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Flashcards in ch2 kawncehpts Deck (58):
1

Which of the following is not a money market instrument?


A. , Treasury bill

B. , Commercial paper

C. , Preferred stock

D. , Bankers' acceptance

C. , Preferred stock

2

T-bills are issued with initial maturities of:

I. 4 weeks
II. 16 weeks
III. 26 weeks
IV. 32 weeks


A. , I and II only

B. , I and III only

C. , I, II, and III only

D. , I, II, III, and IV

B. , I and III only

3

When computing the bank discount yield, you would use ____ days in the year.


A. , 260

B. , 360

C. , 365

D. , 366

B. , 360

4

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


A. , eurodollars

B. , LIBOR

C. , fed funds

D. , bankers' acceptance

A. , eurodollars

5

Money market securities are sometimes referred to as cash equivalents because _____.


A. , they are safe and marketable

B. , they are not liquid

C. , they are high-risk

D. , they are low-denomination

A. , they are safe and marketable

6

The most marketable money market security is _____.


A. , Treasury bills

B. , bankers' acceptances

C. , certificates of deposit

D. , common stock

A. , Treasury bills

7

The minimum tick size, or spread between prices in the Treasury bond market, is


A. , 1/8 of a point.

B. , 1/16 of a point.

C. , 1/32 of a point.

D. , 1/64 of a point.

D. , 1/64 of a point.

8

An investor in a T-bill earns interest by _________.


A. , receiving interest payments every 90 days

B. , receiving dividend payments every 30 days

C. , converting the T-bill at maturity into a higher-valued T-note

D. , buying the bill at a discount from the face value to be received at maturity

D. , buying the bill at a discount from the face value to be received at maturity

9

______ would not be included in the EAFE index.


A. , Australia

B. , Canada

C. , France

D. , Japan

B. , Canada

10

_____ is considered to be an emerging market country.


A. , France

B. , Norway

C. , Brazil

D. , Canada

C. , Brazil

11

Which one of the following is a true statement?


A. , Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors.

B. , Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock.

C. , Preferred stockholders have voting power.

D. , Investors can sue managers for nonpayment of preferred dividends.

B. , Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock.

12

The bid price of a Treasury bill is _________.


A. , the price at which the dealer in Treasury bills is willing to sell the bill

B. , the price at which the dealer in Treasury bills is willing to buy the bill

C. , greater than the ask price of the Treasury bill expressed in dollar terms

D. , the price at which the investor can buy the Treasury bill

B. , the price at which the dealer in Treasury bills is willing to buy the bill

13

Deposits of commercial banks at the Federal Reserve are called _____.


A. , bankers' acceptances

B. , federal funds

C. , repurchase agreements

D. , time deposits

B. , federal funds

14

Which of the following is not a true statement regarding municipal bonds?


A. , A municipal bond is a debt obligation issued by state or local governments.

B. , A municipal bond is a debt obligation issued by the federal government.

C. , The interest income from a municipal bond is exempt from federal income taxation.

D. , The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

B. , A municipal bond is a debt obligation issued by the federal government.

15

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


A. , Liquidity

B. , Marketability

C. , Low risk

D. , Maturity greater than 1 year

D. , Maturity greater than 1 year

16

Which of the following is not a nickname for an agency associated with the mortgage markets?


A. , Fannie Mae

B. , Freddie Mac

C. , Sallie Mae

D. , Ginnie Mae

C. , Sallie Mae

17

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


A. , the Federal Reserve

B. , the New York Stock Exchange

C. , large well-known companies

D. , all of these options

C. , large well-known companies

18

The maximum maturity on commercial paper is _____.


A. , 270 days

B. , 180 days

C. , 90 days

D. , 30 days

A. , 270 days

19

., Which one of the following is a true statement regarding 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. , It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange.

D. , It is a value-weighted average of all stocks traded on the New York Stock Exchange

B. , It is a price-weighted average of 30 large industrial stocks.

20

Treasury bills are financial instruments issued by __________ to raise funds.


