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Chapter 1: 1) The material wealth of a society is a function of: A) all financial assets. B) all real assets. C) all financial and real assets. D) all physical assets. E) all physical and financial assets.

are real assets. A) Land and mortgages B) Machines and bonds C) Stocks and bonds D) Knowledge and stocks E) Land, machines, and knowledge

3) The means by which individuals hold their claims on real assets in a well-developed

economy are: A) investment assets. B) depository assets. C) derivative assets. D) financial assets. E) exchange-driven assets.

4) A) B) C) D) E)

are financial assets. Bonds and land Machines and derivatives Stocks and intellectual property Bonds and stocks Bonds, machines, and stocks

5) _________ financial asset(s). A) Buildings are B) Land is a C) Derivatives and intellectual property are D) U.S. agency bonds and buildings are E) Derivatives and U.S. agency bonds are

6) Financial assets: A) directly contribute to the country's productive capacity. B) indirectly contribute to the country's productive capacity. C) contribute to the country's productive capacity, both directly and indirectly. D) do not contribute to the country's productive capacity, either directly or indirectly. E) are of no value to anyone.

7) In 2021, ____________ was the most significant real asset of U.S. households in terms of

total value. A) consumer durables B) automobiles C) real estate D) mutual fund shares E) bank loans

8) In 2021, _____________was the least significant financial asset of U.S. households in terms

of total value. A) real estate B) mutual fund shares C) debt securities D) life insurance reserves E) pension reserves

9) In 2021, _____________ was the most significant financial asset of U.S. households in terms

of total value. A) real estate B) mutual fund shares C) debt securities D) life insurance reserves E) pension reserves

10) In 2021, ____________ was the most significant asset of U.S. households in terms of total

value. A) B) C) D) E)

real estate mutual fund shares debt securities life insurance reserves pension reserves

11) In 2021, ____________ were the most significant liability of U.S. households in terms of

total value. A) credit cards B) mortgages C) bank loans D) student loans E) other forms of debt

12) In 2021, which of the following financial assets make up the greatest proportion of the

financial assets held by U.S. households? A) Pension reserves B) Life insurance reserves C) Mutual fund shares D) Debt securities E) Personal trusts

13) In 2021, _______ of the assets of U.S. households were financial assets. A) 24.4% B) 28.9% C) 58.4% D) 71.1% E) 87.2%

14) The largest component of domestic net worth in 2021 was: A) nonresidential real estate. B) residential real estate. C) inventories. D) consumer durables. E) equipment and software.

15) The smallest component of domestic net worth in 2021 was: A) nonresidential real estate. B) residential real estate. C) inventories. D) consumer durables. E) equipment and software.

16) The domestic net worth of the U.S. in 2021 was: A) $9.350 trillion. B) $20.813 trillion. C) $45.816 trillion. D) $86.282 trillion. E) $80.983 trillion.

17) A fixed-income security pays: A) a fixed level of income for the life of the owner. B) a fixed stream of income or a stream of income that is determined according to a

specified formula for the life of the security. C) a variable level of income for owners on a fixed income. D) a fixed or variable income stream at the option of the owner. E) None of the choices are correct.

18) A debt security pays: A) a fixed level of income for the life of the owner. B) a variable level of income for owners on a fixed income. C) a fixed or variable income stream at the option of the owner. D) a fixed stream of income or a stream of income that is determined according to a

specified formula for the life of the security.

19) Money market securities: A) are short term. B) are highly marketable. C) are generally very low risk. D) None of the options are correct. E) All of the options are correct.

20) An example of a derivative security is: A) a common share of Microsoft but not a commodity futures contract. B) a call option on Intel stock but not a commodity futures contract. C) a commodity futures contract or a common share of Microsoft. D) a call option on Intel stock or a commodity futures contract. E) a common share of Microsoft or a call option on Intel stock.

21) The value of a derivative security: A) depends on the value of the related security. B) is unable to be calculated. C) is unrelated to the value of the related security. D) has been enhanced due to the recent misuse and negative publicity regarding these

instruments. E) is worthless today.

