Chapter 2 – Writing Answers – Flashcards

Physical assets include all but which one of the following? Land Buildings Consumer durables Common stock

Which of the following are financial assets? I. Debt securities II. Equity securities III. Derivative securities

Which of the following is not a money market instrument? Preferred stock Treasury bill Commercial paper Correct Preferred stock Banker's acceptance

Money market securities are sometimes referred to as "cash equivalent" because _____. they are safe and marketable they are not liquid they are high risk they are low denomination

An investor in a T-bill earns interest by _________. receiving interest payments every 90 days receiving dividend payments every 30 days converting the T-bill at maturity into a higher valued T-note buying the bill at a discount from the face value received at maturity

Which of the following is not a true statement regarding municipal bonds? A municipal bond is a debt obligation issued by state or local governments. A municipal bond is a debt obligation issued by the Federal Government. The interest income from a municipal bond is exempt from federal income taxation. The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

Which of the following is not a characteristic of a money market instrument? Liquidity Marketability Low risk Maturity greater than one year

Commercial paper is a short-term security issued by __________ to raise funds. the Federal Reserve credit union banks large well-known companies the New York Stock Exchange

Which one of the following is a true statement regarding corporate bonds? A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares A corporate debenture is a secured bond A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares Holders of corporate bonds have voting rights in the company

TIPS are ______. Treasury bonds that pay a variable rate of interest U.K. bonds that protect investors from default risk securities that trade on the Toronto stock index Treasury bonds that protect investors from inflation

Preferred stock is like long-term debt in that ___________. it gives the holder voting power regarding the firm's management it promises to pay to its holder a fixed stream of income each year the preferred dividend is a tax-deductible expense for the firm in the event of bankruptcy preferred stock has equal status with debt