A. , commercial banks

B. , the federal government

C. , large corporations

D. , state and city governments

B. , the federal government

21

Which of the following are true statements about T-bills?

I. T-bills typically sell in denominations of $10,000.
II. Income earned on T-bills is exempt from all federal taxes.
III. Income earned on T-bills is exempt from state and local taxes.


A. , I only

B. , I and II only

C. , I and III only

D. , I, II, and III

C. , I and III only

22

A bond that has no collateral is called a _________.


A. , callable bond

B. , debenture

C. , junk bond

D. , mortgage

B. , debenture

23

A __________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.


A. , call option

B. , futures contract

C. , put option

D. , interest rate swap

C. , put option

24

Which one of the following is a true statement regarding corporate bonds?


A. , A corporate callable bond gives its 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 convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

D. , Holders of corporate bonds have voting rights in the company.

C. , A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares.

25

The yield on tax-exempt bonds is ______.


A. , usually less than 50% of the yield on taxable bonds

B. , normally about 90% of the yield on taxable bonds

C. , greater than the yield on taxable bonds

D. , less than the yield on taxable bonds

D. , less than the yield on taxable bonds

26

__________ is not a money market instrument.


A. , A certificate of deposit

B. , A Treasury bill

C. , A Treasury bond

D. , Commercial paper

C. , A Treasury bond

27

, The U.K. stock index is the _________.


A. , DAX

B. , FTSE

C. , GSE

D. , TSE

B. , FTSE

28

A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date.


A. , call option

B. , futures contract

C. , put option

D. , interest rate swap

A. , call option

29

Which of the following indexes are market value-weighted?

I. The NYSE Composite
II. The S&P 500
III. The Wilshire 5000


A. , I and II only

B. , II and III only

C. , I and III only

D. , I, II, and III

D. , I, II, and III

30

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


A. , the prime rate

B. , the discount rate

C. , the federal funds rate

D. , LIBOR

D. , LIBOR

31

A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following?


A. , Reverse repurchase agreement

B. , Bankers' acceptance

C. , Commercial paper

D. , Repurchase agreement

D. , Repurchase agreement

32

Currently, the Dow Jones Industrial Average 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. , measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day

D. , adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

D. , adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

33

TIPS are ______.


A. , Treasury bonds that pay no interest and are sold at a discount

B. , U.K. bonds that protect investors from default risk

C. , securities that trade on the Toronto stock index

D. , Treasury bonds that protect investors from inflation

D. , Treasury bonds that protect investors from inflation

34

Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if _______________.


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 low

B. , inflation is higher than anticipated over the investment period

35

Preferred stock is like long-term debt in that ___________.


A. , it gives the holder voting power regarding the firm's management

B. , it promises to pay to its holder a fixed stream of income each year

C. , the preferred dividend is a tax-deductible expense for the firm

D. , in the event of bankruptcy preferred stock has equal status with debt

B. , it promises to pay to its holder a fixed stream of income each year

36

Which of the following does not approximate the performance of a buy-and-hold portfolio strategy?


A. , An equally weighted index

B. , A price-weighted index

C. , A value-weighted index

D. , All of these options (Weights are not a factor in this situation.)

A. , An equally weighted index

37

In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs _________.


A. , automatically

B. , by adjusting the divisor

C. , by adjusting the numerator

D. , by adjusting the market value weights

B. , by adjusting the divisor

38

Suppose the market prices of the 30 stocks in the Dow Jones Industrial Average all change by the same dollar amount on a given day. Assuming there are no stock splits, which stock will have the greatest impact on the average?


A. , The one with the highest price

B. , The one with the lowest price

C. , All 30 stocks will have the same impact.

D. , The answer cannot be determined from the information given.

C. , All 30 stocks will have the same impact.

39

The purchase of a futures contract gives the buyer _________.


