Common stock represents:
a. Ownership interest in a corporation.
b. A liability.
c. Program trading.
d. Arbitrage.
e. None of the above.
A FLEX option is a contract whereby the terms of the contract can be customized with
respect to:
a. Strike price.
b. Expiration date.
c. Settlement style.
d. Underlying instrument.
e. All of the above.
Describe the methods of distribution of new government securities.
Explain the differences and similarities between brokers and dealers.
Explain what an equity swap is and how it can be used.
Differentiate between operational efficiency and pricing efficiency.
Discuss the distinctions between L&H and P&C companies.
Two basic types of derivative instruments are:
a. Stocks and bonds.
b. Options and futures.
c. Bonds and swaps.
d. Forward contracts and stocks.
e. None of the above.
If interest rates in the economy increase because of Fed policy, the price of a bond will:
a. Increase.
b. Decrease.
c. Remain unchanged.
d. Change.
e. None of the above.
The security market line (SML) is a graphical depiction of:
a. The market model.
b. The capital asset pricing model.
c. The capital market model.
d. The market index.
e. None of the above.
The value of a bond depends on:
a. The issuer.
b. The coupon rate.
c. The maturity of the bond.
d. Market interest rates.
e. b, c, and d only.
The theoretical futures price depends on which of the following factors?
a. Cash market price.
b. Financing cost.
c. Cash yield on underlying instrument.
d. a and c only.
e. All of the above.
To alter the beta of a well-diversified stock portfolio, investment managers can use:
a. Stock index futures.
b. Interest rate futures.
c. Treasury bills.
d. Treasury bonds.
e. None of the above.
Compare and contrast a single-investor lease and a leveraged lease.
The current Treasury yield curve can be used to extrapolate the:
a. Theoretical spot rates.
b. The market’s consensus of future interest rates.
c. Discount rate.
d. a and b only.
e. All of the above.
What is meant by Pareto optimality.
Which of the below statements is FALSE?
A) A seasoned loan is one that is already residing on the balance sheet of a bank or
insurance company.
B) Responsibilities of the servicer include collecting monthly loan payments, keeping
records relating to payments, and maintaining property escrow for taxes and insurance.
C) Responsibilities of the master servicer include overseeing the deal and verifying that
all servicing agreements are being maintained.
D) Basically the objective of the master service is to maximize the recovery of
defaulted loans.
The difference between the price paid to the issuer and the price at which the
investment bank reoffers the security to the public is called:
a. Bid-ask spread.
b. Gross spread.
c. Underwriter discount.
d. b and c only.
e. None of the above.
The risk that the issuer of a bond may not be able to make timely interest and principal
payments is called:
a. Credit risk.
b. Default risk.
c. Market risk.
d. a and b only.
e. All of the above.
When a loan is based solely on the credit of the borrower and on the collateral for the
mortgage, the mortgage is said to be a:
a. Fixed-rate mortgage.
b. Adjustable rate mortgage.
c. Conventional mortgage.
d. Guarantee.
e. None of the above.
The lower the correlation between assets:
a. The lower the portfolio variance.
b. The higher the expected return for a given level of risk.
c. The greater the diversification benefits.
d. a and b only.
e. All of the above.
If investors can obtain transaction services as cheaply as possible, the market is said to
be:
a. Price efficient.
b. Operationally efficient.
c. Weak form efficient.
d. Strong form efficient.
e. None of the above.
The risk attached to financial assets whose cash flows are not denominated in U.S.
dollars is called:
a. Credit risk.
b. Inflation risk.
c. Foreign-exchange risk.
d. Market risk.
e. None of the above.
The two principal factors in determining whether or not to lend funds are the:
a. Loan-to-value ratio.
b. Payment-to-income ratio.
c. Times-interest-earned ratio.
d. a and b only.
e. b and c only.
The promises of corporate bond issuers and the rights of investors who buy them are set
forth in great detail in the:
a. Bond coupon.
b. Bond indenture.
b. Corporate charter.
d. Fiduciary.
e. None of the above.
Futures contracts are traded:
a. In the interbank market.
b. In the OTC market.
c. On an organized exchange.
d. Electronically.
e. None of the above.
The minimum yield sought on an investment as measured by the yield on an on-the-run
Treasury security with comparable maturity is referred to as the:
a. Base interest rate.
b. Benchmark interest rate.
c. Bond-equivalent interest rate.
d. a and b only.
e. B and c only.
A contract’s open interest is used to measure:
a. The level of trading volume.
b. The liquidity of a contract.
c. The number of contracts that have been entered into but not yet liquidated.
d. b and c only.
e. All of the above.
Since credit unions are owned by their members, member deposits are called:
a. Contributions.
b. NOW accounts.
c. Shares.
d. Certificates of membership.
e. None of the above.
Trading differences exist between retail investors and institutional investors based on:
a. Size of trade.
b. Commission.
c. Method of order execution.
d. All of the above.
e. a and b only.
The price of one currency in terms of another currency is called:
a. Exchange rate.
b. Currency rate.
c. Conversion rate.
d. Direct quote.
e. Indirect quote.
The underlying instrument in a currency option is the:
a. Spot currency.
b. Foreign currency futures contract.
c. Currency forward contract.
d. a and b only.
e. All of the above.
Together, portfolio and capital market theories provide a framework to:
a. Specify and measure the investment risk.
b. Quantify the expected return on a portfolio.
c. Develop relationships between risk and expected return.
d. Quantify the cost of capital.
e. All of the above.