The relationship between yield and maturity is referred to as:
a. Yield curve.
b. Term structure of interest rates.
c. Term to maturity.
d. Yield spread.
e. None of the above.
Most states mandate that general obligation issues be marketed through:
a. Private placement.
b. Competitive bidding.
c. Best efforts underwriting.
d. Direct negotiations.
e. None of the above.
To alter the beta of a well-diversified stock portfolio, investment managers can use:
a. Stock index futures.
b. Interest rate futures.
c. Treasury bills.
d. Treasury bonds.
e. None of the above.
The minimum yield sought on an investment as measured by the yield on an on-the-run
Treasury security with comparable maturity is referred to as the:
a. Base interest rate.
b. Benchmark interest rate.
c. Bond-equivalent interest rate.
d. a and b only.
e. B and c only.
The rate paid on Eurodollar CD futures is the:
a. Index price.
b. London Interbank Offered Rate (LIBOR).
c. T-bill rate.
d. Prime rate.
e. Money market rate.
The trading mechanism on exchanges is the negotiated system.
a. True.
b. False.
The pension crisis being faced by corporate defined benefit plans is due to:
a. Poor management.
b. The accounting permitted by accountants with the aid rules of actuaries.
c. Declining contributions from plan participants.
d. a and b only.
e. All of the above.
Salomon Brothers violated the auction process.
a. True.
b. False.
The risks that cause uncertainty about the return over some investment horizon are:
a. The uncertainty about the price of a bond at the end of the investment horizon.
b. The uncertainty about the rate at which the proceeds from a bond that matures prior
to the maturity date can be reinvested until the maturity date.
c. The uncertainty about the movement of equity prices relative to debt instruments.
d. a and b only.
e. All of the above.
The money market is the market for:
a. Long-term bonds.
b. Common stock.
c. Short-term financial instruments.
d. Agency securities.
e. None of the above.
The yield spread between a non-Treasury security and a Treasury security of
comparable maturity is called a:
a. Risk premium.
b. Treasury spread.
c. Income spread.
d. Government option spread.
e. None of the above.
The Black-Scholes model is based on several restrictive assumptions, including:
a. Constant variance of the stock price.
b. Stock prices are continuous and smooth.
c. Zero taxes and transactions costs.
d. Equal borrowing and lending rates.
e. All of the above.*
Asset-backed securities are securities backed by:
a. Credit card receivables.
b. Auto loans.
c. Commercial mortgage loans.
d. Home equity loans.
e. a, b, and d only.
If the Treasury rates does not change, but the yield spread between Treasury and
non-Treasury securities changes, the price of a non-Treasury security will:
a. Increase.
b. Decrease.
c. Change.
d. Remain unchanged.
e. None of the above.
Financial markets dealing with financial claims that are newly issued are called:
a. Initial public offering market.
b. Primary market.
c. Secondary market.
d. Seasoned market.
e. None of the above.
If the shape of the yield curve is upward sloping and the cost of carry is positive, the
futures price will trade at a:
a. Discount to the cash price.
b. Premium to the cash price.
c. Be equal to the cash price.
d. Cannot be determined.
e. None of the above.
If a bond will have to be sold at a loss, it is said to have:
a. Reinvestment risk.
b. Interest rate risk.
c. Price risk.
d. a and c only.
e. b and b only.
All of the following fall under the category of convergence trading hedge funds
EXCEPT:
a. Fixed income arbitrage hedge funds.
b. Equity market neutral hedge funds.
c. Global macro hedge funds.
d. Convertible bond arbitrage hedge funds.
e. Relative value hedge funds.
The benchmark interest rate used throughout the U.S. economy is the interest rate on:
a. Agency securities.
b. Treasury securities.
c. Federal funds.
d. Repurchase agreements.
e. None of the above.
After considering transactions costs, the market for stock options appears to be
efficient.
a. True.
b. False.
On the expiration date, an option’s time premium:
a. Exceeds its intrinsic value.
b. Equals zero.
c. Is positive.
d. Is negative.
e. None of the above.
Assumptions about capital markets include:
a. Perfectly competitive capital markets.
b. The absence of frictions.
c. Investors can borrow and lend at some riskfree rate.
d. All of the above.
e. a and b only.
Because of imperfections in real markets, brokers and dealers are necessary to the
smooth functioning of a secondary market.
a. True.
b. False.
Firms seek to list their shares on the exchanges of several countries because:
a. They seek to diversify their sources of capital across national boundaries.
b. It diminishes the prospect of takeover by other domestic concerns.
c. It boosts their name awareness.
d. It helps increase their sales revenues.
e. All of the above.
When the issuer announces the terms of the issue and interested parties submit bids for
the entire issue, the arrangement is referred to as:
a. Bought deal.
b. Auction process.
c. Firm commitment underwriting.
d. Underwriting.
e. None of the above.
The term upstairs markets refers to:
a. The markets located on the top floor of the NYSE.
b. A network of trading desks of the major securities firms and other institutional
investors that communicate electronically with each other.
c. The market for trading listed stocks in the OTC market.
d. The market for trading stocks not listed on a major stock exchange.
e. None of the above.
An insurance product that is not guaranteed by the insurance company’s general account
is:
a. Whole life insurance.
b. Universal life insurance.
c. Variable life insurance.
d. Fixed annuity.
e. GIC.
________ are predetermined penalties that must be paid by the borrower if the borrower
wishes to refinance.
A) defeasance
B) Prepayment penalty points
C) prepayment lockout
D) None of these
Most stock markets around the world use:
a. The specialist system.
b. Some version of competitive dealer system.
c. An electronically assisted market maker system.
d. b and c only.
e. All of the above.
To take advantage of an anticipated increase in the stock price while, at the same time,
limiting the maximum loss to the option, the investor will use a:
a. Short call strategy.
b. Long call strategy.
c. Cash-secured put writing strategy.
d. Long-call paper buying strategy.
e. None of the above.
Corporate governance issues include:
a. Traditional ratio analysis.
b. Policies for financial disclosure.
c. The uncertainty of operating cash flows.
d. Net assets and working capital.
e. All of the above.
The Securities Act of 193 and the Securities of Exchange Act of 1934 led to the creation
of the Federal Reserve.
a. True.
b. False.