Q&A Hero

Q: You decide to purchase an equal number of shares of stocks of firms to create a portfolio. If you wanted to construct an index to track your portfolio performance, your best match for your portfolio would be to construct ________. A) a value-weighted index B) an equally weighted index C) a price-weighted index D) a bond price index

Q: The rate of interest on short-term loans among financial institutions is ________. A) bankers' acceptances B) brokers' calls C) federal funds rate D) LIBOR

Q: Which of the following is not considered a money market investment? A) bankers' acceptance B) eurodollar C) repurchase agreement D) Treasury note

Q: Three stocks have share prices of $12, $75, and $30 with total market values of $400 million, $350 million, and $150 million, respectively. If you were to construct a price-weighted index of the three stocks, what would be the index value? A) 300 B) 39 C) 43 D) 30

Q: A stock quote indicates a stock price of $60 and a dividend yield of 3%. The latest quarterly dividend received by stock investors must have been ________ per share. A) $0.55 B) $1.80 C) $0.45 D) $1.25

Q: What would you expect to have happened to the spread between yields on commercial paper and Treasury bills immediately after September 11, 2001? A) no change, as both yields will remain the same B) increase, as the spread usually increases in response to a crisis C) decrease, as the spread usually decreases in response to a crisis D) no change, as both yields will move in the same direction

Q: A typical bond price quote includes all but which one of the following? A) coupon B) closing bond price C) yield to maturity D) dividend yield

Q: If you thought prices of stock would be rising over the next few months, you might want to ________ on the stock. A) purchase a call option B) purchase a put option C) sell a futures contract D) place a short-sale order

Q: Which of the following is not a characteristic of common stock ownership? A) residual claimant B) unlimited liability C) voting rights D) right to any dividend paid by the corporation.

Q: Which of the following is used to back international sales of goods and services? A) certificate of deposit B) bankers' acceptance C) eurodollar deposits D) commercial paper

Q: Eurodollars are ________. A) dollar-denominated deposits at any foreign bank or foreign branch of an American bank B) dollar-denominated bonds issued by firms outside their home market C) currency issued by Euro Disney and traded in France D) dollars that wind up in banks as a result of money-laundering activities

Q: Which of the following is most like a short-term collateralized loan? A) certificate of deposit B) repurchase agreement C) bankers' acceptance D) commercial paper

Q: Large well-known companies often issue their own short-term unsecured debt notes directly to the public, rather than borrowing from banks; their notes are called ________. A) certificates of deposit B) repurchase agreements C) bankers' acceptances D) commercial paper

Q: The Standard & Poor's 500 is ________ weighted index. A) an equally B) a price- C) a value- D) a share-

Q: The Hang Seng index reflects market performance on which of the following major stock markets? A) Japan B) Singapore C) Taiwan D) Hong Kong

Q: The ________ the ratio of municipal bond yields to corporate bond yields, the ________ the cutoff tax bracket at which more individuals will prefer to hold municipal debt. A) higher; lower B) lower; lower C) higher; higher D) The answer cannot be determined without more information.

Q: Ownership of a call option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price. A) right; buy B) right; sell C) obligation; buy D) obligation; sell

Q: June call and put options on King Books Inc. are available with exercise prices of $30, $35, and $40. Among the different exercise prices, the call option with the ________ exercise price and the put option with the ________ exercise price will have the greatest value. A) $40; $30 B) $30; $40 C) $35; $35 D) $40; $40

Q: An investor in a 28% tax bracket is trying to decide whether to invest in a municipal bond or a corporate bond. She looks up municipal bond yields (rm) but wishes to calculate the taxable equivalent yield r. The formula she should use is given by ________. A) r = rm (1 - 28%) B) r = rm / (1 - 72%) C) r = rm (1 - 72%) D) r = rm / (1 - 28%)

