Question 1

Which of the following is true regarding a firm's securities?

Accepted Answer

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.F) A) and D)
G) A) and C)

Question 2

The smallest component of the money market is

Accepted Answer

A)   repurchase agreements.
B)   small-denomination time deposits.
C)   savings deposits.
D)   money market mutual funds.
E)   commercial paper.F) All of the above
G) D) and E)

Question 3

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 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A)   8%; 10%
B)   8%; 7.8%
C)   6.4%; 8%
D)   6.4%; 10%
E)   10%; 10%F) None of the above
G) A) and E)

Question 4

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

Accepted Answer

A)   prime rate.
B)   discount rate.
C)   federal funds rate.
D)   call money rate.
E)   money market rate.F) B) and C)
G) A) and B)

Question 5

The bid price of a T-bill in the secondary market is

Accepted Answer

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.F) A) and B)
G) A) and C)

Question 6

The yield to maturity reported in the financial pages for Treasury securities

Accepted Answer

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.F) None of the above
G) B) and E)

Question 7

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?

Accepted Answer

A)   22.6%
B)   21.4%
C)   26.2%
D)   19.8%
E)   Cannot be determined from the information given.F) A) and B)
G) C) and D)

Question 8

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 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A)   6%; 8%
B)   4.5%; 6%
C)   4.5%; 8%
D)   6%; 6.08%E) A) and C)
F) None of the above

Question 9

Certificates of deposit are insured by the

Accepted Answer

A)   SPIC.
B)   CFTC.
C)   Lloyds of London.
D)   FDIC.
E)   All of the options are correct.F) A) and B)
G) D) and E)

Question 10

Which one of the following terms best describes Eurodollars?

Accepted Answer

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.F) A) and E)
G) A) and D)

Question 11

Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

Accepted Answer

A)   $10,000
B)   $100,000
C)   $250,000
D)   $500,000E) All of the above
F) A) and D)

Question 12

With regard to a futures contract, the long position is held by

Accepted Answer

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.F) C) and E)
G) B) and C)

Question 13

A call option allows the buyer to

Accepted Answer

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.F) A) and D)
G) A) and C)

Question 14

A bond that can be retired prior to maturity by the issuer is a(n)  ____________ bond.

Accepted Answer

A)   convertible
B)   secured
C)   unsecured
D)   callable
E)   YankeeF) None of the above
G) B) and E)

Question 15

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

Accepted Answer

A)   97:50.
B)   97:16.
C)   97:80.
D)   94:24.
E)   97:75.F) A) and B)
G) All of the above

Question 16

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?

Accepted Answer

A)   $1,048.00
B)   $1,042.50
C)   $1,041.25
D)   $1,041.75
E)   $1,040.40F) B) and C)
G) A) and E)

Question 17

For a taxpayer in the 24% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

Accepted Answer

A)   7.24%.
B)   10.75%.
C)   5.5%.
D)   4.125%.E) All of the above
F) A) and D)

Question 18

You purchased a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

Accepted Answer

A)   $1375.00
B)   −$1375.00
C)   −$27.50
D)   $27.50E) B) and C)
F) A) and B)

Question 19

Unsecured bonds are called

Accepted Answer

A)   junk bonds.
B)   debentures.
C)   indentures.
D)   subordinated debentures.
E)   either debentures or subordinated debentures.F) B) and C)
G) D) and E)

Question 20

An investor pays $104,280 for a treasury bond. The price mostly listed in the Wall Street Journal show as the ask price will be _________.

Accepted Answer

A)   98.20
B)   100.00
C)   104.28
D)   106.33
E)   108.00F) A) and B)
G) C) and D)

Exam 2: Asset Classes and Financial Instruments

If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would be

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The yield to maturity reported in the financial pages for Treasury securities

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Unsecured bonds are called

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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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A call option allows the buyer to

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Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

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For a taxpayer in the 24% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

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You purchased a futures contract on oats at a futures price of 233.75, and at the time of expiration, the price was 261.25. What was your profit or loss?

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The bid price of a T-bill in the secondary market is

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Which of the following is true regarding a firm's securities?

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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 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Correct AnswerverifiedShow Answer

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 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

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A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond.

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Certificates of deposit are insured by the

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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?

Correct AnswerverifiedShow Answer

With regard to a futures contract, the long position is held by

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Which one of the following terms best describes Eurodollars?

Correct AnswerverifiedShow Answer

An investor pays $104,280 for a treasury bond. The price mostly listed in the Wall Street Journal show as the ask price will be _________.

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The smallest component of the money market is

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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?

Correct AnswerverifiedShow Answer

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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 22% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.

Correct Answer
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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 24% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.

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