Test Bank For Investments 9th Canadian Edition By Zvi Bodie, Alex Kane, Alan Marcus, Lorne Switzer, Maureen Stapleton, Dana Boyko, Christine Panasian Chapter 1-28 Chapter 01 The Investment Environment
Multiple Choice Questions 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
2. _______ are real assets. A. Land B. Machines C. Stocks and bonds D. Knowledge E. Land, machines, and knowledge Land, machines and knowledge are real assets; stocks and bonds are financial assets.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
1-1
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. Financial assets allocate the wealth of the economy. Example: it is easier for an individual to own shares of an auto company than to own an auto company directly.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
4. _______ are financial assets. A. Bonds B. Machines C. Stocks D. Bonds and stocks E. Bonds, machines, and stocks Machines are real assets; stocks and bonds are financial assets.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
5. _________ financial asset(s). A. Buildings are B. Land is a C. Derivatives are D. Canadian T-Bills are E. Derivatives and Canadian bonds are
1-2
Buildings and land are real assets.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
7. A security that pays a specified cash flow over a specific period is called A. fixed income. B. stock option. C. mutual fund. D. real estate. E. index.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
8. _________ is a commodity. A. Swap B. Money C. Gold D. Future contract E. Treasury-bill
1-3
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
9. Compared to investments in debt securities, equity investments tend to be A. equally risky. B. riskier. C. less risky. D. more important.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
10. Which one of the following is a not role of the financial markets? A. Consumption timing B. Information C. Separation of ownership and control D. Increasing wealth of the economy E. Risk allocation
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
11. Holding highly diversified portfolios without spending effort or other resources attempting to improve investment performance through security analysis is a characteristic of A. Active management. B. Passive management. C. Both active and passive management. D. Risk-return trade-off. E. Efficient markets. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-05 Markets Are Competitive. Topic: 01-05 Consumption Timing
1-4
12. The attempt to improve performance either by identifying mispriced securities or by timing the performance of broad asset classes is a characteristic of: A. Active management B. Passive management C. Both active and passive management D. Risk-return trade-off E. Efficient markets
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-05 Markets Are Competitive. Topic: 01-10 Markets Are Competitive
13. A common measure of credit risk in the banking sector is A. systemic Risk. B. treasury-bill. C. TED spread. D. LIBOR. E. yield curve.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
14. _______ is in an insurance contract against the default of one or more borrowers. A. Collateralized debt obligation B. credit default swap C. Freddie Mac D. Adjustable-rate mortgage E. Fannie Mae
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
1-5
15. Systemic risk is A. credit risk. B. an insurance contract against the default of one or more borrowers. C. firm-specific risk. D. default risk. E. the potential breakdown of the financial system when problems in one market spill over and disrupt others.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
16. 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. A fixed-income security pays a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
17. 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. A debt security pays a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
1-6
18. Money market securities A. are short term. B. are highly marketable. C. are generally very low risk. D. are highly marketable and are generally very low risk. E. All of the options.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
19. An example of a derivative security is A. a common share of Microsoft. B. a call option on Intel stock. C. a commodity futures contract. D. a call option on Intel stock and a commodity futures contract. E. a common share of Microsoft and a call option on Intel stock. The values of a call option on Intel stock and a commodity futures contract are derived from that of an underlying asset; the value of a common share of Microsoft is based on the value of the firm only.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
20. 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.
