If an investor has a six-month investment horizon, buying a 5-year, 10-year, or 20-year
bond will produce the same six-month return. This interpretation of the pure
expectations theory is referred to as the:
a. Return-to-maturity expectation.
b. Local expectations.
c. Broadest interpretation.
d. Liquidity theory.
e. None of the above.
The largest sector of the CMBS market is constituted by ________.
A) securities backed by Ginnie Mae.
B) securities issued by private entities.
C) securities backed by Freddie Mac.
D) securities issued by the two government-sponsored enterprises.
Medium-term notes are:
a. Corporate debt obligations that are offered continuously to investors.
b. Sold with securities from 9 months to 30 years.
c. Not registered with the SEC.
d. a and b only.
e. All of the above.
The secondary market for common stock has undergone significant changes since the
1960s as a result of:
a. The institutionalization of the stock market.
b. Changes in government regulation of the market.
c. Advances in computer technology.
d. A and b only.
e. All of the above.
The most common type of order submitted to the stock market is the:
a. Market order.
b. Stop order.
c. Limit order.
d. Conditional order.
e. None of the above.
The global bond market can be classified into the national bond market and:
a. The international bond market.
b. The external bond market.
c. The offshore bond market.
d. The Eurobond market.
e. All of the above.
Commercial mortgage loans are ________, which means that if the borrower fails to
make the contractual payments, the lender can only look to the income-producing
property backing the loan for interest and principal repayment.
A) nonpayment loans
B) contractless loans
C) remedial loans
D) nonrecourse loans
Governments of emerging markets issue:
a. Eurobonds.
b. Brady bonds.
c. Global bonds.
d. a and b only.
e. All of the above.
Australia is classified within the:
a. Euro zone market bloc.
b. Non-euro zone market bloc.
c. Dollar bloc.
d. United Kingdom bloc.
e. Emerging markets bloc.
The advantage of liquidity which financial intermediaries offer savers means that savers
may:
a. Request the withdrawal of funds at any time.
b. Redeem their shares at any time.
c. Borrow against the cash value of their insurance policy.
d. All of the above.
e. None of the above.
Commercial paper is:
a. Is issued by corporations with strong credit ratings.
b. A short-term promissory note.
c. Issued on an unsecured basis.
d. B and c only.
e. All of the above.*
Describe the basic terms of a loan agreement.
Which of the following statements is false?
a. Stock index futures contracts are cash settlement contracts.
b. There are margin requirements for futures contracts.
c. Futures positions are marked-to-market daily.
d. Margins for speculators are less than for hedgers.
e. None of the above.
Corporate bond issues that are arranged so that specified principal amounts become due
on specified dates prior to maturity are called:
a. Bullet-maturity bonds.
b. Serial bonds.
c. Term bonds.
d. Notes.
e. None of the above.
The risk-return relationship for individual securities is called:
a. The capital market line.
b. The security market line.
c. The market model.
d. The fitted line.
e. None of the above.
The revenues generated by investment banking firms come from:
a. Commissions.
b. Fee income.
c. Spread income.
d. b and c only.
e. All of the above.
The only party that is required to perform in an interest rate agreement is the:
a. Writer.
b. Holder.
c. Buyer.
d. Dealer.
e. None of the above.
The prominent role of U.S. Treasury securities is due to:
a. Liquidity.
b. Volume.
c. The bid-ask spread.
d. a and b only.
e. All of the above.
A perfectly competitive market is characterized by:
a. Governmental regulation.
b. Efficiency.
c. Low-cost production.
d. b and c only.
e. All of the above.
The major difference between the broker and the dealer is that:
a. The broker receives a commission for receiving, transmitting, and executing
investors’ orders.
b. The broker does not buy and hold in inventory or sells from inventory the financial
asset that is subject of a trade.
c. The broker acts as an auctioneer in some market structures.
d. a and b only.
e. All of the above.
The basic mortgage-backed security is the:
a. Collateralized mortgage obligation.
b. Stripped mortgage-backed security.
c. Mortgage pass-through security.
d. Derivative mortgage-backed security.
e. None of the above.
The convexity measure of a security refers to:
a. Price volatility that relates maturity and coupon.
b. The approximate change in price that is not explained by duration.*
c. The shape of the price/yield relationship.
d. The approximate percentage price change of a bond for a 100 basis point change in
interest rates.
e. None of the above.
Municipal securities secured by some form of tax revenues include:
a. General obligation debt.
b. Appropriation-backed obligations.
c. Moral obligation bonds.
d. Debt obligations supported by public credit enhancement programs.
e. All of the above.
Dealers in the foreign exchange market realize revenue from:
a. The bid-ask spread.
b. Trading commissions.
c. Trading profits.
d. All of the above.
e. None of the above.
Municipal bonds may be retired with a:
a. Serial maturity structure.
b. Term maturity structure.
c. Combination of the serial and term maturity structures.
d. None of the above.
e. All of the above.
With asset securitization more than one institution may be involved so that a thrift or
bank does not have to:
a. Absorb the credit risk.
b. Service the mortgage.
c. Provide the funding.
d. b and c only.
e. All of the above.
Options traded in the OTC market are known as:
a. Standardized options.
b. Dealer options.
c. Tailor-made options.
d. b and c only.
e. Exchange-traded options.
The value of an interest rate swap is the:
a. Present value of all expected future cash benefits.
b. Difference between the present value of the cash flow of the two sides of the swap.
c. Discounted value of the floating cash flows.
d. Sum of the cash flows.
e. None of the above.
The prices of stock on markets around the world do not move together in an exact way
because the economic systems in which those markets are located have dissimilar
economic, social and political environments. Explain the effects of these environmental
factors on stock prices.
The yield on a corporate debt instrument is made up of:
a. The yield on a similar maturity Treasury issue.
b. Risk premium.
c. A credit spread.
d. a and c only.
e. All of the above.
Freddie Mac and Fannie Mae created mortgage pass-through securities by:
a. Purchasing mortgages.
b. Pooling these mortgages.
c. Issuing securities using the pool of mortgages as collateral.
d. b and c only.
e. All of the above.