In a cap or floor, the only party that is required to perform is the:
a. Buyer.
b. Seller.
c. Asset/liability manager.
d. Depository institution.
e. None of the above.
Historical return distributions for a portfolio of a large number of securities have shown
that the distribution is:
a. Perfect.
b. Symmetric.
c. Asymmetric.
d. Skewed.
e. None of the above.
Explain what is meant by an optimal portfolio and how an optimal portfolio is selected
from all the portfolios available on the Markowitz efficient frontier.
Investment banking firms are highly leveraged companies which means that:
a. Equity is greater than the amount of borrowed funds.
b. The amount of borrowed funds relative to the amount of equity is high.
c. They heavily borrow on a short-term basis.
d. They are very risky.
e. None of the above.
The execution of trades in a large number of different stocks at or near the same time as
possible is called:
a. Block trades.
b. Program trades.
c. Basket trades.
d. b and c only.
e. All of the above.
An annuity is often described as:
a. A stock insurance fund in a mutual company wrapper.
b. An insurance premium in an underwriting wrapper.
c. A mutual fund in an insurance wrapper.
d. Term insurance in a cash-value wrapper.
e. An L&H company in a P&C company wrapper.
Discuss the development of the current mortgage market.
Compare and contrast the fixed-rate mortgage and the adjustable-rate mortgage.
Most states mandate that general obligation issues be marketed through:
a. Private placement.
b. Competitive bidding.
c. Best efforts underwriting.
d. Direct negotiations.
e. None of the above.
Certificates of deposits:
a. Are issued by commercial banks.
b. Are interest-bearing financial assets.
c. Can be issued in any denomination.
d. May be negotiable or nonnegotiable.
e. All of the above.
Discuss the factors that cause the price of a bond to change.
Discuss the reasons why a corporation may seek to raise funds outside of its domestic
market.
The length of time between the date the instrument was issued and is scheduled to make
final payment is called:
a. Holding period.
b. Term to maturity.
c. Maturity.
d. b and c only.
e. All of the above.
The secondary market for Treasury securities is a(n):
a. Active market.
b. Over-the-counter market.
c. Exchange-traded market.
d. Trading floor.
e. None of the above.
A bond investor will realize the yield to maturity at the time of purchase only if:
a. The bond is held to maturity.
b. All coupon payments are reinvested at the yield to maturity.
c. The bond is sold prior to maturity.
d. a and b only.
e. All of the above.
Diversification reduces the variability of returns if the correlation among security
returns is:
a. High.
b. Low.
c. The same.
d. Indifferent.
e. None of the above.
The construction of stock market indicators differs on the basis of:
a. The relative weights assigned to the stocks included in the index.
b. The method of averaging used across all the stocks.
c. The universe of stocks represented by the sample underlying the index.
d. All of the above.
e. A and b only.
Discuss the similarities and differences between exchange traded funds and closed-end
funds.
Pension plan sponsors often purchase which of the following as a pension investment?
a. Property and casualty insurance.
b. Structured settlements.
c. “Own occ” disability insurance.
d. Guaranteed investment contracts.
e. None of the above.
When making a direct comparison between the yield to maturity on a U.S. fixed-rate
bond and a Eurodollar fixed rate bond:
a. An adjustment must be made because Eurodollar bonds pay annually rather than
semiannually.
b. Given the yield on a Eurodollar fixed-rate bond, the bond-equivalent yield will
always be lower.
c. Given the yield on a U.S. fixed-rate bond, the yield to maturity on an annual basis is
always less than the yield to maturity on a bond-equivalent basis.
d. a and b only.
e. a and c only.
The futures price is:
a. The price paid for the futures contract.
b. The price at which the parties in a futures contract agree to transact in the future.
c. The present value of all expected future cash benefits.
d. The cost of the futures contract today.
e. None of the above.
The consumer has several decisions to make regarding:
a. How much to invest.
b. How much to lend.
c. How much to consume now and later.
d. a and b only.
e. All of the above.
The most common forms of internal credit enhancements are:
a. Overcollateralization.
b. Senior structures.
c. A letter of credit from a bank.
d. a and b only.
e. All of the above.
By far the fastest growing sector of the defined contribution plans is the:
a. 401(k) plan.
b. 403(b) plan.
c. 457 plan.
d. All of the above.
e. None of the above.
The yield to maturity is the discount rate that makes the present value of the cash flows
of a bond equal to its:
a. Par value.
b. Redeemable value.
c. Market value.
d. Coupon rate.
e. None of the above.
To protect against adverse foreign exchange rate movements, borrowers and investors
can use:
a. Currency forward contracts.
b. Currency futures.
c. Currency options.
d. Currency swaps.
e. All of the above.
Financial markets dealing with financial claims that are newly issued are called:
a. Initial public offering market.
b. Primary market.
c. Secondary market.
d. Seasoned market.
e. None of the above.
An investor seeking covered interest arbitrage will accomplish it with short-term
borrowing and lending in the:
a. Domestic money market.
b. Eurocurrency market.
c. Foreign money market.
d. Treasury market.
e. None of the above.
Which of the following is false with respect to the regulatory changes in trading?
a. The SEC cost study in 2001 indicated that for many types of orders, investors get
worse prices when they trade on the NASDAQ than on the NYSE.
b. Stocks are now traded with a spread of 1/16.
c. Regulation FD requires that information be made available to all investors at the
same time.
d. Decimalization was adopted in 2001 with minimum price changes of one cent.
e. Cost differences exist because of structural differences between the NYSE and
NASDAQ.
The mortgage originator has several choices as to the mortgages acquired including:
a. Holding the mortgages in a portfolio.
b. Selling the mortgages to investors.
c. Using the mortgages as collateral for the issuance of a security.
d. a and b only.
e. All of the above.
What is an interest rate swap, and what important functions does it perform?
The minimum level by which an investor’s equity position may fall as a result of
unfavorable price movement before the investor is required to deposit additional margin
is called:
a. The initial margin.
b. The maintenance margin.
c. The variation margin.
d. A and b only.
e. None of the above.
A block trade is defined by the NYSE as an order of:
a. 10,000 shares of a given stock.
b. Less than a round lot.
c. Shares with a total market value of $200,000 or more.
d. a and c only.
e. All of the above.
For a corporation, an asset-backed security:
a. Is an alternative means of raising funds.
b. Provides an opportunity to reduce funding costs by separating the credit rating of the
issuer from the credit quality of the pool of loans or receivables.
c. Is a high return investment.
d. a and b only.
e. All of the above.
A deterioration in the credit quality of a debt issue or the issuer that is rewarded with a
better credit rating is referred to as:
a. Upgrading.
b. Downgrading.
c. Credit improvement.
d. Credit deterioration.
e. None of the above.