Q: Ownership of a put option entitles the owner to the ________ to ________ a specific stock, on or before a specific date, at a specific price. A) right; buy B) right; sell C) obligation; buy D) obligation; sell

Q: The purchase of a futures contract gives the buyer ________. A) the right to buy an item at a specified price B) the right to sell an item at a specified price C) the obligation to buy an item at a specified price D) the obligation to sell an item at a specified price

Q: A bond issued by the state of Alabama is priced to yield 6.25%. If you are in the 28% tax bracket, this bond would provide you with an equivalent taxable yield of ________. A) 4.5% B) 7.25% C) 8.68% D) none of these options

Q: In calculating the Dow Jones Industrial Average, the adjustment for a stock split occurs ________. A) automatically B) by adjusting the divisor C) by adjusting the numerator D) by adjusting the market value weights

Q: Which of the following does not approximate the performance of a buy-and-hold portfolio strategy? A) an equally weighted index B) a price-weighted index C) a value-weighted index D) all of these options (Weights are not a factor in this situation.)

Q: Preferred stock is like long-term debt in that ________. A) it gives the holder voting power regarding the firm's management B) it promises to pay to its holder a fixed stream of income each year C) the preferred dividend is a tax-deductible expense for the firm D) in the event of bankruptcy preferred stock has equal status with debt

Q: Investors will earn higher rates of returns on TIPS than on equivalent default-risk standard bonds if ________. A) inflation is lower than anticipated over the investment period B) inflation is higher than anticipated over the investment period C) the U.S. dollar increases in value against the euro D) the spread between commercial paper and Treasury securities remains low

Q: The Dow Jones Industrial Average is ________. A) a price-weighted average B) a value weight and average C) an equally weighted average D) an unweighted average

Q: The price quotations of Treasury bonds in the Wall Street Journal show a bid price of 104.5313 and an ask price of 104.5489. If you sell a Treasury bond, you expect to receive ________. A) $ 1,000.00 B) $ 1,045.00 C) $ 1,045.31 D) $ 1,045.48

Q: TIPS are ________. A) Treasury bonds that pay no interest and are sold at a discount B) U.K. bonds that protect investors from default risk C) securities that trade on the Toronto stock index D) Treasury bonds that protect investors from inflation

Q: An investor purchases one municipal bond and one corporate bond that pay rates of return of 5% and 6.4%, respectively. If the investor is in the 15% tax bracket, his after-tax rates of return on the municipal and corporate bonds would be, respectively, ________. A) 5% and 6.4% B) 5% and 5.44% C) 4.25% and 6.4% D) 5.75% and 5.44%

Q: Currently, the Dow Jones Industrial Average is computed by ________. A) adding the prices of 30 large "blue-chip" stocks and dividing by 30 B) calculating the total market value of the 30 firms in the index and dividing by 30 C) measuring the current total market value of the 30 stocks in the index relative to the total value on the previous day D) adding the prices of 30 large "blue-chip" stocks and dividing by a divisor adjusted for stock splits and large stock dividends

Q: A firm that has large securities holdings and wishes to raise money for a short length of time may be able to find the cheapest financing from which of the following? A) reverse repurchase agreement B) bankers' acceptance C) commercial paper D) repurchase agreement

Q: The interest rate charged by large banks in London to lend money among themselves is called ________. A) the prime rate B) the discount rate C) the federal funds rate D) LIBOR

Q: Which of the following indexes are market value-weighted? I. The NYSE Composite II. The S&P 500 III.The Wilshire 5000 A) I and II only B) II and III only C) I and III only D) I, II, and III

Q: Which one of the following provides the best example of securitization? A) convertible bond B) call option C) mortgage pass-through security D) preferred stock

Q: A ________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap

Q: ________ is not a money market instrument. A) A certificate of deposit B) A Treasury bill C) A Treasury bond D) Commercial paper

Q: The yield on tax-exempt bonds is ________. A) usually less than 50% of the yield on taxable bonds B) normally about 90% of the yield on taxable bonds C) greater than the yield on taxable bonds D) less than the yield on taxable bonds

Q: Which one of the following is a true statement regarding corporate bonds? A) A corporate callable bond gives its holder the right to exchange it for a specified number of the company's common shares. B) A corporate debenture is a secured bond. C) A corporate convertible bond gives its holder the right to exchange it for a specified number of the company's common shares. D) Holders of corporate bonds have voting rights in the company.

