1) A security has an expected return less than its required return.
This security is:
A) selling at a premium to par.
B) selling at a discount to par.
C) selling for more than its present value.
D) selling for less than its present value.
E) a zero-coupon bond.
2) Duration is:
A) the elasticity of a security's value to small coupon changes.
B) the weighted average time to maturity of the bond's cash flows.
C) the time until the investor recovers the price of the bond in today's dollars.
D) greater than maturity for deep discount bonds and less than maturity for premium
bonds.
E) the second derivative of the bond price formula with respect to the yield to maturity.
3) A decrease in interest rates will:
A) decrease the bond's present value.
B) increase the bond's duration.
C) lower the bond's coupon rate.
D) change the bond's payment frequency.
E) not affect the bond's duration.
4) Inflation causes the demand curve for loanable funds to shift to the _____ and causes the
supply curve to shift to the _____.
A) right; right
B) right; left
C) left; left
D) left; right
4)
5) A time draft payable to a seller of goods with payment guaranteed by a bank is a:
A) commercial paper security.
B) T-bill.
C) repurchase agreement.
D) negotiable CD.
E) banker's acceptance.
6) Which one of the following statements about commercial paper is not true? Commercial
paper issued in the United States:
A) is an unsecured short-term promissory note.
B) has a maximum maturity of 270 days.
C) is virtually always rated by at least one ratings agency.
D) has no active secondary market.
E) carries an interest rate above the prime rate.
7) All else held constant, which one of the following bonds is likely to have the highest required
rate of return?
A) AAA-rated noncallable corporate bond with a sinking fund
B) AA-rated callable corporate bond with a sinking fund
C) AAA-rated callable corporate bond with a sinking fund
D) High-quality municipal bond
E) AA-rated callable corporate bond without a sinking fund
8) Money markets trade securities that:
1. I. mature in one year or less.
2. II. have little chance of loss of principal.
3. III. must be guaranteed by the federal government.
A) I only
B) II only
C) I and II only
D) I and III only
E) I, II, and III
9) Which of the following statements about Eurobonds is/are true?
1. I. The issuer chooses the currency of denomination.
2. II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds.
3. III. Eurobonds typically have denomination of $5,000 and $10,000.
4. IV. Eurobonds are bearer bonds.
A) I and II only
B) I, III, and IV only
C) II, III, and IV only
D) II and III only
E) I, II, III, and IV are true.
10) All else held constant, mortgage payments are ____________ on a 15-year fixed-rate
mortgage than on a 30-year fixed-rate mortgage, and ____________ is paid on a 15-year
mortgage than on a 30-year mortgage.
A) lower; less interest
B) lower; less principal
C) higher; less interest
D) higher; more principal
E) higher; more interest
11) The least used form of mortgage securitization is the ______________________.
A) second mortgage
B) mortgage-backed bond
C) mortgage pass-through
D) CMO
E) home equity loan
12) Which of the following is/are money market instrument(s)?
A) Negotiable CDs
B) Common stock
C) T-bonds
D) 4-year maturity corporate bond
E) Negotiable CDs, common stock, and T-bonds
13) IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan
Stanley then resells the issue to the U.S. public through its mutual funds.
Morgan Stanley is acting as a(n)
A) asset transformer.
B) asset broker.
C) government regulator.
D) foreign service representative.
E) derivatives trader.
14) The diagram below is a diagram of the:
A) secondary markets.
B) primary markets.
C) money markets.
D) derivatives markets.
E) commodities markets.
15) Of the following, which is the most likely effect of an increase in income tax rates?
A) Decrease in the savings rate.
B) Decrease in the supply of loanable funds.
C) Increase in the interest rates.
D) All of these choices are correct.
