bond market is
B. other asset-backed
9. The largest component of the bond market is
E. mortgage-backed
10. Which of the following is not a component of the money market?
C. Real estate investment trusts
11. Commercial paper is a short-term security issued by ________ to raise funds.
C. large, well-known companies
12. Which one of the following terms best describes Eurodollars?
C. Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S.
13. Deposits of commercial banks at the Federal Reserve Bank are called __________.
D. federal funds
14. The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the _________.
C. federal funds rate
15. Which of the following statements is (are) true regarding municipal bonds?
D. I, III, and IV only
"I) A municipal bond is a debt obligation issued by state or local governments.
III) The interest income from a municipal bond is exempt from federal income taxation.
IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state. "
16. Which of the following statements is true regarding a corporate 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.
17. In the event of the firm's bankruptcy
E. the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.
18. Which of the following is true regarding a firm's securities?
C. Preferred dividends are usually cumulative.
19. Which of the following is true of the Dow Jones Industrial Average?
E. It is a price-weighted average of 30 large industrial stocks and The divisor must be adjusted for stock splits.
20. Which of the following indices is (are) market-value weighted?
"I) The New York Stock Exchange Composite Index
II) The Standard and Poor's 500 Stock Index"
21. The Dow Jones Industrial Average (DJIA) is computed by:
C. adding the prices of the 30 stocks in the index and dividing by a divisor.
22. The price-weighted index constructed with the three stocks is
B. 40
23. The value-weighted index constructed with the three stocks using a divisor of 100 is
C. 490
24. Assume at these prices the value-weighted index constructed with the three stocks is 490. What would the index be if stock B is split 2 for 1 and stock C 4 for 1?
D. 490
25. The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a buyer of the bond what is the dollar price you expect to pay?
B. $1,042.50
26. The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08 and a bid price of 104:04. As a seller of the bond what is the dollar price you expect to pay?
C. $1,041.25
27. 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.
B. 8% and 8%
28. An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively. If the investor is in the 25% marginal tax bracket, his or her after tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.
B. 7.5% and 7.73%
29. If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be
B. 97:16.
30. If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would be
B. 99:16.
31. In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs:
B. automatically.
32. Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false?
C. The DJIA is affected equally by changes in low and high priced stocks.
33. The index that includes the largest number of actively traded stock is:
C. the Wilshire 5000 Index.
34. A 5.5% 20-year municipal bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of:
B. 10.75%.
35. If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?
A. The stock trading at the highest dollar price per share.
36. The stocks on the Dow Jones Industrial Average
C. are changed occasionally as circumstances dictate.
37. Federally sponsored agency debt
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.
38. Brokers' calls
D. are funds used by individuals who wish to buy stocks on margin and are funds borrowed by the broker from the bank, with the agreement to repay the bank immediately if requested to do so.
39. A form of short-term borrowing by dealers in government securities is
B. repurchase agreements.
40. Which of the following securities is a money market instrument?
D. Commercial paper.
41. The yield to maturity reported in the financial pages for Treasury securities
E. is calculated by doubling the semiannual yield and is also called the bond equivalent yield.
42. Which of the following is not a mortgage-related government or government sponsored agency?
C. The U.S. Treasury
43. In order for you to be indifferent between the after tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?
D. 28%
44. What does the term "negotiable" mean with regard to negotiable certificates of deposit?
A. The CD can be sold to another investor if the owner needs to cash it in before its maturity date.
45. Freddie Mac and Ginnie Mae were organized to provide
B. liquidity for the mortgage market.
46. The type of municipal bond that is used to finance commercial enterprises such as the construction of a new building for a corporation is called
E. an industrial development bond.
47. Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?
D. 17.3%
48. 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.
III) Its dividends are usually cumulative. "
49. Bond market indexes can be difficult to construct because
B. bonds tend to trade infrequently, making price information difficult to obtain.
50. With regard to a futures contract, the long position is held by
D. the trader who commits to purchasing the commodity on the delivery date.
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