22) Although derivatives can be used as speculative instruments, businesses most often use them

to: A) B) C) D) E)

attract customers. appease stockholders. offset debt. hedge risks. enhance their balance sheets.

23) Financial assets permit all of the following except: A) consumption timing. B) allocation of risk. C) separation of ownership and control. D) elimination of risk. E) All of the choices are correct.

24) The ____________ refers to the potential conflict between management and shareholders. A) agency problem B) diversification problem C) liquidity problem D) solvency problem E) regulatory problem

25) A disadvantage of using stock options to compensate managers is that: A) it encourages managers to undertake projects that will increase stock price. B) it encourages managers to engage in empire building. C) it can create an incentive for managers to manipulate information to prop up a stock

price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects. D) All of the choices are correct. E) None of the choices are correct.

26) Which of the following are mechanisms that have evolved to mitigate potential agency

problems? 1. Using the firm's stock options for compensation 2. Hiring bickering family members as corporate spies 3. Boards of directors forcing out underperforming management 4. Security analysts monitoring the firm closely 5. Takeover threats A) II and V B) I, III, and IV C) I, III, IV, and V D) III, IV, and V E) I, III, and V

27) Corporate shareholders are best protected from incompetent management decisions by: A) the ability to engage in proxy fights. B) management's control of pecuniary rewards. C) the ability to call shareholder meetings. D) the threat of takeover by other firms. E) one-share per one-vote election rules.

28) Theoretically, takeovers should result in: A) improved management and decreased stock price. B) increased stock price and increased benefits to existing management of the taken-over

firm. C) increased benefits to existing management of the taken-over firm. D) improved management and increased stock price. E) All of the options are correct.

29) During the period between 2000 and 2002, a large number of scandals were uncovered. Most

of these scandals were related to: 1. manipulation of financial data to misrepresent the actual condition of the firm. 2. misleading and overly optimistic research reports produced by analysts. 3. allocating IPOs to executives as a quid pro quo for personal favors. 4. greenmail. A) II, III, and IV B) I, II, and IV C) II and IV D) I, III, and IV E) I, II, and III

30) The Sarbanes-Oxley Act: A) requires corporations to have more independent directors. B) requires the firm's CFO to personally vouch for the firm's accounting statements. C) prohibits auditing firms from providing other services to clients. D) requires corporations to have more independent directors and requires the firm's CFO

to personally vouch for the firm's accounting statements. E) All of the choices are correct.

31) Asset allocation refers to: A) choosing which securities to hold based on their valuation. B) investing only in "safe" securities. C) the allocation of assets into broad asset classes. D) bottom-up analysis. E) All of the choices are correct.

32) Security selection refers to: A) choosing which securities to hold based on their valuation. B) investing only in "safe" securities. C) the allocation of assets into broad asset classes. D) top-down analysis. E) All of the choices are correct.

33) Which of the following portfolio construction methods starts with security analysis? A) Top-down B) Bottom-up C) Middle-out D) Buy and hold E) None of the choices are correct.

34) Which of the following portfolio construction methods starts with asset allocation? A) Top-down B) Bottom-up C) Middle-out D) Buy and hold E) Asset allocation

35) _______ are examples of financial intermediaries. A) Commercial banks B) Insurance companies C) Investment companies D) Credit unions E) All of the options are correct.

36) Financial intermediaries exist because small investors cannot efficiently: A) diversify their portfolios. B) assess credit risk of borrowers. C) advertise for needed investments. D) diversify their portfolios and assess credit risk of borrowers. E) All of the options are correct.

37) ________ specialize in helping companies raise capital by selling securities. A) Commercial bankers B) Investment bankers C) Investment issuers D) Credit rating agencies E) All of the choices are correct.

38) Commercial banks differ from other businesses in that both their assets and their liabilities

are mostly: A) B) C) D) E)

illiquid. financial. real. owned by the government. regulated.

