A bond with an 11 percent coupon and a 9 percent required return will sell at a premium
to par.
In the event of bankruptcy, a firm’s janitor must be paid all of the salary owed to him
before stockholders receive anything.
Shares in an open-end mutual fund can be liquidated almost immediately simply by
communicating with the company via phone, on-line or in writing.
True
False
Convertible bonds will normally have lower promised yields than straight bonds of
similar terms and quality.
A subprime mortgage is a mortgage made to a borrower who has a below normal credit
rating.
A drop in value of the dollar hurts U.S. importers and helps U.S. exporters, ceteris
paribus.
Bond ratings use a classification system to give investors an idea of the amount of
default rate risk associated with the bond issue.
Any security that returns a greater percentage of the price sooner is less price-volatile.
A financial planner who makes recommendations solely based on the best interest of the
client regardless of the impact on the planner is said to adhere to a
a.Fiduciary standard
b.Fee-only standard
c.Commision-only standard
d.Suitability standard
The _______________ is a nationwide network jointly operated by the Fed and private
institutions that electronically process credit and debit transfers of funds.
A.Fedwire
B.ACH
C.CHIPS
D.NASDAQ
E.SWIFT
A U.S. firm has borrowed £50 million from a British firm. The borrower will need to
convert dollars to pounds to repay the loan when it is due. The U.S. firm could hedge
the exchange rate risk by
A.buying pounds forward.
B.selling pounds forward.
C.borrowing pounds.
D.both selling pounds forward and borrowing pounds.
E.both buying pounds forward and borrowing pounds.
Which is not a regional stock exchange?
a.Boston Stock Exchange
b.Philadelphia Stock Exchange
c.San Francisco Stock Exchange
d.New York Stock Exchange
____ is not an example of a capital improvement.€
a.Adding a new roof
b.Fixing a plumbing leak
c.Remodeling a kitchen.
d.Putting in a sprinkler system
Rapid and unsustainable increases in home prices followed by sharp declines in values
is referred to as
a.real estate (or housing) bubble.
b.inflation
c.leverage.
d.deflation.
Automobile medical payments insurance would pay for your daughter’s injuries if she
were hit by an automobile while riding her bicycle.
a.True
b.False
Legally, sellers must disclose known defects in their homes via a defect disclosure
form.
a.True
b.False
____ are received as current income while one owns shares in a mutual fund.
a.Ordinary income dividend distributions and capital gains distributions
b.Ordinary income dividend distributions and capital growth
c.Capital gains distributions and capital growth
d.Dividend distributions only
You can buy or sell the yen spot at ¥102 to the dollar. You can buy or sell the yen
one-year forward at ¥104 to the dollar. If U.S. annual interest rates are 4 percent, what
must be the approximate one-year Japanese interest rate if interest rate parity holds?
A.6.04 percent
B.3.20 percent
C.2.75 percent
D.4.73 percent
E.6.80 percent
Your auto liability coverage will usually protect you for liability claims when you drive
a rental car.
a.True
b.False
Assume you own a refrigerator that was purchased new seven years ago for $900,
would cost $1200 today, and that it was expected to last ten years when purchased.
Similar used refrigerators sell for about $300. What is its actual cash value?
a.$270
b.$300
c.$360
d.$900
Your firm enters into a swap agreement with a notional principal of $40 million wherein
the firm pays a fixed rate of interest of 5.50 percent and receives a variable rate of
interest equal to LIBOR plus 150 basis points. If LIBOR is currently 3.75 percent, the
NET amount your firm will receive (+) or pay (-) on the next transaction date is
A.-$2,200,000.
B.$2,625,000.
C.$125,000.
D.-$100,000.
E.-$875,000.
You purchased a five-year annual payment 6 percent coupon bond for $1,000 and you
planned on holding it to maturity. However, right after you bought the bond, it was
called at $1,043.29 when all interest rates fell to 5 percent and remained there for the
full five years. You reinvested the money for the full five years. What was your annual
compound rate of return off your original investment?
A.6.00 percent
B.5.89 percent
C.5.75 percent
D.5.23 percent
E.5.00 percent
YIELD CURVE FOR ZERO COUPON BONDS RATED AA
Assume that there are no liquidity premiums.
You just bought a 15-year maturity Xerox corporate bond rated AA with a 0 percent
coupon. You expect to sell the bond in eight years. Find the expected interest rate at the
time of sale (watch out for rounding error).
A.8.85 percent
B.11.00 percent
C.12.80 percent
D.13.92 percent
E.12.49 percent
A(n) ___________________ is used to help retired people receive monthly income in
exchange for the equity in their home.
A.SAM
B.Equity Participation Mortgage
C.RAM
D.PLAM
E.GEM
Which of the following items is least appropriate to purchase with a credit card unless
you will pay the bill in full when the statement is received?
a.A new suit
b.Groceries
c.Microwave oven
d.Smart phone
Compute the net asset value for a share of a mutual fund with the following
characteristics:
a.$46.55
b.$47.47
c.$50.55
d.$45.63
NJVKJDBVKDVBKDVB
Would you expect the demand curve for businesses to be steeper than the demand curve
for funds by the federal government? Explain.
Why does the size of the U.S. current account deficit put pressure on the value of the
dollar to decline? How does the size of the capital account affect that pressure? Explain.
What are the major effects of the Sarbanes-Oxley Act (SO) of 2002 on the stock
markets? What else has the NYSE done to improve corporate governance?
How can using indirect finance rather than direct finance reduce agency costs
associated with monitoring funds’ demanders?
A 15-year, 7 percent coupon annual payment corporate bond has a PV of $1,055.62.
However, you pay $1,024.32 for the bond. By how many basis points is your E(r)
different from your r?
How can brokers and dealers make money? Which activity is riskier? Why?
Who are the major buyers of mortgages after they have been originated? What is the
difference between selling with recourse or without recourse? Which is most common?