FIN4504 Chapter 2
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Which of the following is not a money market instrument?
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preferred stock
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Ninety-one-day T-bill auctions are conducted _____.
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weekly
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When computing the bank discount yield in a leap year you would use ____ days in the year.
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360
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A dollar denominated deposit at a London bank is called ______.
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eurodollars
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Risk premiums on money market instruments increased during the _____.
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a.OPEC oil price shocks b.Long Term Capital Management collapse c.1987 market crash d.all of the above
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Money market securities are sometimes referred to as \"cash equivalent\" because
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a.they are marketable b.they are liquid c.they are low-risk d.all of the above
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The most important feature of municipal bonds is their _______.
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tax-exempt status
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______ voting of common stock gives minority shareholders the most representation on the board of directors.
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Cumulative
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_____ computes over 50 country indexes.
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MSCI
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______ would not be included in the EAFE index.
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Canada
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_____ is considered to be an emerging market country.
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Brazil
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__________ is a true statement.
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__________ is a true statement.
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The bid price of a treasury bill is __________.
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the price at which the dealer in treasury bills is willing to buy the bill
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__________ measure bond market performance through creating their own bond market index.
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a.Lehman Brothers b.Merrill Lynch c.Salomon Brothers d.All of the above
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Deposits of commercial banks at the Federal Reserve are called ______.
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federal funds
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__________ is not a true statement regarding municipal bonds.
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A municipal bond is a debt obligation issued by the Federal Government.
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__________ is not a characteristic of a money market instrument.
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long maturity
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In a futures contract, the short position is taken by the person who __________.
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commits to delivering the commodity
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__________ is not a nickname for an organization which issues federal agency debt.
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Georgie Mac
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Commercial paper is a short-term security issued by __________ to raise funds.
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large well-known companies
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A German company sells a bond denominated in euros to German residents. This bond is called a _____.
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a.Yankee bond b.Samurai bond c.Eurobond d.none of the above
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__________ is a true statement regarding the Dow Jones Industrial Average.
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It is a price-weighted average of 30 large industrial stocks
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Treasury bills are financial instruments initially sold by __________ to raise funds.
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the Federal Government
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__________ is a true statement.
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At issuance, treasury notes maturities range up to 10 years
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A bond that has no collateral is called __________.
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b.a debenture
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A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.
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put option
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The Tax Reform Act of 1986 restricted the use of _____.
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private purpose tax-exempt bonds
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__________ is a true statement regarding corporate bonds.
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A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares
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The yield on tax-exempt bonds is
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a.usually less than 50% of the yield on taxable bonds b.normally about 90% of the yield on taxable bonds. c.normally greater than the yield on taxable bonds. d.none of the above
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__________ is not a money market instrument.
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A treasury bond
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__________ would best describe Eurodollars.
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Dollar-denominated deposits at foreign banks and branches of American banks outside the U.S.
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The premier German stock index is the __________.
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DAX
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A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.
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call option
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A mortgage-backed security is __________.
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a.an obligation that is secured by a pool of mortgages b.an ownership claim in a pool of mortgages c.either a or b
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__________ market-value weighted.
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a.The New York Stock Exchange Composite index is b.The Standard & Poor's Composite 500 Stock index is c.The Wilshire 5000 index is d.All of the above are
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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 __________.
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federal funds rate
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In the event of the firm's bankruptcy, __________.
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the most shareholders can lose is their original investment in the firm's stock
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The Dow Jones Industrial Average is computed by __________.
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adding the prices of the 30 stocks in the index and dividing by a divisor
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39. 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 15% tax bracket, his after tax rates of return on the municipal and corporate bonds would be respectively
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8% and 8.5%
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If a treasury note has a bid price of $982.50, the quoted bid price in the Wall Street Journal would be __________.
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$98:08
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A 10 year Treasury bond with an 8% coupon rate should sell for ____ a 10 year Treasury bond with a 12% coupon rate.
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less than
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The price quotations of treasury bonds in the Wall Street Journal show an ask price of 104:16 and a bid price of 104:08. As a buyer of the bond you expect to pay __________.
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$1,045.00
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The Dow Jones Industrial Average is __________
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a price weighted average
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Preferred stock is like equity in that _____.
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a.it promises to pay a fixed stream of income each year b.it has voting power regarding the firm's management c.the firm has a contractual obligation to pay the dividend d.none of the above
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Preferred stock is like long-term debt in that _____.
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it promises to pay to its holder a fixed stream of income each year
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Which of the following most closely approximates the performance of a buy and hold portfolio strategy?
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a valve weighted index
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In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs __________
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by adjusting the divisor
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If the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day (ignoring the stock splits), which stock will have the greatest impact on the average?
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all 30 stocks will have the same impact
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A 5%, 15 year annual coupon bond issued by the State of Georgia is priced to yield 8%. If you are in the 28% tax bracket this bond would provide you with an equivalent taxable yield of __________
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10.4%
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Purchase of a futures contract involves __________
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the obligation to buy an item at a specified price
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Ownership of a put option entitles the owner to the __________ to ___________ a specific stock, on or before a specific date, at a specific price
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right, sell
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Futures and options are sometimes referred to as __________
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a.derivative assets b.integral assets c.contingent claims d.more than one of the above
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The price which the owner of a call option must pay in order to purchase the stock named in the option contract is called the __________
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a.purchase price b.exercise price c.strike price d.More than one of the above
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Ownership of a call option entitles the owner to the __________ to __________ a specific stock, on or before a specific date, at a specific price
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right, buy
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The Lehman Brothers bond index covers over __________issues.
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6600
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Which of the following types of bonds are excluded from most bond indices?
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b.junk bonds
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The Hang Seng index reflects market performance on which of the following major stock markets?
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Hong Kong
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The Standard and Poors 500 is a(n) __________ weighted index.
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value
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A firm that fails to pay dividends on its preferred stock is said to be __________.
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in arrears
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Large well-known companies often issue their own short term unsecured debt notes directly to the public, rather than borrowing from banks, their notes are called __________.
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commercial paper
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Which of the following is most like a short-term collateralized loan?
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repurchase agreement
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Euro dollars are __________
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dollar denominated deposits at any foreign bank or foreign branch of an American bank
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Which of the following is most like a postdated check?
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banker's acceptance
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Treasury notes have initial maturities between ________years.
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1 and 10
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Which of the following are not characteristic of common stock ownership?
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unlimited liability
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Derivative securities can be based on _____.
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a.currencies b.common stocks c.home mortgages d.all of the above
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Why are derivatives potentially dangerous?
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They involve leverage.
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What are business firms most likely to use derivative securities for?
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hedging
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What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001.
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Increase, the spread usually increases in response to a crisis.
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Why do put options with exercise prices lower than the price of the underlying stock sell for positive prices?
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At some point in the future, the holder may be able to buy the stock, exercise the option, and make a profit.
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Three stocks have share prices of $5, $7, and $3. What is the value of a price-weighted index of the three stocks?
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5
