Question 1

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

Accepted Answer

A)  4.50%
B)  7.25%
C)  8.68%
D)  none of the answers given are correctE) A) and B)
F) A) and C)

Question 2

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

Accepted Answer

A)  Liquidity
B)  Marketability
C)  Low risk
D)  Maturity greater than one yearE) A) and D)
F) A) and C)

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

A)  Hedging
B)  Speculating
C)  Doing calculus problems
D)  Market makingE) B) and C)
F) B) and D)

Question 5

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

Accepted Answer

A)  Corporate bonds
B)  Junk bonds
C)  Government bonds
D)  None of the aboveE) A) and D)
F) A) and C)

Question 6

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

Accepted Answer

A)  inflation is lower than anticipated over the investment period
B)  inflation is higher than anticipated over the investment period
C)  the U.S. dollar increases in value against the euro
D)  the spread between commercial paper and Treasury securities remains lowE) C) and D)
F) B) and C)

Question 7

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

Accepted Answer

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

Question 8

The maximum maturity of certificate of deposits is

Accepted Answer

A)  185 days
B)  100 days
C)  95 days
D)  30 daysE) All of the above
F) None of the above

Question 9

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

Accepted Answer

A)  eurodollars
B)  LIBOR
C)  fed funds
D)  banker's acceptanceE) B) and C)
F) None of the above

Question 10

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

Accepted Answer

A)  the Federal Reserve
B)  commercial banks
C)  large well-known companies
D)  the New York Stock ExchangeE) B) and C)
F) None of the above

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

A)  Residual claimant
B)  Unlimited liability
C)  Voting rights
D)  Limited life of the securityE) None of the above
F) A) and B)

Question 13

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

Accepted Answer

A)  120
B)  90
C)  60
D)  30E) C) and D)
F) B) and D) B

Question 14

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

Accepted Answer

A)  the prime rate
B)  the discount rate
C)  the federal funds rate
D)  LIBORE) B) and D)
F) B) and C)

Question 15

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

Accepted Answer

A)  right, buy
B)  right, sell
C)  obligation, buy
D)  obligation, sellE) None of the above
F) A) and D)

Question 16

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

Accepted Answer

A)  right, buy
B)  right, sell
C)  obligation, buy
D)  obligation, sellE) A) and D)
F) C) and D)

Question 17

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

Accepted Answer

A)  Daily high price for the bond
B)  Closing bond price
C)  Yield to maturity
D)  Dividend yieldE) A) and D)
F) All of the above

Question 18

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

Accepted Answer

A)  a bank accepted bond
B)  a repurchase agreement
C)  a Treasury note
D)  a time depositE) A) and D)
F) None of the above B

Question 19

Treasury notes have initial maturities between ________ weeks.

Accepted Answer

A)  2 and 4
B)  5 and 10
C)  10 and 30
D)  1 and 30E) None of the above
F) All of the above

Question 20

An individual who goes short in a futures position ________.

Accepted Answer

A)  commits to delivering the underlying commodity at contract maturity
B)  commits to purchasing the underlying commodity at contract maturity
C)  has the right to deliver the underlying commodity at contract maturity
D)  has the right to purchase the underlying commodity at contract maturityE) B) and C)
F) A) and D)

Exam 2: Asset Classes and Financial Instruments

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

The maximum maturity of certificate of deposits is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

Treasury notes have initial maturities between ________ weeks.

Correct AnswerverifiedShow Answer

An individual who goes short in a futures position ________.

Correct AnswerverifiedShow Answer

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B

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B

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

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

Correct Answer
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B

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