1-7
Of the factors cited above, only the value of the related security affects the value of the derivative and/or is a true statement.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
21. Although derivatives can be used as speculative instruments, businesses most often use them to A. attract customers. B. appease stockholders. C. offset debt. D. hedge risks. E. enhance their balance sheets. Firms may use forward contracts and futures to protect against currency fluctuations or changes in commodity prices. Interest-rate options help companies control financing costs.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
22. 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. Financial assets do not allow risk to be eliminated. However, they do permit allocation of risk, consumption timing, and separation of ownership and control.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
1-8
23. 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 The agency problem describes potential conflict between management and shareholders. The other problems are those of firm management only.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
24. 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 above.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
25. Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensation II) Hiring bickering family members as corporate spies III) Boards of directors forcing out underperforming management IV) Security analysts monitoring the firm closely V) 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
1-9
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
26. 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/one-vote election rules. Proxy fights are expensive and seldom successful, and management may often control the board or own significant shares. It is the threat of takeover of underperforming firms that has the strongest ability to keep management on their toes.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
27. Theoretically, takeovers should result in A. improved management. B. increased stock price. C. increased benefits to existing management of the taken-over firm. D. improved management and increased stock price. E. All of the options. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
28. During the period between 2000 and 2002, a large number of scandals were uncovered. Most of these scandals were related to I) manipulation of financial data to misrepresent the actual condition of the firm. II) misleading and overly optimistic research reports produced by analysts. III) allocating IPOs to executives as a quid pro quo for personal favors. IV) 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
1-10
I, II, and III are all mentioned as causes of recent scandals.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
29. 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 above.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-03 Financial Markets and the Economy. Topic: 01-03 Financial Markets and the Economy
1-11
30. 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. Asset allocation refers to the allocation of assets into broad asset classes.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-04 The Investment Process. Topic: 01-09 The Investment Process
31. 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. Security selection refers to choosing which securities to hold based on their valuation.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-04 The Investment Process. Topic: 01-09 The Investment Process
1-12
32. 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. Asset allocation Bottom-up refers to using security analysis to find securities that are attractively priced. Topdown refers to using asset allocation as a starting point.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-04 The Investment Process. Topic: 01-09 The Investment Process
33. 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 Bottom-up refers to using security analysis to find securities that are attractively priced.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 01-04 The Investment Process. Topic: 01-09 The Investment Process
1-13
34. _______ are examples of financial intermediaries. A. Commercial banks B. Insurance companies C. Investment companies D. Credit unions E. All of the options All are institutions that bring borrowers and lenders together.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
35. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
1-14
36. ________ specialize in helping companies raise capital by selling securities. A. Commercial bankers B. Investment bankers C. Investment issuers D. Credit raters An important role of investment banking is to act as middlemen in helping firms place new issues in the market.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
37. Commercial banks differ from other businesses in that both their assets and their liabilities are mostly A. illiquid. B. financial. C. real. D. owned by the government. E. regulated. See Table 1.3.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
1-15
38. In 2016, ____________ 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
39. In 2016, ____________ 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
40. In 2016, ____________ 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
1-16
41. In 2016, ____________ 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
42. In 2016, ____________ was(were) the least significant liability(ies) of U.S. nonfinancial businesses in terms of total value. A. bonds and mortgages B. bank loans C. inventories D. trade debt E. marketable securities
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
43. In terms of total value, the most significant liability(ies) of U.S. nonfinancial businesses in 2016 was(were) A. bank loans. B. bonds and mortgages. C. trade debt. D. other loans. E. marketable securities.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-02 Financial Assets. Topic: 01-02 Financial Assets
1-17
44. In 2016, ____________ 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-01 Real Assets versus Financial Assets. Topic: 01-01 Real Assets versus Financial Assets
45. New issues of securities are sold in the ________ market(s). A. primary B. secondary C. over-the-counter D. primary and secondary New issues of securities are sold in the primary market.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
1-18
46. Investors trade previously issued securities in the ________ market(s). A. primary B. secondary C. primary and secondary D. derivatives Investors trade previously issued securities in the secondary market.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
47. 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 E. None of the options Investment bankers perform all of the roles described above for their clients.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
1-19
48. 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 Until 1999, the Glass-Steagall Act prohibited banks in the United States from both accepting deposits and underwriting securities.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-06 The Players. Topic: 01-13 The Players
49. 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. The spread between the LIBOR and the Treasury-bill rate is called the TED spread.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
