Mortgage insurance to provide a guarantee for the fulfillment of the borrower’s
obligations is provided by the:
a. Federal Housing Administration.
b. Veterans Administration.
c. Rural Housing Service insurance.
d. PMI insurance.
e. a, b, and c only.
The highest expected return for all feasible portfolios with the same risk is called:
a. Feasible portfolios.
b. Markowitz efficient portfolios.
c. Mean-variance efficient portfolios.
d. b and c only.
e. All of the above.
Strategies that combine two or more options on the same underlying stock, include:
a. Vertical spreads.
b. Butterfly spreads.
c. Diagonal spreads.
d. Straddles.
e. All of the above.
The risk insured against death is which of the following types of insurance?
a. Life insurance.
b. Health insurance.
c. Property and casualty insurance.
d. Liability insurance.
e. Disability insurance.
Depository institutions include:
a. Savings and loans associations.
b. Savings banks.
c. Credit unions.
d. Commercial banks.
e. All of the above.
An important structural difference between exchanges and the OTC market with respect
to the activities of dealers is that:
a. On exchanges, there is only one market maker or dealer per stock called the
specialist.
b. In the OTC market, there may be many dealers for a stock depending on the trading
volume.
c. There is not competition among specialists.
d. a and b only.
e. All of the above.
What is a bankers’ acceptance and how is it created?
In an interest rate swap, the counterparties swap payments in the same currency based
on:
a. Information on market interest rate movements.
b. An interest rate.
c. An index.
d. Information on price movements in the market.
e. None of the above.
The Third Market is the market for:
a. Trading in the OTC market of stocks not listed on an exchange.
b. Trading in the OTC market of stocks listed on an exchange.
c. Trading on exchanges of stock listed on an exchange.
d. Private transactions between institutional investors without an intermediary.
e. None of the above.
The monthly cash flow that an investor in an SBA-backed security receives consists of:
a. The coupon interest based on the coupon rate set for the period.
b. The scheduled principal repayment.
c. Prepayments.
d. All of the above.
e. a and b only.
The exercise provision of the S&P 100 index option is that:
a. It cannot be exercised until expiration.
b. It can be exercised any time up to and including the expiration date.
c. It cannot be exercised early.
d. a and c only.
e. None of the above.
Deferred-interest bonds:
a. Sell at a deep discount.
b. Do not pay interest for an initial period.
c. Are sometimes referred to as zero-coupon bonds.
d. a and b only.
e. All of the above.
One reason given for the accelerated demutualization of insurance companies is the:
a. Gramm-Leach-Bliley Act.
b. Glass-Steagall Act.
c. McCarran Ferguson Act.
d. GIC Act.
e. SEC Act.
What is the role of stock index options and futures in financial markets?
Explain the investment features of stock index options and futures.
Exchange-traded mutual funds have which of the following characteristics?
a. ETFs are traded like stocks on an exchange.
b. ETFs are similar to closed-end funds.
c. ETFs avoid realized capital gains and the taxation thereof due to their low portfolio
turnover.
d. All of the above.
e. None of the above.
By investing in mortgage loans, investors face:
a. Credit risk.
b. Liquidity risk.
c. Price risk.
d. Prepayment risk.
e. All of the above.
For an amortization asset, the amortization is based on the:
a. Gross weighted average coupon.
b. Straight coupon rate.
c. Weighted average maturity.
d. a and c only.
e. None of the above.
Pension plans are regulated under which of the following acts?
a. Employee Retirement Income Security Act.
b. Pension Benefit Guaranty Act.
c. Pension Funding Equity Act.
d. Pension Protection Act.
e. Investment Company Act.
A provision in a bond issue that grants the issuer the right to retire the debt, fully or
partially, before the scheduled maturity date is called:
a. A tax provision.
b. A call provision.
c. A put provision.
d. A conversion provision.
e. None of the above.
The primary source of funds for credit unions is:
a. Issuance of debt securities.
b. Issuance of equity securities.
c. Deposits of their members.
d. None of the above.
e. All of the above.
When world capital markets are mildly segmented, there are opportunities to:
a. Raise funds at a lower cost in capital markets of another country.
b. Reduce the risks of doing business in foreign markets.
c. Earn the same required rate of return on securities of comparable risk.
d. All of the above.
e. None of the above.
Members of the European Monetary Union are said to be part of:
a. Europe.
b. Euroland.
c. The Euro zone.
d. B and c only.
e. All of the above.
For a commercial mortgage, prepayment protection is provided by:
a. Prepayment lockout.
b. Defeasance.
c. Prepayment penalty points.
d. Yield maintenance charges.
e. All of the above.
The pass-through securities issued by Ginnie Mae, Freddie Mac, and Fannie Mae:
a. Are guaranteed by these agencies.
b. Increase the supply of capital to the residential mortgage market.
c. Provide support for an active secondary market.
d. b and c only.
e. All of the above.
The major applications of program trades are:
a. Asset allocation.
b. Index arbitrage.
c. Indexing.
d. All of the above.
e. None of the above.
The APT model postulates that a security’s expected return is influenced by:
a. A single market index.
b. A variety of factors.
c. Market and nonmarket risks.
d. All of the above.
e. None of the above.
A market is price efficient if:
a. It is riskless.
b. It offers investors reasonably priced services related to buying and selling
c. At all times prices fully reflect all available information that is relevant to the
valuation of securities.
d. There are no transactions costs and taxes.
e. None of the above.
In regards to commercial mortgage loans, which of the below statements is FALSE?
A) Commercial mortgage loans are typically balloon loans requiring substantial
principal payment before the end of the balloon term.
B) If the borrower fails to make the balloon payment, the borrower is in default.
C) The lender may extend the loan and in so doing will typically modify the original
loan terms.
D) Balloon risk is the risk that a borrower will not be able to make the balloon payment
because the borrower either cannot arrange for refinancing at the balloon payment date
or cannot sell the property to generate sufficient funds to pay off the balloon balance.
In an interest rate agreement, the predetermined interest rate level is called the:
a. Reference rate.
b. Strike rate.
c. Implied rate.
d. Basis rate.
e. None of the above.
If it is not possible to reallocate inputs and outputs in such a way that some will be
better off while nobody will lose, this property is referred to by economists as:
a. Non-Pareto optimal.
b. Pareto optimal.
c. Efficient.
d. Inefficient.
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.
Investors can use the cash or futures market to alter their risk exposure, which requires
them to consider which of the following factors?
a. Liquidity.
b. Transactions costs.
c. Taxes.
d. Leveraging aspect of futures.
e. All of the above.