Q: A T-bill quote sheet has 90-day T-bill quotes with a 4.92 ask and a 4.86 bid. If the bill has a $10,000 face value, an investor could sell this bill for ________. A) $10,000 B) $9,878.50 C) $9,877 D) $9,880.16

Q: A ________ gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. A) call option B) futures contract C) put option D) interest rate swap

Q: A bond that has no collateral is called a ________. A) callable bond B) debenture C) junk bond D) mortgage

Q: Which of the following are true statements about T-bills? I. T-bills typically sell in denominations of $10,000. II. Income earned on T-bills is exempt from all federal taxes. III. Income earned on T-bills is exempt from state and local taxes. A) I only B) I and II only C) I and III only D) I, II, and III

Q: Treasury bills are financial instruments issued by ________ to raise funds. A) commercial banks B) the federal government C) large corporations D) state and city governments

Q: Which one of the following is a true statement regarding the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) It is a price-weighted average of 100 large stocks traded on the New York Stock Exchange. D) It is a value-weighted average of all stocks traded on the New York Stock Exchange.

Q: The maximum maturity on commercial paper is ________. A) 270 days B) 180 days C) 90 days D) 30 days

Q: Commercial paper is a short-term security issued by ________ to raise funds. A) the Federal Reserve B) the New York Stock Exchange C) large well-known companies D) all of these options

Q: Which of the following is not a nickname for an agency associated with the mortgage markets? A) Fannie Mae B) Freddie Mac C) Sallie Mae D) Ginnie Mae

Q: An individual who goes short in a futures position ________. A) commits to delivering the underlying commodity at contract maturity B) commits to purchasing the underlying commodity at contract maturity C) has the right to deliver the underlying commodity at contract maturity D) has the right to purchase the underlying commodity at contract maturity

Q: Which of the following is not a characteristic of a money market instrument? A) liquidity B) marketability C) low risk D) maturity greater than 1 year

Q: Which of the following is not a true statement regarding municipal bonds? A) A municipal bond is a debt obligation issued by state or local governments. B) A municipal bond is a debt obligation issued by the federal government. C) The interest income from a municipal bond is exempt from federal income taxation. D) The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

Q: Deposits of commercial banks at the Federal Reserve are called ________. A) bankers' acceptances B) federal funds C) repurchase agreements D) time deposits

Q: The German stock market is measured by which market index? A) FTSE B) Dow Jones 30 C) DAX D) Nikkei

Q: The bid price of a Treasury bill is ________. A) the price at which the dealer in Treasury bills is willing to sell the bill B) the price at which the dealer in Treasury bills is willing to buy the bill C) greater than the ask price of the Treasury bill expressed in dollar terms D) the price at which the investor can buy the Treasury bill

Q: Which one of the following is a true statement? A) Dividends on preferred stocks are tax-deductible to individual investors but not to corporate investors. B) Common dividends cannot be paid if preferred dividends are in arrears on cumulative preferred stock. C) Preferred stockholders have voting power. D) Investors can sue managers for nonpayment of preferred dividends.

Q: ________ is considered to be an emerging market country. A) France B) Norway C) Brazil D) Canada

Q: ________ would not be included in the EAFE index. A) Australia B) Canada C) France D) Japan

Q: An investor in a T-bill earns interest by ________. A) receiving interest payments every 90 days B) receiving dividend payments every 30 days C) converting the T-bill at maturity into a higher-valued T-note D) buying the bill at a discount from the face value to be received at maturity

Q: The minimum tick size, or spread between prices in the Treasury bond market, is A) 1/8 of a point. B) 1/16 of a point. C) 1/32 of a point. D) 1/128 of a point.