1-20
50. 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 Mortgage-backed securities were created when FNMA and FHLMC began buying mortgage loans from originators and bundling them into large pools that could be traded like any other financial asset.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
51. 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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
1-21
52. Which of the following is true about mortgage-backed securities? I) They aggregate individual home mortgages into homogeneous pools. II) The purchaser receives monthly interest and principal payments received from payments made on the pool. III) The banks that originated the mortgages maintain ownership of them. IV) 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
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
53. ________ 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 Collateralized debt obligations 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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
1-22
54. ________ 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
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 01-07 The Financial Crisis of 2008. Topic: 01-17 The Financial Crisis of 2008
1-23
Chapter 02 Financial Markets, Asset Classes and Financial Instruments
Multiple Choice Questions 1. Which of the following is not a characteristic of a money market instrument? A. Liquidity B. Marketability C. Long maturity D. Liquidity premium E. Long maturity and liquidity premium
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-24
3. 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 Money market instruments are instruments with maturities of one year or less, which applies to all of the options except Treasury bonds.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
4. T-bills are financial instruments initially sold by ________ to raise funds. A. commercial banks B. the Canadian government C. state and local governments D. agencies of the federal government E. the Canadian government and agencies of the federal government Only the Canadian government sells T-bills in the primary market.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-25
5. 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. T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
6. The smallest component of the money market is A. repurchase agreements. B. small-denomination time deposits. C. savings deposits. D. money market mutual funds. E. commercial paper.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
7. The smallest component of the fixed-income market is _______ debt. A. Treasury B. other asset-backed C. corporate D. tax-exempt E. mortgage-backed
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-26
8. The largest component of the fixed-income market is _______ debt. A. Treasury B. asset-backed C. corporate D. tax-exempt E. mortgage-backed
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
9. 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
10. 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-27
11. 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. Although originally Eurodollars were used to describe dollar-denominated deposits in European banks, today the term has been extended to apply to any dollar-denominated deposit outside the U.S.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
12. 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. The federal funds are required for the bank to meet reserve requirements, which is a way of influencing the money supply. No substitutes for fed funds are permitted.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-28
13. 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. The federal funds are required for the bank to meet reserve requirements, which is a way of influencing the money supply.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
14. Which of the following statement(s) is (are) true regarding municipal bonds? I) A municipal bond is a debt obligation issued by state or local governments. II) A municipal bond is a debt obligation issued by the federal government. 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. 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
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-29
15. 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. "A corporate convertible bond gives the holder the right to exchange the bond for a specified number of the company's common shares" is the only true statement; all other statements describe something other than the term specified.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
16. 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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 02-03 Equity Securities. Topic: 02-03 Certificates of Deposit
1-30
17. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-03 Equity Securities. Topic: 02-03 Certificates of Deposit
18. 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 stocks. C. The divisor must be 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 industrial stocks, and the divisor must be adjusted for stock splits.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-31
19. Which of the following indices is(are) market-value weighted? I) The New York Stock Exchange Composite Index II) The S&P/TSX Composite Index III) 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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
20. 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. When the DJIA became a 30-stock index, it was computed by adding the prices of 30 large "blue-chip" stocks and dividing by 30; however, as stocks on the index have split and been replaced, the divisor has been adjusted.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
21. Consider the following three stocks:
1-32
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.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
22. Consider the following three stocks:
Stock
Price
Stock A Stock B Stock C
$40 $70 $10
Number of Shares Outstanding 200 500 600
1-33
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.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
23. 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
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-34
24. The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. 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
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
25. The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125. 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
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-35
26. 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 aftertax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A. 8%; 10% B. 8%; 8% C. 6.4%; 8% D. 6.4%; 10% E. 10%; 10%
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
27. 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. A. 7.5%; 10.3% B. 7.5%; 7.73% C. 5.63%; 7.73% D. 5.63%; 10.3% E. 10%; 10%
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-36
28. If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be A. 97:50. B. 97:16. C. 97:80. D. 94:24. E. 97:75. Treasuries are quoted as a percent of $1,000 and in 1/32s.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