39) In 2021, ____________ was(were) the most significant financial asset(s) of U.S. commercial

banks in terms of total value. A) loans and leases B) cash C) real estate D) deposits E) investment securities

40) In 2021, ____________ was(were) the most significant liability(ies) of U.S. commercial

banks in terms of total value. A) loans and leases B) cash C) real estate D) deposits E) investment securities

41) In 2021, ____________ was(were) the most significant real asset(s) of U.S. nonfinancial

businesses in terms of total value. A) equipment and software B) inventory C) real estate D) trade credit E) marketable securities

42) In 2021, ____________ was(were) the least significant real asset(s) of U.S. nonfinancial

businesses in terms of total value. A) equipment and software B) inventory C) real estate D) trade credit E) marketable securities

43) In 2021, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial

businesses in terms of total value. A) bonds B) bank loans and mortgages C) inventories D) trade debt E) marketable securities

44) In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in

2021 was(were): A) bank loans and mortgages. B) debt securities. C) trade debt. D) other loans. E) marketable securities.

45) In 2021, ____________ was(were) the least significant financial asset(s) of U.S. nonfinancial

businesses in terms of total value. A) cash and deposits B) trade credit C) trade debt D) inventory E) marketable securities

46) New issues of securities are sold in the ________ market(s). A) primary B) secondary C) over-the-counter D) primary and secondary E) All of the choices are correct.

47) Investors trade previously issued securities in the ________ market(s). A) primary B) secondary C) primary and secondary D) derivatives E) derivatives and primary

48) Investment bankers perform which of the following role(s)? A) Market new stock and bond issues for firms B) Provide advice to the firms as to market conditions, price, etc. C) Design securities with desirable properties D) All of the options are correct. E) None of the options are correct.

49) Until 1999, the ________ Act(s) prohibited banks in the United States from both accepting

deposits and underwriting securities. A) Sarbanes-Oxley B) Glass-Steagall C) SEC D) Sarbanes-Oxley and SEC E) None of the options are correct.

50) The spread between the LIBOR and the Treasury-bill rate is called the: A) term spread. B) T-bill spread. C) LIBOR spread. D) TED spread. E) All of the choices are correct.

51) Mortgage-backed securities were created when ________ began buying mortgage loans from

originators and bundling them into large pools that could be traded like any other financial asset. A) GNMA B) FNMA C) FHLMC D) FNMA and FHLMC E) GNMA and FNMA

52) The sale of a mortgage portfolio by setting up mortgage pass-through securities is an

example of: A) credit enhancement. B) credit swap. C) unbundling. D) derivatives. E) All of the choices are correct.

53) Which of the following is true about mortgage-backed securities? 1. They aggregate individual home mortgages into homogeneous pools. 2. The purchaser receives monthly interest and principal payments received from payments

made on the pool. 3. The banks that originated the mortgages maintain ownership of them. 4. The banks that originated the mortgages may continue to service them. A) II, III, and IV B) I, II, and IV C) II and IV D) I, III, and IV E) I, II, III, and IV

54) ________ were designed to concentrate the credit risk of a bundle of loans on one class of

investor, leaving the other investors in the pool relatively protected from that risk. A) Stocks B) Bonds C) Derivatives D) Collateralized debt obligations E) All of the options are correct.

55) ________ are, in essence, an insurance contract against the default of one or more borrowers. A) Credit default swaps B) CMOs C) ETFs D) Collateralized debt obligations E) All of the options are correct.

56) The technology behind cryptocurrencies that is ideal for secure digital transactions is called

_____________. A) bitcoin B) blockchain C) distributed ledgers D) ethereum E) All of the options are correct.

57) A major problem experienced by cryptocurrency, which makes it problematic to store value

is _____________. A) distributed ledgers B) blockchain C) price volatility D) transaction security E) All of the options are correct.

58) Which country(ies) has banned initial coin offerings? A) China and South Korea B) Germany and Austria C) Japan D) USA E) All of the options are correct.

59) The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 exempted

smaller banks from which rule? A) Liquidity B) Reserves C) Demand deposit D) Volcker E) All of the options are correct.

60) According to the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018

many larger banks are no longer considered _____________. A) insurable B) high risk C) insolvent D) systematically important E) All of the options are correct.

