25. Debt management includes all of the following except:
a. the types of securities to sell
b. the interest rate patterns to use
c. the types of refunding to carry out
d. all of the above
The size of the cash buffer depends upon:
a. the ability to easily acquire financing on short notice
b. the predictability of cash inflows
c. management preferences
d. all the above
Which of the following statements is false?
a. During the past couple of decades, generally high fixed-rate mortgage loan interest
rates and the desire to extend housing ownership to more individuals in the U.S., the
use of adjustable-rate mortgages grew in usage.
b. An adjustable-rate mortgage (ARM) has an interest rate that changes or varies over
time with market-determined interest rates on a U.S. treasury bill or other debt security.
c. The interest rate on an ARM is often adjusted annually to reflect changes in treasury
bill rates (or other interest rate benchmark).
d. Lenders typically offer ARMs with variable interest rates for one to five years with a
provision to switch to a fixed-rate over the remaining life of the ARM.
e. all of the above statements are true
Dan plans to fund his individual retirement account (IRA) with the maximum
contribution of $2,000 at the end of each year for the next 10 years. If Dan can earn 10
percent on his contributions, how much will he have at the end of the tenth year?
a. $12,290
b. $20,000.
c. $31,874.
d. $51,880.
In our financial system, the money multiplier:
a. is not affected by the Federal Reserve
b. can fluctuate over time
c. is not affected by the nonbank public
d. is not affected by the U.S. Treasury
Each Federal Reserve Bank has a president and first vice-president who are appointed
by:
a. the Board of Governors
b. the President of the United States
c. the President of the United States with the advice and consent of the Senate
d. its board of directors
Research on the weak-form efficient market suggests that:
a. past trends cannot be used to predict the future
b. technical analysis has limited value
c. stock prices follow a random walk
d. all of the above
If the money supply for an economy is $3 trillion and GDP is $10 trillion, then the
velocity of money is:
a. $3.33 trillion
b. $13.0 trillion
c. $7.0 trillion
d. $30 trillion
All of the following statements are correct except:
a. The firms optimum debt/equity mix minimizes the firms cost of capital, which in turn
helps the firm to maximize shareholder wealth
b. A firms mix of debt and equity used to finance its assets defines the firms capital
structure.
c. A nonoptimal capital structure with either too much or too little debt leads to higher
financing costs, and the firm will likely reject some capital budgeting projects that
could have increased shareholder wealth with an optimal financing mix.
d. A projects NPV represents the increase in shareholders wealth from undertaking a
project; thus, a lower weighted average cost of capital gives higher project net present
values and results in higher levels of shareholder wealth.
e. All of the above statements are correct.
The Resolution Trust Corporation was brought into existence to:
a. help savings and loan institutions invest funds in a wide range of higher yielding
instruments
b. authorize savings and loan institutions to issue a new money market accountwith no
regulated interest rate ceiling
c. take over and liquidate the assets of failed savings and loan institutions
d. all the above
Money market funds are not included in which of the following definitions of the
money supply?
a. M1
b. M2
c. M3
d. M4 or L
The value of money results from:
a. its backing
b. rates set by the Federal Reserve
c. its purchasing power
d. none of the above
According to the definitions given in the text, if Stock A has a standard deviation of 4%
and Stock B has a standard deviation of 3% which stock is riskier?
a. Stock A
b. Stock B
c. they are equally risky
d. cannot determine from the information given
The effect of ______________ and _______________ on the value of a firms stock and
the wealth of shareholders is positive.
a. share repurchases, stock splits
b. cash dividends, stock dividends
c. cash dividends, stock splits
d. stock dividends, share repurchases
e. none of the above
A statistical concept that relates movements in one set of returns to movements in
another set over time is called:
a. variance
b. standard deviation
c. coefficient of variation
d. correlation
Before arbitragers take action with respect to exchange rate differentials:
a. central bank approval must be obtained
b. loans to cover transactions must be obtained
c. a market differential of at least 1¢ must exist between two currencies
d. a differential of as little as 1/16 of 1¢ may trigger action
The firms capital structure is the mix of debt and equity used to finance its assets.
If a borrowing firm does not qualify for an unsecured bank loan and pledges its
accounts receivable as security, it eliminates the need for a credit investigation.
The SECs definition of “Insiders” is limited to corporate personnel.
Floor brokers act as agents to execute customers orders for securities purchases and
sales.
An investment bank accepts deposits, makes loans, and issues checking accounts.