A. , the right to buy an item at a specified price

B. , the right to sell an item at a specified price

C. , the obligation to buy an item at a specified price

D. , the obligation to sell an item at a specified price

C. , the obligation to buy an item at a specified price

40

The ________ the ratio of municipal bond yields to corporate bond yields, the _________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt.


A. , higher; lower

B. , lower; lower

C. , higher; higher

D. , The answer cannot be determined without more information.

A. , higher; lower

41

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


A. , Corporate bonds

B. , Junk bonds

C. , Municipal bonds

D. , None of these options

B. , Junk bonds

42

The Hang Seng index reflects market performance on which of the following major stock markets?


A. , Japan

B. , Singapore

C. , Taiwan

D. , Hong Kong

D. , Hong Kong

43

The Standard & Poor's 500 is __________ weighted index.


A. , an equally

B. , a price-

C. , a value-

D. , a share-

C. , a value-

44

A firm that fails to pay dividends on its preferred stock is said to be _________.


A. , insolvent

B. , in arrears

C. , insufferable

D. , delinquent

B. , in arrears

45

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 _________.


A. , certificates of deposit

B. , repurchase agreements

C. , bankers' acceptances

D. , commercial paper

D. , commercial paper

46

Which of the following is most like a short-term collateralized loan?


A. , Certificate of deposit

B. , Repurchase agreement

C. , Bankers' acceptance

D. , Commercial paper

B. , Repurchase agreement

47

Eurodollars are _________.


A. , dollar-denominated deposits at any foreign bank or foreign branch of an American bank

B. , dollar-denominated bonds issued by firms outside their home market

C. , currency issued by Euro Disney and traded in France

D. , dollars that wind up in banks as a result of money-laundering activities

A. , dollar-denominated deposits at any foreign bank or foreign branch of an American bank

48

Which of the following is used to back international sales of goods and services?


A. , Certificate of deposit

B. , Bankers' acceptance

C. , Eurodollar deposits

D. , Commercial paper

B. , Bankers' acceptance

49

Treasury notes have initial maturities between ________ years.


A. , 2 and 4

B. , 5 and 10

C. , 10 and 30

D. , 1 and 10

D. , 1 and 10

50

Which of the following is not a characteristic of common stock ownership?


A. , Residual claimant

B. , Unlimited liability

C. , Voting rights

D. , Limited life of the security

B. , Unlimited liability

51

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


A. , Daily high price for the bond

B. , Closing bond price

C. , Yield to maturity

D. , Dividend yield

D. , Dividend yield

52

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


A. , No change, as both yields will remain the same

B. , Increase, as the spread usually increases in response to a crisis

C. , Decrease, as the spread usually decreases in response to a crisis

D. , No change, as both yields will move in the same direction

B. , Increase, as the spread usually increases in response to a crisis

53

Which of the following is not considered a money market investment?


A. , Bankers' acceptance

B. , Eurodollar

C. , Repurchase agreement

D. , Treasury note

D. , Treasury note

54

The Federal Reserve Board of Governors directly controls which of the following interest rates?


A. , Bankers' acceptances

B. , Brokers' calls

C. , Federal funds

D. , LIBOR

C. , Federal funds

55

You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ______.


A. , a value-weighted index

B. , an equally weighted index

C. , a price-weighted index

D. , a bond price index

C. , a price-weighted index

56

In a ___________ index, changes in the value of the stock with the greatest market value will move the index value the most, everything else equal.


A. , value-weighted index

B. , equally weighted index

C. , price-weighted index

D. , bond price index

A. , value-weighted index

57

All but which one of the following indices is value weighted?


A. , NASDAQ Composite

B. , S&P 500

C. , Wilshire 5000

D. , DJIA

D. , DJIA

58

An index computed from a simple average of returns is a/an _____.


A. , equal weighted index

B. , value weighted index

C. , price weighted index

D. , share weighted index

A. , equal weighted index