Answer Key Test name: Chapter 1 1) B 2) E 3) D 4) D 5) E 6) B 7) C 8) D 9) E 10) A 11) B 12) A 13) D 14) B 15) C 16) D 17) B 18) D 19) E 20) D 21) A 22) D 23) D 24) A 25) C 26) C 27) D 28) D 29) E 30) E 31) C 32) A 33) B 34) A 35) E 36) E 37) B

38) B 39) A 40) D 41) C 42) B 43) B 44) B 45) A 46) A 47) B 48) D 49) B 50) D 51) D 52) B 53) B 54) D 55) A 56) B 57) C 58) A 59) D 60) D

Chapter 2:__________ 1) Which of the following is or are not a characteristic(s) of a money market instrument? A) Liquidity only B) Marketability only C) Long maturity only D) Liquidity premium only E) Long maturity and liquidity premium

2) The money market is a subsector of the: A) commodity market. B) capital market. C) derivatives market. D) equity market. E) None of the options are correct.

3) Treasury Inflation-Protected Securities (TIPS): A) pay a fixed interest rate for life. B) pay a variable interest rate that is indexed to inflation but maintain a constant

principal. C) provide a variable stream of income in real (inflation-adjusted) dollars. D) have their principal adjusted inversely to the Consumer Price Index. E) provide a constant stream of income in real (inflation-adjusted) dollars and have their principal adjusted in proportion to the Consumer Price Index.

4) Which one of the following is not a money market instrument? A) Treasury bill B) Negotiable certificate of deposit C) Commercial paper D) Treasury bond E) Eurodollar account

5) T-bills are financial instruments initially sold by ________ to raise funds. A) commercial banks B) the U.S. government C) state and local governments D) agencies of the federal government E) the U.S. government and agencies of the federal government

6) The bid price of a T-bill in the secondary market is: A) the price at which the dealer in T-bills is willing to sell the bill. B) the price at which the dealer in T-bills is willing to buy the bill. C) greater than the asked price of the T-bill. D) the price at which the investor can buy the T-bill. E) never quoted in the financial press.

7) In 2020, which of the following asset-backed securities had the largest value outstanding?

Use Figure 2.7. A) Automobile B) Student Loans C) Credit Card D) Equipment E) Treasury bills

8) The smallest component of the fixed-income market is _______ debt. Use Figure 2.9. A) Treasury B) other asset-backed C) corporate D) tax-exempt E) mortgage-backed

9) The largest component of the fixed-income market is _______ debt. Use Figure 2.9. A) Treasury B) asset-backed C) corporate D) tax-exempt E) mortgage-backed

10) Which of the following is not a component of the money market? A) Repurchase agreements B) Eurodollars C) Real estate investment trusts D) Money market mutual funds E) Commercial paper

11) Commercial paper is a short-term security issued by ________ to raise funds. A) the Federal Reserve Bank B) commercial banks C) large, well-known companies D) the New York Stock Exchange E) state and local governments

12) Which one of the following terms best describes Eurodollars? A) Dollar-denominated deposits only in European banks. B) Dollar-denominated deposits at branches of foreign banks in the U.S. C) Dollar-denominated deposits at foreign banks and branches of American banks

outside the U.S. D) Dollar-denominated deposits at American banks in the U.S. E) Dollars that have been exchanged for European currency.

13) Deposits of commercial banks at the Federal Reserve Bank are called: A) bankers' acceptances. B) repurchase agreements. C) time deposits. D) federal funds. E) reserve requirements.

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: A) prime rate. B) discount rate. C) federal funds rate. D) call money rate. E) money market rate.

15) Which of the following statements are true regarding municipal bonds? 1. A municipal bond is a debt obligation issued by state or local governments. 2. A municipal bond is a debt obligation issued by the federal government. 3. The interest income from a municipal bond is exempt from federal income taxation. 4. The interest income from a municipal bond is exempt from state and local taxation in the

issuing state. A) I and II only B) I and III only C) I, II, and III only D) I, III, and IV only E) I and IV only

16) Which of the following statements is true regarding a corporate bond? A) A corporate callable bond gives the 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 indenture is a secured 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. E) Holders of corporate bonds have voting rights in the company.