29. If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would be A. 99:50. B. 99:16. C. 99:80. D. 99:24. E. 99:32. Treasuries are quoted as a percent of $1,000 and in 1/32s.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-37
30. In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs A. by adjusting the divisor. B. automatically. C. by adjusting the numerator. D. quarterly on the last trading day of each quarter.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
31. Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false? A. The DJIA is a measure of the performance of the stock market. B. The DJIA consists of 30 blue chip stocks. C. The DJIA is affected equally by changes in low- and high-priced stocks. D. The DJIA divisor needs to be adjusted for stock splits. E. The value of the DJIA is much higher than individual stock prices.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
32. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-38
33. 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. 8.20%. B. 10.75%. C. 11.40%. D. 4.82%.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
34. 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
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-39
35. 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. The stocks on the DJIA are only a small sample of the entire market and have been changed occasionally since the creation of the index; one can lose money on any stock.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
36. 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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-40
37. Brokers' calls A. are funds used by individuals who wish to buy stocks on margin. B. are funds borrowed by the broker from the bank, with the 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 Canadian 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 Canadian T-bills.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
38. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-41
39. 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 Only commercial paper is a money market security. The others are capital market instruments.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
40. The yield to maturity reported in the financial pages for Treasury securities A. is calculated by compounding the semiannual yield. B. is calculated by doubling the semiannual yield. C. is also called the bond 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. The yield to maturity shown in the financial pages is an APR calculated by doubling the semiannual yield.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-42
41. 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 Only the U.S. Treasury issues securities that are not mortgage-backed.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
42. 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? A. 33% B. 72% C. 15% D. 28% E. Cannot be determined from the information given.
Accessibility: Keyboard Navigation Blooms: Analyze Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-43
43. 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. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
44. 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. Liquidity for the mortgage market.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-44
45. 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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
46. 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%
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-45
47. 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. II) It gives its holder voting power in the firm. III) Its dividends are usually cumulative. IV) 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 Only I and III are true. Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Medium Learning Objective: 02-03 Equity Securities. Topic: 02-03 Certificates of Deposit
48. 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 different 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. Bond trading is often "thin," making prices stale (or not current).
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-46
49. With regard to a futures contract, the long position is held by A. the trader who bought the contract at the largest discount. B. the trader who has to 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. The trader agreeing to buy the underlying asset is said to be long the contract, whereas the trader agreeing to deliver the underlying asset is said to be short the contract.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-05 Derivative Market. Topic: 02-05 Bankers' Acceptances
50. In order 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% C. 22.2% D. 19.8% E. Cannot be determined from the information given.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-47
51. In order 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.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
52. 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 25% marginal tax bracket, his or her aftertax 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%
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-48
53. 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 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively. A. 7.2%; 9.1% B. 7.2%; 7.735% C. 6.12%; 7.735% D. 8.471%; 9.1%
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
54. For a taxpayer in the 25% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of A. 7.33%. B. 10.75%. C. 5.5%. D. 4.125%.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
55. For a taxpayer in the 15% marginal tax bracket, a 15-year municipal bond currently yielding 6.2% would offer an equivalent taxable yield of A. 6.2%. B. 5.27%. C. 8.32%. D. 7.29%.
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Medium Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-49
56. With regard to a futures contract, the short position is held by A. the trader who bought the contract at the largest discount. B. the trader who has to 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. The trader agreeing to buy the underlying asset is said to be long the contract, whereas the trader agreeing to deliver the underlying asset is said to be short the contract.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
57. 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 before 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 before the expiration date and sell the option in the open market prior to expiration.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-50
58. 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 before 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 before the expiration date and sell the option in the open market prior to expiration.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-05 Derivative Market. Topic: 02-05 Bankers' Acceptances
59. The ____ index represents the performance of the German stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng Many major foreign stock markets exist, including the DAX (Germany), FTSE (UK), Nikkei (Japan), Hang Seng (Hong Kong), and TSX (Canada).
