Municipal bonds may be retired with a:
a. Serial maturity structure.
b. Term maturity structure.
c. Combination of the serial and term maturity structures.
d. None of the above.
e. All of the above.
Past-due interest bonds are less frequently traded than principal bonds, and therefore
have lesser liquidity.
a. True.
b. False.
Since diversification reduces unsystematic risk, the relevant measure of risk for an
investor who holds a well-diversified portfolio is:
a. Market risk.
b. Company-specific risk.
c. Total risk.
d. Residual risk.
e. None of the above.
CMBS can be issued by ________.
A) Ginnie Mac
B) Fannie Mac.
C) Freddie Mae.
D) private entities.
Treasury bills have a:
a. Are sold on an auction basis.
b. Maturity of one year or less.
c. Are sold at a discount from par.
d. Zero coupon rate.
e. All of the above.
Market risk is:
a. The risk that remains in a well-diversified portfolio.
b. Also called systematic risk.
c. Nondiversifiable.
d. The risk that affects all securities.
e. All of the above.
Municipal bonds are traded in the:
a. Over-the-counter market.
b. Private market.
c. Third market.
d. Dutch auction market.
e. None of the above.
A floor is equivalent to:
a. A package of call options.
b. A package of put options.
c. A package of forwards.
d. A package of futures.
e. None of the above.
Financial futures can be classified as:
a. Stock index futures.
b. Interest rate futures.
c. Commodity futures.
d. Currency futures.
e. a, b and d.
The costs associated with frictions generally result in buyers paying less than in the
absence of frictions, and/or sellers receiving more.
a. True.
b. False.
Securities of issuers not domiciled in the country are traded in which market(s)?
a. Domestic market.
b. Foreign market.
c. International market.
d. Euromarket.
e. None of the above.
The secondary market for common stock has undergone significant changes since the
1960s as a result of:
a. The institutionalization of the stock market.
b. Changes in government regulation of the market.
c. Advances in computer technology.
d. A and b only.
e. All of the above.
Municipal bonds are securities issued by:
a. The federal government.
b. State governments.
c. Local governments.
d. Municipalities.
e. b, c, and d only.
Studies of common stock returns have shown that total portfolio risk declines:
a. As the number of security holdings increases.
b. Security returns are less than perfectly correlated.
c. As diversification increases.
d. All of the above.
e. None of the above.
Institutional investors include insurance companies, investment companies, and pension
funds.
a. True.
b. False.
Treasury securities are free of:
a. Price risk.
b. Default risk.
c. Reinvestment risk.
d. Yield variations.
e. None of the above.
In contrast to individual investors, financial intermediaries will be willing to make
longer term loans, and at a lower cost to borrowers, because:
a. They are counting on successive deposits providing the funds until maturity.
b. Individual investors are more apt to make long-term loans.
c. All risk is eliminated.
d. None of the above.
e. All of the above.
If the Swiss franc price of the dollar increases:
a. The Swiss franc appreciated.
b. The dollar appreciated.
c. The Swiss franc depreciated.
d. b and c only.
e. None of the above.
The advantage of liquidity which financial intermediaries offer savers means that savers
may:
a. Request the withdrawal of funds at any time.
b. Redeem their shares at any time.
c. Borrow against the cash value of their insurance policy.
d. All of the above.
e. None of the above.
Swaps are currently traded in the over-the-counter market and not on any organized
exchange.
a. True.
b. False.
When prices of securities are determined continuously throughout the trading day as
buyers and sellers submit orders, the market is called:
a. A call market.
b. A bid market.
c. A continuous market.
d. An auction market.
e. None of the above.
Prepayments for auto loan-backed securities are measured in terms of:
a. Conditional prepayment rate (CPR).
b. Absolute prepayment speed (ABS).
c. Prospectus prepayment curve (PPC).
d. Shifting interest.
e. None of the above.
When the investment banking firm agrees to buy the securities from the issuer at a set
price, the underwriting arrangement is referred to as underwriting.
a. True.
b. False.
The secondary market is the market for the trading of:
a. Newly issued securities.
b. Previously issued securities.
c. Seasoned securities.
d. b and c only.
e. None of the above.
A type of preferred stock in which the dividend payment accrues until it is fully paid is
called:
a. Perpetual preferred stock.
b. Cumulative preferred stock.
c. Convertible preferred stock.
d. Noncumulative preferred stock.
e. None of the above.
In generating spread income, depository institutions face several risks. They include:
a. Credit risk.
b. Regulatory risk.
c. Interest rate risk.
d. a and b only.
e. All of the above.
There are options on stock index futures.
a. True.
b. False.
Traders employ strategies to generate revenues from positions in one or more securities
including:
a. Speculation.
b. Riskless arbitrage.
c. Risk arbitrage.
d. Hedging.
e. a, b and c only.
Debt contracts with no periodic interest payments made to owners during the life of the
contract are called:
a. Fixed income bonds.
b. Straight coupon bonds.
c. Zero coupon bonds.
d. Perpetual bonds.
e. Discount bonds.
The swap market is now more liquid than many forward contracts, particularly
long-dated forward contracts.
a. True.
b. False.
The ownership of tangible assets is financed by the issuance of either debt or equity
instruments.
a. True.
b. False.
Private placement of securities involves:
a. Selling securities to the public.
b. Selling securities to a limited number of individual investors.
c. Placing securities with a limited number of institutional investors.
d. Selling securities that have a pool of assets as collateral.
e. None of the above.
Together, portfolio and capital market theories provide a framework to:
a. Specify and measure the investment risk.
b. Quantify the expected return on a portfolio.
c. Develop relationships between risk and expected return.
d. Quantify the cost of capital.
e. All of the above.
The preliminary prospectus, which may be distributed to the public during the waiting
period for the registration of the security to become effective, is referred to as:
a. Red warning.
b. Red herring.
c. Initial prospectus.
d. Interim offering.
e. None of the above.
The highest yield accepted by the Treasury is referred to as the:
a. Tail.
b. Stop yield.
c. Average yield.
d. Income yield.
e. None of the above.