Q: The most marketable money market security is ________. A) Treasury bills B) bankers' acceptances C) certificates of deposit D) common stock

Q: Money market securities are sometimes referred to as cash equivalents because ________. A) they are safe and marketable B) they are not liquid C) they are high-risk D) they are low-denomination

Q: A dollar-denominated deposit at a London bank is called ________. A) eurodollars B) LIBOR C) fed funds D) bankers' acceptance

Q: When computing the bank discount yield, you would use ________ days in the year. A) 260 B) 360 C) 365 D) 366

Q: Which of the following is not a money market instrument? A) Treasury bill B) commercial paper C) preferred stock D) bankers' acceptance

Q: Which insurance company sold more than $400 billion of CDS contracts on subprime mortgages prior to the 2008 market crash? A) Metlife B) AIG C) Northwestern Mutual D) New York Life

Q: The Dodd-Frank Reform Act does all of the following except: A) reduces capital requirements for banks. B) increases transparency in the derivatives market C) limits the risk-taking in which banks can engage D) requires public companies to set "claw-back" provisions E) creates an office within the SEC to oversee credit rating agencies.

Q: The difference between LIBOR and the Treasury-bill rate A) is called the TED spread. B) measures credit risk in the banking sector. C) was very low just before the 2008 financial crisis. D) All of the options.

Q: Until 1999, the ________ Act separated commercial banking and investment banking activities. A) Dodd-Frank Wall Street Reform and Consumer Protection B) Sarbanes-Oxley C) Glass-Steagall D) Volcker Rule

Q: The Volcker Rule A) prohibits banks from proprietary trading. B) restricts banks' investments in hedge funds. C) restricts banks' investments in private equity funds. D) All of the options.

Q: An investment adviser has decided to purchase gold, real estate, stocks, and bonds in equal amounts. This decision reflects which part of the investment process? A) asset allocation B) investment analysis C) portfolio analysis D) security selection

Q: The systemic risk that led to the financial crisis of 2008 was increased by ________. A) collateralized debt obligations B) subprime mortgages C) credit default swaps D) all of the options

Q: Which of the following is (are) true about nonconforming mortgage loans? A) They are also known as subprime loans. B) They have higher default risk than conforming loans. C) They were able to be offered without due diligence. D) All of the options are true.

Q: In recent years the greatest dollar amount of securitization occurred for which type of loan? A) home mortgages B) credit card debt C) automobile loans D) equipment leasing

Q: Real assets are ________. A) assets used to produce goods and services B) always the same as financial assets C) always equal to liabilities D) claims on a company's income

Q: The inability of shareholders to influence the decisions of managers, despite overwhelming shareholder support, is a breakdown in what process or mechanism? A) auditing B) public finance C) corporate governance D) public reporting

Q: In 2008 the largest corporate bankruptcy in U.S. history involved the investment banking firm of ________. A) Goldman Sachs B) Lehman Brothers C) Morgan Stanley D) Merrill Lynch

Q: When a pass-through mortgage security is issued, what does the issuing agency expect to receive? A) the amount of the original loan plus a servicing fee B) the principal and interest that are paid by the homeowner C) the principal and interest that are paid by the homeowner, minus a servicing fee D) the interest paid by the homeowner, plus a servicing fee

Q: Financial institutions that specialize in assisting corporations in primary market transactions are called ________. A) mutual funds B) investment bankers C) pension funds D) globalization specialists

Q: An intermediary that pools and manages funds for many investors is called ________. A) an investment company B) a credit union C) an investment banker D) a commercial bank

Q: Accounting scandals can often be attributed to a particular concept in the study of finance known as the ________. A) agency problem B) risk-return trade-off C) allocation of risk D) securitization