17) In the event of the firm's bankruptcy, A) the most shareholders can lose is their original investment in the firm's stock. B) common shareholders are the first in line to receive their claims on the firm's assets. C) bondholders have claim to what is left from the liquidation of the firm's assets after

paying the shareholders. D) the claims of preferred shareholders are honored before those of the common shareholders. 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? A) Common dividends are paid before preferred dividends. B) Preferred stockholders have voting rights. C) Preferred dividends are usually cumulative. D) Preferred dividends are contractual obligations. E) Common dividends can usually be paid if preferred dividends have been skipped.

19) Which of the following is true of the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial only stocks. C) It is a value-weighted average of 30 large industrial stocks, and the divisor is not

adjusted for stock splits. D) It is a value-weighted average of 30 large industrial stocks, and the divisor must be adjusted for stock splits. E) It is a price-weighted average of 30 large blue-chip stocks, and the divisor must be adjusted for stock splits.

20) Which of the following indices is(are) market-value weighted? 1. The New York Stock Exchange Composite Index 2. The Standard and Poor's 500 Stock Index 3. The Dow Jones Industrial Average A) I only B) I and II only C) I and III only D) I, II, and III E) II and III only

21) The Dow Jones Industrial Average (DJIA) is computed by: A) adding the prices of 30 large "blue-chip" stocks and dividing by 30. B) calculating the total market value of the 30 firms in the index and dividing by 30. C) adding the prices of the 30 stocks in the index and dividing by a divisor. D) adding the prices of the 500 stocks in the index and dividing by a divisor. E) adding the prices of the 30 stocks in the index and dividing by the value of these

stocks as of some base date period.

22) Consider the following three stocks: Stock Price Stock A Stock B Stock C

$ 40 $ 70 $ 10

Number of shares outstanding 200 500 600

The price-weighted index constructed with the three stocks is: A) 30. B) 40. C) 50. D) 60. E) 70.

23) Consider the following three stocks: Stock Price Stock A Stock B Stock C

$ 40 $ 70 $ 10

Number of shares outstanding 200 500 600

The value-weighted index constructed with the three stocks using a divisor of 100 is: A) 1.2. B) 1200. C) 490. D) 4900. E) 49.

24) Consider the following three stocks: Stock Price Stock A Stock B Stock C

$ 40 $ 70 $ 10

Number of shares outstanding 200 500 600

Assume at these prices that 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? A) 265 B) 430 C) 355 D) 490 E) 1000

25) The price quotations of Treasury bonds in the Wall Street Journal show an ask price of

104.250 and a bid price of 104.125. If the treasury bonds have a par value of $1,000. As a buyer of the bond, what is the dollar price you expect to pay? A) $1,048.00 B) $1,042.50 C) $1,044.00 D) $1,041.25 E) $1,040.40

26) The price quotations of Treasury bonds in the Wall Street Journal show an ask price of

104.250 and a bid price of 104.125. If the treasury bonds have a par value of $1,000. As a seller of the bond, what is the dollar price you expect to receive? A) $1,048.00 B) $1,042.50 C) $1,041.25 D) $1,041.75 E) $1,040.40

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 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________and ________, respectively. A) 8%; 10% B) 8%; 7.8% C) 6.4%; 8% D) 6.4%; 10% E) 10%; 10%

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 24% marginal tax bracket, his or her aftertax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 7.5%; 10.3% B) 7.5%; 7.83% C) 5.63%; 7.73% D) 5.63%; 10.3% E) 10%; 10%

29) An investor purchases one municipal and one corporate bond that pay rates of return of 7.5%

and 10.0%, respectively. If the investor is in the 20% marginal tax bracket, his or her aftertax rates of return on the municipal and corporate bonds would be ________ and ________, respectively. A) 7.5%; 12.0% B) 7.5%; 8.0% C) 5.63%; 12.0% D) 5.63%; 8.0% E) 10%; 10%

30) What marginal tax bracket would suggest indifference between corporate bonds (yielding

10%) and municipal bonds (yielding 8%)? A) 0% B) 20% C) 21% D) 25% E) Unable to determine given the information provided.

