The multifactor CAPM is attractive because:
a. It is simple to use.
b. It recognized nonmarket risks.
c. It is easier to implement.
d. All of the above.
e. None of the above.
The provision in a bond indenture that may require the issuer to retire a specified
portion of an issue each year is the:
a. Call provision.
b. Sinking fund provision.
c. Refunding provision.
d. Warrant.
e. None of the above.
STAT surplus:
a. Is defined by accountants for their purposes.
b. Is required by monitoring agencies to assure financial stability.
c. Is measured in an identical manner to GAAP, but their purposes are different.
d. a and b only.
e. All of the above.
Discuss the two major forms of life insurance companies.
A commercial mortgage loan is originated either to ________.
A) finance a commercial purchase or to refinance a prior mortgage obligation.
B) finance a residential purchase or to refinance a prior mortgage obligation.
C) finance a commercial purchase or to refinance a subsequent mortgage obligation.
D) None of these
The theoretical option price can be calculated using:
a. The Black-Scholes option pricing model.
b. The binomial option pricing model.
c. Arbitrage arguments.
d. All of the above.
e. None of the above.
________ is a security backed by one or more commercial mortgage loans.
A) A CMBS
B) An RMBS
C) An FHA
D) A COM
CMBS ________.
A) are backed by seasoned commercial mortgage loans.
B) are backed by newly originated loans.
C) can be backed by a single borrower.
D) All of these
Regulation Q allowed the Fed to impose:
a. Geographical restrictions on branch banking.
b. Interest rate ceilings on deposit accounts.
c. Capital requirements for commercial banks.
d. Permissible activities for commercial banks.
e. None of the above.
Differentiate between the four types of markets where stocks are traded in the U.S.
Discuss why a municipality would want to issue a taxable municipal bond, thereby
paying a higher yield than if it issued a tax-exempt municipal bond.
Which of the following statements is most correct?
a. A forward contract, just like a futures contract, is an agreement for the future delivery
of something at a specified price at the end of a designated period of time.
b. A forward contact, just like a futures contract, is traded on an exchange floor.
c. A forward contract differs from a futures contract in that is it usually
nonstandardized.
d. a and c only.
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.
In an asset-backed security transaction:
a. There is no active management.
b. There is no business risk.
c. The servicer simply collects the cash flow.
d. All of the above.
e. None of the above.
MTNs created when the issuer simultaneously transacts in the derivative markets are
called:
a. Structured notes.
b. Floating-rate securities.
c. Swaps.
d. a and b only.
e. None of the above.
The risk resulting from a decline in mortgage rates that will shorten the life of a
mortgage is called:
a. Prepayment risk.
b. Contraction risk.
c. Extension risk.
d. Price risk.
e. None of the above.
A short sale involves:
a. Selling securities that are owned at the time of sale.
b. Selling securities that are not owned at the time of sale.
c. Buying the securities, which are subsequently sold.
d. All of the above.
e. None of the above.
Most corporate bonds are:
a. Term bonds.
b. Bullet bonds.
c. Serial bonds.
d. a and b only.
e. All of the above.
Describe the risks specific to investments in municipal securities.
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 risk that the federal income tax rate will be reduced, resulting in a decline in the
value of municipal bonds, is called:
a. Political risk.
b. Tax risk.
c. Government risk.
d. Tax law risk.
e. None of the above.
Discuss the management of pension funds.
Rule 415, which permits certain issuers to file a single registration document indicating
that it intends to sell a certain amount of a certain class of securities at one or more
times within the next two years, is popularly referred to as:
a. Private placement.
b. Shelf registration.
c. Red herring.
d. Security liquidity.
e. None of the above.
A floor is equivalent to:
a. A package of call options.
b. A package of put options.
c. A package of forwards.
d. A package of futures.
e. None of the above.
Financial assets represent a residual claim in the case of:
a. Preferred stock.
b. Common stock.
c. Partnership share.
d. b and c only.
e. All of the above.
Discuss the various roles investment banking firms play in mergers and acquisitions.
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 largest group of investors in corporate bonds is:
a. Life insurance companies.
b. Pension funds.
c. Foreign investors.
d. Depository institutions.
e. Mutual funds.
A measure of price volatility that relates to coupon and maturity is:
a. Duration.
b. Convexity.
c. Yield spread.
d. Yield to maturity.
e. None of the above.
Standard & Poor’s Corporation, Moody’s Investors Services, and Fitch are companies in
the U.S. that:
a. Offer investment banking advice to corporations.
b. Assign ratings to corporate debt instruments.
c. Provide investment advice to institutional investors.
d. Give legal advice in the case of bankruptcy.
e. All of the above.
Locals are brokers who:
a. Buy and sell for their own account.
b. Are professional risk takers.
c. Add liquidity to the futures market.
d. Play the same effective role as a market maker.
e. All of the above.
Continual bank borrowing at the Fed for long periods and in large amounts is viewed as
a sign of:
a. A bank’s financial weakness.
b. Exploitation of the interest differential for profit.
c. Financial health due to increased loan demand at the bank.
d. a and b only.
e. All of the above.