Dollar duration of a bond measures the:
a. Dollar price change.
b. Percentage price change.
c. Average price change.
d. Change in yield.
e. None of the above.
Forward rates exclusively represent the expected future rates according to the:
a. Market segmentation theory.
b. Pure expectations theory.
c. The liquidity theory.
d. The preferred habitat theory.
e. None of the above.
The standard deviation is defined as the square root of the correlation coefficient.
a. True.
b. False.
A mutual fund that charges no sales commission is called a front-end load fund.
a. True.
b. False.
Warrants differ from exchange-traded call options in that:
a. Warrants have much shorter expiration dates.
b. The issuer of the warrant is the company itself.
c. The exercise of warrants results in a dilution of earnings.
d. b and c only.
e. All of the above.
Financial intermediaries transfer financial assets that are less desirable into other
financial assets, which are more widely preferred by the public. This transformation
involves which of the following economic functions?
a. Providing maturity intermediation.
b. Risk reduction via diversification.
c. Reducing the costs of contracting and information processing.
d. Providing a payments mechanism.
e. All of the above.
The Black-Scholes model limits the use in pricing options on interest rate instruments
as a result of which of the following assumptions?
a. Short-term rates remain constant.
b. Homogeneous investors.
c. Price volatility is constant over the live of the option.
d. a and c only.
e. All of the above.
The yield to maturity takes into account:
a. The coupon income.
b. Any cash dividends.
c. Any capital gains or losses.
d. a and c only.
e. All of the above.
The market segmentation theory recognizes that investors have preferred habitats,
which are dictated by:
a. Saving flows.
b. Investment flows.
c. Cash flows.
d. a and b only.
e. All of the above.
Investment-grade bonds are bond issues that are assigned a rating:
a. In the top four rating categories.
b. Below the top four rating categories.
c. Of zero.
d. Junk.
e. None of the above.
Price risk of a bond occurs when a bond must be sold prior to maturity at an uncertain
price because the:
a. Yield is determined by the Federal Reserve.
b. Future return or yield is unknown.
c. Future yield is expected to be less than the coupon rate.
d. b and c only.
e. None of the above.
An investor receives a margin call from the broker when:
a. The investor’s margin account falls below the initial margin but is still above the
maintenance margin..
b. The investor’s margin account falls below the minimum maintenance margin.
c. The investor’s margin account reaches zero.
d. b and c.
e. All of the above.
Some underwriting firms have found the bought deal to be attractive because it:
a. Offers timing flexibility.
b. Reduces the risk of capital loss.
c. Requires greater amounts of funds.
d. a and b only.
e. All of the above.
Tranche types that have been included in CMO structures are sequential-pay trances,
accrual tranches, and planned amortization class bonds.
a. True.
b. False.
Loans to nonfinancial corporations, financial corporations and government entities fall
into the category of:
a. Individual banking.
b. Institutional banking.
c. Global banking.
d. None of the above.
e. All of the above.
The price of a debt instrument must equal the sum of the:
a. Present value of the payments that the debtor is required to make until maturity.
b. Present value of all expected cash dividends.
c. Present value of the maturity value.
d. Future value of all expected future cash flows.
e. None of the above.
Qualified pension funds are exempt from federal income taxes.
a. True.
b. False.
Regarding the taxation of life insurance:
a. The inside buildup of cash value life insurance policies is not taxed as income or
capital gains.
b. The beneficiary of the death benefit of life insurance policy is not subject to an
income tax.
c. The death benefit of the policy is never subject to estate tax.
d. a and b only.
e. All of the above.
In assessing the ability of an issuer to service its debt, analysts consider qualitative
factors in addition to financial ratios calculated from the financial statements of the
issuing corporation.
a. True.
b. False.
The ratio of the gain on an investment, which arises either from a change in the
investment’s value or a cash distribution, to the initial value of the investment is known
as the:
a. Return.
b. Risk.
c. Expected return.
d. Dispersion.
e. None of the above.
The major difference between the broker and the dealer is that:
a. The broker receives a commission for receiving, transmitting, and executing
investors’ orders.
b. The broker does not buy and hold in inventory or sells from inventory the financial
asset that is subject of a trade.
c. The broker acts as an auctioneer in some market structures.
d. a and b only.
e. All of the above.
A firm, which is acquired using mostly debt funds and taken private, is participating in
a(n):
a. Initial public offering.
b. Leveraged buyout.
c. Private placement.
d. Merchant banking.
e. None of the above.
On the Tokyo Stock Exchange, a satori:
a. Functions as an intermediary between the dealers and the brokers who are members
of the exchange.
b. Cannot buy or sell for their own accounts.
c. Arrange transactions among dealers.
d. Conduct auctions during the trading day.
e. All of the above.
The risk(s) associated with originating mortgages include(s):
a. Price risk.
b. Fallout risk.
c. Pipeline risk.
d. All of the above.
e. a and b only.
Examples of nonamortizing assets include:
a. Credit card receivables.
b. Home equity loans.
c. Auto loans.
d. a and b only.
e. All of the above.
When all bidders pay the highest winning yield bid in a competitive bidding
underwriting, this type of auction is referred to as:
a. Single price auction.
b. Dutch auction.
c. Multiple price auction.
d. a and b only.
e. None of the above.
The “Big Board” is the name commonly used for:
a. The American Stock Exchange.
b. The Philadelphia Stock Exchange.
c. The New York Stock Exchange.
d. The London Stock Exchange.
e. None of the above.
When an investment banker works with a corporation to issue an asset-backed security
it generates revenue from the:
a. Spread income
b. Bid-ask spread.
c. Gross spread.
d. Underwriter discount.
e. None of the above.
Futures contracts are products created by exchanges.
a. True.
b. False.
Which of the following statements is false?
a. Index-related trading has increase stock price volatility.
b. The stock index options market has become the price discovery market.
c. Evidence suggests that index-related trading was responsible for Black Monday.
d. b and c only.
e. None of the above.
Syndicated loans are distributed by:
a. Assignment.
b. Participation.
c. Underwriting.
d. a and b only.
e. All of the above.
The prominent role of U.S. Treasury securities is due to:
a. Liquidity.
b. Volume.
c. The bid-ask spread.
d. a and b only.
e. All of the above.
Which of the below statements is FALSE?
A) For residential mortgage loans, “value” is either market value or appraised value.
B) For income-producing properties, the value of the property is based on the
fundamental principles of valuation: the value of an asset is the present value of its
expected cash flow.
C) In valuing commercial property, the cash flow is the future NOI and the discount rate
(reflecting the risks associated with the cash flow) is used to compute the present value
of the future NOI.
D) Investors are often confident about estimates of market value and the resulting LTVs
reported for properties.
A bond investor will realize the yield to maturity at the time of purchase only if:
a. The bond is held to maturity.
b. All coupon payments are reinvested at the yield to maturity.
c. The bond is sold prior to maturity.
d. a and b only.
d. All of the above.
The general objective of the Inter-American Development Bank is to improve the
efficiency of the international financial trading markets.
a. True.
b. False.