Financial intermediaries such as banks typically have assets that are riskier than their
liabilities.
The stated commission on a load mutual fund is not an accurate depiction of the
commission (load).
True
False
An unsecured bond that has no specific collateral other than the general
creditworthiness of the issuing firm is called a debenture.
The NYSE recently merged with the London Stock Exchange to form the merged
company NYSE Euronext.
Purchasing a stable-value fund through your employer-sponsored retirement can be a
good way to reduce market risk in your retirement nest-egg.
True
False
The traditional liquidity premium theory states that long-term interest rates are greater
than the average of expected future interest rates.
If a foreign currency appreciates, that country’s goods and services become relatively
more expensive for U.S. buyers.
a.
b.21 or graduating from college whichever comes sooner.
c.21 or graduating from college whichever comes later.
Which of the following types of disability income insurance policies will only provide
benefits if you can no longer perform the occupation you had at the time you became
disabled?
a.split-definition policy
b.own-occupation policy
c.unemployment insurance policy
d.any-occupation policy
A settlement option for a life insurance policy can be
a. a lump sum.
b. interest income for a period of time with the remainder paid at the end of the period
of time.
c. income for life.
d. Any of these.
The contract supporting a credit card account is called a(n)
a.promissory note.
b.credit card agreement.
c.indenture.
d.chattel note.
Married couples who are both covered by a health care plan at work should maintain
both plans for even broader coverage.
a.True
b.False
Baxter is a office manager who works for Allied Company and is covered under its
retirement plan. Baxter’s AGI is $69,000, and he wants to contribute $2,000 to either an
IRA or his employer’s salary-reduction plan. Since he is in the 25 percent marginal tax
bracket, he would save ____ in taxes by using the IRA and ____ by using the
salary-reduction plan.
a.$400; $400
b.$400; $0
c.$0; $400
d.$0; $0
Which of the following are capital market instruments?
A.10-year corporate bonds
B.30-year mortgages
C.20-year Treasury bonds
D.15-year U.S. government agency bonds
E.All of the options
Classify each of the following in terms of their effect on interest rates (increase or
decrease):
I. Covenants on borrowing become more restrictive.
II. The Federal Reserve increases the money supply.
III. Total household wealth increases.
A.I increases, II increases, III increases
B.I increases, II decreases, III decreases
C.I decreases, II increases, III increases
D.I decreases, II decreases, III decreases
E.None of the options
Who most needs long-term care insurance protection?
a.low-income, low-wealth persons
b.middle-income persons
c.high-income, high-wealth persons
d.All persons need long-term care insurance protection.
Refer to Figure 10-1. Does the level of coverage that Roberto and Denise are currently
carrying meet the replacement-cost requirement contained in homeowner’s insurance
policies?
a.Yes
b.No
You obtain a $265,000, 15-year fixed-rate mortgage. The annual interest rate is 6.25
percent. In addition to the principal and interest paid, you must pay $275 a month into
an escrow account for insurance and taxes. What is the total monthly payment (to the
nearest dollar)?
A.$2,272
B.$1,632
C.$2,547
D.$1,907
E.$2,311
You are considering purchasing five-year corporate bonds as an investment. You have a
choice of terms available. Which of the following terms would you find desirable,
ceteris paribus? How does each feature affect the bond’s required rate of return?
Explain.
a. call feature
b. convertible feature
c. warrants
d. sinking fund
e. debenture
Tom has a four-year closed-end lease on his Land Cruiser. His contract stipulates a
$0.42 per mile excess mileage charge in excess of 48,000 miles. If he actually drove the
vehicle 60,000 miles during the four years, he would be charged an extra ____.
a.$0
b.$2,016
c.$5,040
d.$6,670
When might an option on a futures contract be preferable to an option on the underlying
instrument?
What are weak form, semi-strong form, and strong form efficiency? Does one form of
efficiency imply another?
What supervisory and regulatory authority does the Fed have under current law?
An in the money American call option increases in value as expiration approaches, but
an out of the money American call option decreases in value as expiration approaches.
FALSE
What is the difference between a discriminating auction and a single price auction?
How is the final price determined in a single price auction? Why did the Treasury
switch to a single price auction?
Suppose that oil prices hit an all-time high of $200 a barrel, driving U.S. inflation up to
7 percent per year. At the same time, weak U.S. growth and increasing foreign
competition has generated unacceptably high levels of unemployment in the United
States. You are the chair of the Federal Reserve. What do you suggest?
Is there a trade-off between controlling domestic inflation and maintaining a sustainable
pattern of international trade?
Conceptually, why does a bond’s price fall when required returns rise on an existing
fixed income security?