31) In calculating the Standard and Poor's stock price indices, the adjustment for stock split

occurs: A) B) C) D)

by adjusting the divisor. automatically. by adjusting the numerator. quarterly on the last trading day of each quarter.

32) Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is

false? A) B) C) D) E)

The DJIA is not very representative of the market as a whole. The DJIA consists of 30 blue chip stocks. The DJIA is affected equally by changes in low- and high-priced stocks. The DJIA divisor needs to be adjusted for stock splits. The value of the DJIA is much higher than individual stock prices.

33) The index that includes the largest number of actively-traded stocks is: A) the NASDAQ Composite Index. B) the NYSE Composite Index. C) the Wilshire 5000 Index. D) the Value Line Composite Index. E) the Russell 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: A) 8.46%. B) 10.75%. C) 12.40%. D) 3.58%.

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 B) The stock having the greatest amount of debt in its capital structure C) The stock having the greatest amount of equity in its capital structure D) The stock having the lowest volatility

36) The stocks on the Dow Jones Industrial Average: A) have remained unchanged since the creation of the index. B) include most of the stocks traded on the NYSE. C) are changed occasionally as circumstances dictate. D) consist of stocks on which the investor cannot lose money. E) include most of the stocks traded on the NYSE and are changed occasionally as

circumstances dictate.

37) Federally-sponsored agency debt: A) is legally insured by the U.S. Treasury. B) would probably be backed by the U.S. Treasury in the event of a near-default. C) has a small positive yield spread relative to U.S. Treasuries. 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. E) is legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S. Treasuries.

38) Brokers' calls: A) are funds used by individuals who wish to sell stocks on margin. B) are funds borrowed by the broker from the bank, with no formal agreement to repay

the bank immediately if requested to do so. C) carry a rate that is usually about one percentage point lower than the rate on U.S. Tbills. 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. E) are funds used by individuals who wish to buy stocks on margin and carry a rate that is usually about one percentage point lower than the rate on U.S. T-bills.

39) A form of short-term borrowing by dealers in government securities is (are): A) reserve requirements. B) repurchase agreements. C) bankers' acceptances. D) commercial paper. E) brokers' calls.

40) Which of the following securities is a money market instrument? A) Treasury note B) Treasury bond C) Municipal bond D) Commercial paper E) Mortgage security

41) The yield to maturity reported in the financial pages for Treasury securities: A) is calculated by compounding the semiannual yield. B) is calculated by halving the semiannual yield. C) is also called the security equivalent yield. D) is calculated as the yield-to-call for premium bonds. 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? A) The Federal Home Loan Bank B) The Federal National Mortgage Association C) The U.S. Treasury D) Freddie Mac E) Ginnie Mae

43) For you to be indifferent between the after-tax returns on a corporate bond paying 8.50% and

a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be? A) 33% B) 72% C) 15% D) 28% E) Cannot be determined from the information given.

44) What does the term negotiable mean, regarding 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. B) The rate of interest on the CD is subject to negotiation. C) The CD is automatically reinvested at its maturity date. D) The CD has staggered maturity dates built in. E) The interest rate paid on the CD will vary with a designated market rate.

45) Freddie Mac and Ginnie Mae were organized to provide: A) a primary market for mortgage transactions. B) liquidity for the mortgage market. C) a primary market for farm loan transactions. D) liquidity for the farm loan market. E) a source of funds for government agencies.

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: A) a corporate courtesy bond. B) a revenue bond. C) a general-obligation bond. D) a tax-anticipation note. 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? A) 15.4% B) 23.7% C) 39.5% D) 17.3% E) 12.4%

48) Which of the following are typical characteristics of preferred stock? 1. It pays its holder a fixed amount of income each year at the discretion of its managers. 2. It gives its holder voting power in the firm. 3. Its dividends are usually cumulative. 4. Failure to pay dividends may result in bankruptcy proceedings. A) I, III, and IV B) I, II, and III C) I and III D) I, II, and IV E) I, II, III, and IV

49) Bond market indexes can be difficult to construct because: A) they cannot be based on firms' market values. B) bonds tend to trade infrequently, making price information difficult to obtain. C) there are so many kinds of bonds. D) prices cannot be obtained for companies that operate in emerging markets. E) corporations are not required to disclose the details of their bond issues.