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-05 Derivative Market. Topic: 02-05 Bankers' Acceptances
1-51
60. The ____ index represents the performance of the Japanese stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng Many major foreign stock markets exist, including the DAX (Germany), FTSE (UK), Nikkei (Japan), Hang Seng (Hong Kong), and TSX (Canada).
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-05 Derivative Market. Topic: 02-05 Bankers' Acceptances
61. The ____ index represents the performance of the U.K. stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng Many major foreign stock markets exist, including the DAX (Germany), FTSE (UK), Nikkei (Japan), Hang Seng (Hong Kong), and TSX (Canada).
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-52
62. The ____ index represents the performance of the Hong Kong stock market. A. DAX B. FTSE C. Nikkei D. Hang Seng Many major foreign stock markets exist, including the DAX (Germany), FTSE (UK), Nikkei (Japan), Hang Seng (Hong Kong), and TSX (Canada).
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
63. The ____ index represents the performance of the Canadian stock market. A. DAX B. FTSE C. S&P/TSX D. Hang Seng E. DOW Many major foreign stock markets exist, including the DAX (Germany), FTSE (UK), Nikkei (Japan), Hang Seng (Hong Kong), and TSX (Canada).
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-53
64. The ultimate stock index in the U.S. is the A. Wilshire 5000. B. DJIA. C. S&P 500. D. Russell 2000. The Wilshire 5000 is the broadest U.S. index and contains more than 7000 stocks.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
65. The ____ is an example of a U.S. index of large firms. A. Wilshire 5000 B. DJIA C. DAX D. Russell 2000 E. All of the options.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
66. 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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
1-54
67. The largest component of the money market is/are A. repurchase agreements. B. money market mutual funds. C. T-bills. D. Eurodollars. E. savings deposits.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
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.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
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 The Federal Deposit Insurance Corporation (FDIC) insures saving deposits for up to $100,000.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-55
70. Canada's best-known stock market indicator is A. Wilshire 5000. B. DJIA. C. S&P/TSX Composite Index. D. Russell 2000. E. S&P 500
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-04 Stock and Bond Market Indexes. Topic: 02-04 Commercial Paper
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 A bankers' acceptance facilitates foreign trade by substituting a bank's credit for that of the trading partner.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
72. A U.S. dollar-denominated bond that is sold in Singapore is a(n) A. Eurobond. B. Yankee bond. C. Samurai bond. D. Bulldog bond.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
1-56
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.
Accessibility: Keyboard Navigation Blooms: Understand Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
74. Unsecured bonds are called A. junk bonds. B. debentures. C. indentures. D. subordinated debentures. E. either debentures or subordinated debentures.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-01 The Money Market. Topic: 02-01 The Money Market
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
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
1-57
76. Corporations can exclude ____________% of the dividends received from preferred stock from taxes. A. 50 B. 70 C. 20 D. 15 E. 62 Corporations can exclude 70% of dividends received from preferred stock from taxes.
Accessibility: Keyboard Navigation Blooms: Remember Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
77. You purchased a futures contract on corn at a futures price of 3.50, and at the time of expiration, the price was 3.52. What was your profit or loss? A. $2.00 B. -$2.00 C. $100 D. -$100
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 02-02 The Bond Market. Topic: 02-02 Treasury Bills
78. You purchased a futures contract on corn at a futures price of 3.31, and at the time of expiration, the price was 3.43. What was your profit or loss? A. -$12.00 B. $12.00 C. -$600 D. $600
Accessibility: Keyboard Navigation Blooms: Apply Difficulty: Easy Learning Objective: 02-03 Equity Securities. Topic: 02-03 Certificates of Deposit
1-58