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Convertible bonds tend to pay better interest rates than straight bonds, since convertibles are of lower risk. Minimum maintenance standards require that a margined investor always maintains the initial margin position. Answer: FALSE Minimum maintenance standards are usually 25%. The […]

The bond market is dominated by institutional investors. No one in a limited partnership arrangement has unlimited liability. Answer: FALSE A general partner forms the limited partnership and has unlimited liability for the partnership liabilities. Divergence between advances and declines […]

Fiscal policy involves government spending and taxation policies. A limited partnership can be either private or public in nature. Answer: TRUE A public offering generally involves much larger total amounts and has gone through the complex and rigorous process of […]

Points above the efficient frontier have superior risk-return characteristics to those along the efficient frontier, but are not part of the feasible set. High coupon bonds will usually have higher durations than low coupon bonds of the same maturity. Answer: […]

For a hedge to work, the futures contract must continue until actual delivery takes place. When monopolies exist, they are almost always found in mature industries. Answer: TRUE Monopolies are almost always found in mature industries. The major functions of […]

The premium of warrants tends to decrease as the stock price rises. Long-term capital gains are taxed at a higher tax rate than dividends. Answer: FALSE The tax on capital gains and dividends is the same. A negative aspect of […]

The greatest profit, and the greatest risk, arises from trying to identify an acquisition candidate before the announcement. A stock split has no effect on the par value of a stock. Answer: FALSE Tests examining the impact of such events […]

Under-pricing of new stock issues helps ensure the investment banker that the issue will be fully subscribed to at the initial market price. Stock index futures contracts are limited to the Dow Jones Industrial Average. Answer: FALSE Currently, futures and […]

An ascending term structure reflects the view that rates will increase in the future. Money market funds represent a vehicle to buy short-term fixed-income securities through a mutual fund arrangement. Answer: TRUE Money market funds represent a vehicle to buy […]

Various industries are so different that no common factors exist among them for purposes of analysis. Countries are divided into developed and emerging markets based on the market capitalization of their stock market. Answer: FALSE One of the major economic […]

The method of starting the stock valuation process with an analysis of the economy is referred to as the bottom-up approach. Limited liability is particularly important in real estate because mortgage debt obligations may exceed the net worth of participants. […]

The riskiness of an investment is measured by the dispersion of possible outcomes. Slow, steady, predictable growth in the money supply over the long-term is a positive sign of economic growth. Answer: TRUE Refer to Figure 5.5. Figure 5.5 summarizes […]

An increase in assets is considered a source of funds. A public utility is likely to appeal to an income-oriented, conservative investor. Answer: TRUE Conservative investors are usually income-oriented and are attracted by the slow capital growth but high dividend-paying […]

American depository receipts allow foreign stocks to be traded in the United States markets very similarly to U.S. stocks. Correlations of foreign stock market movements to U.S. stock market movements show that the period from 1997 to 2002 had higher […]

The quantity theory of money states that as the supply of money increases relative to the demand for money, people will make adjustments in their portfolios of assets. First, they will buy bonds, stocks, and then real assets. Industry life […]

In the last few years (since 2006), the trade deficit has increased dramatically. The Options Clearing Corporation functions as a middleman or broker, bringing together writers and buyers of options. Answer: FALSE Much of the liquidity and ease of operation […]

One way of maintaining growth when domestic markets have become saturated is to expand into markets overseas. The Beaver and Altman bankruptcy studies found that firms can survive at least two years once they declare bankruptcy. Answer: FALSE The Beaver […]

Even though Korea and China have markets bigger than some markets in developed countries, they are considered to be emerging markets because they have low per-capita gross domestic product. The requirements for an exchange listing tend to be highly restrictive. […]