50) Regarding a futures contract, the long position is held by: A) the trader who bought the contract at the largest discount. B) the trader who must travel the farthest distance to deliver the commodity. C) the trader who plans to hold the contract open for the lengthiest time period. D) the trader who commits to purchasing the commodity on the delivery date. E) the trader who commits to delivering the commodity on the delivery date.

51) For you to be indifferent between the after-tax returns on a corporate bond paying 9% and a

tax-exempt municipal bond paying 7%, what would your tax bracket need to be? A) 17.6% B) 27.9% C) 22.2% D) 19.8% E) Cannot be determined from the information given.

52) For you to be indifferent between the after-tax returns on a corporate bond paying 7% and a

tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be? A) 22.6% B) 21.4% C) 26.2% D) 19.8% E) Cannot be determined from the information given.

53) An investor purchases one municipal and one corporate bond that pay rates of return of 6%

and 8%, respectively. If the investor is in the 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be _________ and _______, respectively. A) 6%; 8% B) 4.5%; 6% C) 4.5%; 8% D) 6%; 6.08%

54) An investor purchases one municipal and one corporate bond that pay rates of return of 7.2%

and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A) 7.20%; 9.10% B) 7.20%; 8.01% C) 6.12%; 7.74% D) 8.47%; 9.10%

55) For a taxpayer in the 24% marginal tax bracket, a 20-year municipal bond currently yielding

5.5% would offer an equivalent taxable yield of: A) 7.24%. B) 10.75%. C) 5.50%. D) 4.13%.

56) For a taxpayer in the 12% marginal tax bracket, a 15-year municipal bond currently yielding

6.2% would offer an equivalent taxable yield of: A) 6.20%. B) 5.27%. C) 8.32%. D) 7.05%.

57) Regarding a futures contract, the short position is held by: A) the trader who bought the contract at the largest discount. B) the trader who must travel the farthest distance to deliver the commodity. C) the trader who plans to hold the contract open for the lengthiest time period. D) the trader who commits to purchasing the commodity on the delivery date. E) the trader who commits to delivering the commodity on the delivery date.

58) A call option allows the buyer to: A) sell the underlying asset at the exercise price on or before the expiration date. B) buy the underlying asset at the exercise price on or before the expiration date. C) sell the option in the open market prior to expiration. D) sell the underlying asset at the exercise price on or after the expiration date and sell

the option in the open market prior to expiration. E) buy the underlying asset at the exercise price on or after the expiration date and sell the option in the open market prior to expiration.

59) A put option allows the holder to: A) buy the underlying asset at the strike price on or before the expiration date. B) sell the underlying asset at the strike price on or before the expiration date. C) sell the option in the open market prior to expiration. D) sell the underlying asset at the strike price on or after the expiration date and sell the

option in the open market prior to expiration. E) buy the underlying asset at the strike price on or after the expiration date and sell the option in the open market prior to expiration.

60) The _____ index represents the performance of the German stock market. A) DAX B) FTSE C) Nikkei D) Hang Seng

61) The _____ index represents the performance of the Japanese stock market. A) DAX B) FTSE C) Nikkei D) Hang Seng

62) The _____ index represents the performance of the U.K. stock market. A) DAX B) FTSE C) Nikkei D) Hang Seng

63) The _____ index represents the performance of the Hong Kong stock market. A) DAX B) FTSE C) Nikkei D) Hang Seng

64) The _____ index represents the performance of the Canadian stock market. A) DAX B) FTSE C) TSX D) Hang Seng

65) The ultimate stock index in the U.S. is the: A) Wilshire 5000. B) DJIA. C) S&P 500. D) Russell 2000.

66) The _____ is an example of a U.S. index of only large firms. A) Wilshire 5000 B) DJIA C) DAX D) Russell 2000 E) All of the options are correct.

67) The _____ is an example of a U.S. index of small firms. A) S&P 500 B) DJIA C) DAX D) Russell 2000 E) All of the options are correct.

