1) cash management accounts offered by a securities firm allow investors to write
checks on funds invested in money market securities.
2) convertible bonds will normally have lower promised yields than straight bonds of
similar terms and quality.
3) banks have higher leverage than most manufacturing firms.
4) the purchaser of a t-bond futures contract priced at 101-16 at the time of sale agrees
to deliver $100,000 face value treasury bonds in exchange for receiving $101,500 at
contract maturity.
5) the largest category of mortgages by dollar volume is commercial mortgages.
6) a hedge fund that goes long in a convertible bond and short in the equity of the same
firm is employing a market neutral arbitrage strategy.
7) the federal mutual fund commission (fmfc) is the primary regulator of the mutual
fund industry.
8) the largest u.s. banks are larger than the entire credit union industry.
9) the shares of a closed-end fund with market value of assets of $200 million and 2
million shares outstanding will always trade at a market value of $100 per share.
10) an increase in the marginal tax rates for all u.s. taxpayers would probably result in
reduced supply of funds by households.
11) pension fund reserves held by life insurance companies represent about 50% of the
typical life insurer’s assets.
12) new york is the global center of foreign exchange trading with the largest daily
volume of currency trading.
13) the national association of insurance commissions (naic) examines and regulates
insurance companies.
14) an investor has $25,000 that he can invest today. in addition to this amount, he can
also invest $12,000 per year for 30 years (beginning one year from now) at which time
he will retire. he plans on living for 25 years after he retires. if interest rates are 8%,
what size annual annuity payment can he obtain for his retirement years? (all annuity
payments are at year-end. round your answer to the nearest dollar.)
a.$64,439
b.$192,501
c.$150,913
d.$161,096
e.$173,488
15) the safest way to hedge a bond asset with options is to
a.purchase a call option on the bond
b.write a call option on the bond
c.purchase a put option on the bond
d.write a put option on the bond
16) a guarantee issued by an fi that obligates the fi to pay if the purchaser of the letter
defaults on a debt is called a
a.loan commitment
b.forward rate agreement
c.credit swap agreement
d.collar
e.none of the above
17) the stamp on a prospectus accompanying a new issue that indicates the issue has not
yet been approved for sale by the sec is called the
a.green hornet
b.seal of approval
c.red herring
d.eagle stamp
e.regd fd
18) core deposits include all but which of the following?
a.retail demand deposits
b.now accounts
c.mmdas
d.savings accounts
e.negotiable cds
19) the rate of return on a repo is
a.determined by the rate of return on the underlying collateral
b.strongly affected by the current fed funds rate at the time of the repo
c.determined at the time of the repo
d.a and c
e.b and c
20) you buy a stock for $34 per share and sell it for $36 after you collect a $1.00 per
share dividend. your pre-tax capital gain yield is ________________ and your pre-tax
dividend yield is ________________.
a.2.94%; 2.78%
b.8.82%; 0.00%
c.5.88%; 2.94%
d.5.56%; 2.78%
e.4.65%; 3.17%
21) the ___________ the coupon and the ______________ the maturity; the
__________ the duration of a bond, ceteris paribus.
a.larger; longer; longer
b.larger; longer; shorter
c.smaller; shorter; longer
d.smaller; shorter; shorter
e.none of the above
22) factoring is
a.equipment leasing
b.servicing mortgage factors
c.purchasing corporate accounts receivables at a discount
d.financing automobile purchases
e.making installment loans to customers
23) which one of the following situations creates the most liquidity risk?
a.long-term assets funded by long-term liabilities
b.short-term assets funded by short-term liabilities
c.long-term assets funded by short-term liabilities
d.short-term assets funded by long-term liabilities
e.long-term liabilities funded by short-term assets
24) an employee who has worked for his firm for 30 years can retire right now and
receive a constant annual benefit of $45,000. he has a final pay plan that pays his
average salary over his final 5 years times 2% times years of service. he has decided he
will keep working five more years but only if by doing so his retirement benefits will
grow at 6% per year. how much would his expected average salary (to the nearest
dollar) have to be over the next 5 years to keep him working?
a.$54,198
b.$86,029
c.$51,617
d.$66,911
e.$53,147
25) which one of the following securities firms’ activities is normally the most risky?
a.best efforts offering
b.private placement
c.firm commitment offering
d.pure arbitrage
e.program trading
26) figure 22-1
a bank has the following balance sheet:
for a 9-month maturity bucket the bank has _________________ in fixed-rate assets
and _________________ in fixed-rate liabilities.
a.$425; $285
b.$285; $425
c.$285; $359
d.$359; $285
e.$250; $66
27) upon graduating from college this year you expect to earn $25,000 per year. if you
get your mba, in one year you can expect to start at $35,000 per year. over the year,
inflation is expected to be 5%. in today’s dollars, how much additional (less) money
will you make from getting your mba (to the nearest dollar) in your first year?
a.-$2,462
b.$8,333
c.$8,750
d.$9,524
e.$10,000
28) of the following, the most likely effect of an increase in income tax rates would be
to
a.decrease the savings rate
b.decrease the supply of loanable funds
c.increase interest rates
d.all of the above
29) the largest asset on the typical securities firms’ balance sheet in 2010 was
a.receivable from other broker-dealers
b.long positions in securities and commodities
c.reverse repurchase agreements
d.repurchase agreements
e.cash
30) a 10-year annual payment corporate coupon bond has an expected return of 11%
and a required return of 10%. the bond’s market price is
a.greater than its pv
b.less than par
c.less than its err
d.less than its pv
e.$1000.00
31) a loan agreement between ford motor credit and a local ford dealer is an example of
a.floor planning
b.business equipment loan
c.factoring of receivables
d.depreciation loan
e.none of the above
32) according to the unbiased expectations theory,
a.markets are segmented and buyers stay in their own segment
b.liquidity premiums are negative and time varying
c.the term structure will most often be upward sloping
d.the long-term spot rate is an average of the current and expected future short-term
interest rates
e.forward rates are less than the expected future spot rates
33) which of the following is/are true about callable bonds?
i. must always be called at par
ii. will normally be called after interest rates drop
iii. can be called by either the bondholder or the bond issuer
iv. have higher required returns than noncallable bonds
a.i and ii only
b.ii and iv only
c.ii and iii only
d.i, ii, and iii only
e.i, ii, iii, and iv are true
34) you are 30 years old and you make $110,000 per year. you calculate that you can’t
retire until you have accumulated a lump sum amount of $2,000,000 to live on after
retirement. you contribute 6% of your salary to your 401(k) and your employer
contributes 3% of your salary. you plan on investing 65% of your funds in equities on
which you expect to earn an average rate of return of 10%, and the rest in bonds
projected to earn 5%. if your salary does not grow, how old will you be when you can
retire?
35) why do p&c insurers place a large percentage of their investments in bonds and
maintain large surpluses?
36) how does a pac cmo differ from a sequential pay cmo?
37) explain the logic of the liquidity premium theory of the term structure.
38) what three main sources of underwriter risk exist for insurers?
39) what are the major sources of purchased funds? can using purchased funds change a
bank’s profitability? its risk level? explain