An appealing feature of the APT model is that:
a. It makes fewer assumptions about investor behavior and the market structure.
b. Is simple to use.
c. Is easier to implement.
d. Is more accurate in estimating the expected rate of return of an asset.
e. None of the above.
The risk(s) associated with originating mortgages include(s):
a. Price risk.
b. Fallout risk.
c. Pipeline risk.
d. All of the above.
e. a and b only.
Shares selling below the net asset value (NAV) are said to be trading at:
a. A premium.
b. A discount.
c. Par.
d. Liability
e. Leverage.
Conditional orders include:
a. Market orders.
b. Limit orders.
c. Stop orders.
d. b and c only.
e. All of the above.
Investors in financial assets receive several benefits from a secondary market including:
a. Liquidity of their assets.
b. Information about the assets’ fair values.
c. Lower search and transactions costs.
d. a and b only.
e. All of the above.
Pension funds are financed by contributions from:
a. The tax system.
b. The employer.
c. The employees.
d. a and b only.
e. b and c only.
Explain why the price/yield relationship of an option-free bond is convex.
Which of the following statement is most correct?
a. Exchange-traded stock options are for one unit of the designated common stock.
b. Options have standardized expiration dates.
c. The longest time for an option on a stock is six months.
d. b and c only.
e. All of the above.
The maturity of commercial paper is typically less than 270 days because:
a. It does not require registration with the SEC.
b. It avoids the costs associated with registering issues with the SEC.
c. It does not require collateral.
d. a and b only.
e. All of the above.
Futures contracts whose underlying instrument is a short-term debt obligation include:
a. Treasury bill futures.
b. Eurodollar futures.
c. Treasury bond futures.
d. a and b only.
e. All of the above.
An option to purchase an option is referred to as a(n):
a. Exotic option.
b. Compound option.
c. Plain vanilla option.
d. Spread option.
e. None of the above.
Examples of nonamortizing assets include:
a. Credit card receivables.
b. Home equity loans.
c. Auto loans.
d. a and b only.
e. All of the above.
Explain how a protective put buying strategy can protect the value of a stock in a
portfolio against the risk of a decline in market value.
The marginal rate of substitution between current and future consumption is the slope
of the:
a. Security market line.
b. Capital market line.
c. Indifference curve.
d. Efficient frontier.
e. None of the above.
The traditional process in the U.S. for issuing new securities involves investment
bankers, which perform which of the following functions?
a. Advising the issuer on the terms and timing of the offering.
b. Buying the securities from the issuer.
c. Distributing the issue to the public.
d. All of the above.
e. None of the above.
Systematic risk is:
a. The risk that can be eliminated through diversification.
b. The risk that affects all securities.
c. The total risk of a well-diversified portfolio.
d. The risk that cannot be diversified by portfolio combination.
e. b and d only.
When the yield declines as maturity increases, the yield curve is said to be:
a. Inverted.
b. Downward sloping.
c. Positive.
d. Negative.
e. a, b, and d only.
The Pfandbriefe market:
a. Is the second largest covered bonds market.
b. Is the largest asset in the European bond market.
c. Is slightly more than one-half of the German bond market.
d. Collateralizes all its bonds by either commercial or residential mortgages.
e. a and b only.
Non-agency pass-throughs have been issued by conduits of:
a. Commercial banks.
b. Investment banking firms.
c. Entities not associated with either commercial banks or investment banking firms.
d. a and b only.
e. All of the above.
The largest membership category on the NYSE is that of:
a. A specialist.
b. Commission broker.
c. Independent floor broker.
d. Registered trader.
e. Local.
Mortgage designs, which have been offered to solve the tilt problem include the:
a. Graduated-payment mortgage.
b. Price-level-adjusted mortgage.
c. Dual-rate mortgage.
d. All of the above.
e. None of the above.
An underwriting arrangement in which the underwriter buys the firm’s unsubscribed
shares is known as:
a. Firm commitment underwriting.
b. Preemptive rights offering.
c. Standby underwriting arrangement.
d. Bought deal.
e. None of the above.
A dual-currency issue:
a. Pays coupon interest in one currency and the principal in a second currency.
b. Pays coupon interest in two different currencies.
c. Pays the principal in two different currencies.
d. Is one that is issued in a different currency than the one the investor pays with.
e. None of the above.
As the price of the underlying asset increases, the price of a:
a. Call increase.
b. Put decreases.
c. Call decreases.
d. a and b only.
e. b and c only.
Options written on a stock index include:
a. Stock index options.
b. Stock index futures.
c. Equity swaps.
d. Equity options.
e. None of the above.
To evaluate general obligation bonds, commercial rating companies assess:
a. Information on the issuer’s debt structure and overall debt burden.
b. The issuer’s ability and political discipline to maintain sound budgetary policy.
c. The issuer’s overall socioeconomic environment.
d. Local taxes and intergovernmental revenues available to the issuer.
e. All of the above.
Market participants tend to construct yield curves from observations of prices and
yields in the:
a. Bond market.
b. Treasury market.
c. Agency securities market.
d. Money market.
e. None of the above.
Explain the different types of underwriting arrangements.
Investors in municipal bonds whose primary interest is in opportunities to benefit from
leveraged strategies that seek to generate capital gains include:
a. Hedge funds.
b. Arbitrageurs.
c. Mutual funds.
d. a and b only.
e. All of the above.
When the issuer announces the terms of the issue and interested parties submit bids for
the entire issue, the arrangement is referred to as:
a. Bought deal.
b. Auction process.
c. Firm commitment underwriting.
d. Underwriting.
e. None of the above.
Common stock issued by Digital Equipment Corporation is traded in which of the
following markets?
a. Money market.
b. Debt market.
c. Derivatives market.
d. Capital market.
e. None of the above.
Treasury securities are debt obligations that are issued by:
a. Municipal governments.
b. Nonfinancial businesses.
c. Central governments.
d. Financial enterprises.
e. None of the above.
The dollar amount of the payments exchanged in a swap agreement is based on some
predetermined dollar principal, which is called:
a. The principal.
b. The notional amount.
c. The maturity value.
d. The par value.
e. None of the above.
The principal assets of savings banks are:
a. Mortgage-backed securities.
b. Residential mortgages.
c. Commercial mortgages.
d. Government securities.
e. All of the above.