68) Certificates of deposit are insured by the: A) SPIC. B) CFTC. C) Lloyds of London. D) FDIC. E) All of the options are correct.

69) Certificates of deposit are insured for up to ____________ in the event of bank insolvency. A) $10,000 B) $100,000 C) $250,000 D) $500,000

70) The maximum maturity of commercial paper that can be issued without SEC registration is: A) 270 days. B) 180 days. C) 90 days. D) 30 days.

71) Which of the following is used extensively in foreign trade when the creditworthiness of one

trader is unknown to the trading partner? A) Repos B) Bankers' acceptances C) Eurodollars D) Federal funds E) Yankee bonds

72) A U.S. dollar-denominated bond that is sold in Singapore is a(n): A) Eurobond. B) Yankee bond. C) Samurai bond. D) Formosa bond. E) Malay bond.

73) A municipal bond issued to finance an airport, hospital, turnpike, or port authority is

typically a: A) revenue bond. B) general-obligation bond. C) industrial-development bond. D) revenue bond or general-obligation bond.

74) Unsecured bonds are called: A) junk bonds. B) indebentures. C) indentures. D) subordinated secured debentures. E) either debentures or subordinated debentures.

75) A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond. A) convertible B) secured C) unsecured D) callable E) Yankee

76) Corporations can exclude ___________% of the dividends received from preferred stock

from taxes. A) 50 B) 70 C) 20 D) 15 E) 62

77) You purchased a futures contract on corn at a futures price of 350, and at the time of

expiration, the price was 352. What was your profit or loss? Note: Assume prices are quoted in cents per bushel. A) $2.00 B) −$2.00 C) $100 D) −$100

78) You purchased a futures contract on corn at a futures price of 331, and at the time of

expiration, the price was 343. What was your profit or loss? Note: Assume prices are quoted in cents per bushel. A) −$12.00 B) $12.00 C) −$600 D) $600

79) You sold a futures contract on corn at a futures price of 350, and at the time of expiration, the

price was 352. What was your profit or loss? Note: Assume prices are quoted in cents per bushel. A) $2.00 B) −$2.00 C) $100 D) −$100

80) You sold a futures contract on corn at a futures price of 331, and at the time of expiration, the

price was 343. What was your profit or loss? Note: Assume prices are quoted in cents per bushel. A) −$12.00 B) $12.00 C) −$600 D) $600

81) You purchased 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? Note: Assume prices are quoted in cents per bushel. A) $1,375.00 B) −$1,375.00 C) −$27.50 D) $27.50

82) 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? Note: Assume prices are quoted in cents per bushel. A) $1,375.00 B) −$1,375.00 C) −$27.50 D) $27.50

83) What short term interest rate was proposed to be phased out by 2021? A) SONIA B) LIBOR C) Tokyo Interbank rate D) Euribor E) US Treasury Repo

84) What interest rate have British regulators proposed be the new short term benchmark rate? A) SONIA B) LIBOR C) Tokyo Interbank rate D) Euribor E) US Treasury Repo

85) What interest rate have US regulators proposed be the new short term benchmark rate? A) SONIA B) LIBOR C) Tokyo Interbank rate D) Euribor E) US Treasury Repo

86) A corporate bond is listed in the Wall Street Journal and shows an ask price of 98.62. If the

corporate bonds have a par value of $1,000, what dollar amount should a buyer expect to pay? A) $98.62 B) $986.20 C) $1,000.00 D) $1,081.25 E) $1,140.40

87) An investor pays $104,280 for a treasury bond. The price listed in the Wall Street Journal

show as the ask price will be _________. A) 98.20 B) 100.00 C) 104.28 D) 106.33 E) 108.00

Answer Key Test name: Chapter 2 1) E 2) E 3) E 4) D 5) B 6) B 7) A 8) B 9) A 10) C 11) C 12) C 13) D 14) C 15) D 16) D 17) E 18) C 19) E 20) B 21) C 22) B 23) C 24) D 25) B 26) C 27) B 28) B 29) B 30) B 31) B 32) C 33) C 34) B 35) A 36) C 37) D