Question 1

Given the anticipated rate of inflation (i)of 2.13% and the real rate of interest (R)of 3.1%,find the nominal rate of interest (r).

Accepted Answer

r = R + i + Ri
r = .

Question 2

Advantages of private placements do NOT include which of the following?

Accepted Answer

A)  more financing flexibility 
B)  lower flotation costs 
C)  investor protection through extensive regulation 
D)  funds which are available more quickly than through a public offering 
A)  more financing flexibility 
B)  lower flotation costs 
C)  investor protection through extensive regulation 
D)  funds which are available more quickly than through a public offering

Question 3

Which of the following represents the correct ordering of returns over the period 1926 to 2014 (from lowest to highest return)?

Accepted Answer

A)  Treasury bills, long-term government bonds, long-term corporate bonds, common stocks 
B)  common stocks, long-term government bonds, long-term corporate bonds, Treasury bills 
C)  Treasury bills, common stocks, long-term corporate bonds, long-term government bonds 
D)  long-term corporate bonds, Treasury bills, long-term government bonds, common stocks 
A)  Treasury bills, long-term government bonds, long-term corporate bonds, common stocks 
B)  common stocks, long-term government bonds, long-term corporate bonds, Treasury bills 
C)  Treasury bills, common stocks, long-term corporate bonds, long-term government bonds 
D)  long-term corporate bonds, Treasury bills, long-term government bonds, common stocks

Question 4

If a corporation wants a guarantee that all of its shares of stock will be sold,it should use which of the following distribution methods?

Accepted Answer

A)  competitive bid purchase 
B)  privileged subscription with no standby agreement 
C)  commission or best-efforts contract 
D)  direct sale 
A)  competitive bid purchase 
B)  privileged subscription with no standby agreement 
C)  commission or best-efforts contract 
D)  direct sale

Question 5

Seasoned secondary offerings occur in the secondary market.

Accepted Answer

A) True 
 B)False

Question 6

Investment banking firms offer to facilitate the sale of securities to the public in a variety of ways.Which of the following methods guarantees the corporation with a pre-determined price for the securities?

Accepted Answer

A)  a best efforts basis 
B)  a commission basis 
C)  a competitive bid 
D)  an underwriting 
A)  a best efforts basis 
B)  a commission basis 
C)  a competitive bid 
D)  an underwriting

Question 7

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

Accepted Answer

A)  inflation-risk premium 
B)  maturity premium 
C)  real risk-free interest rate premium 
D)  default-risk premium 
A)  inflation-risk premium 
B)  maturity premium 
C)  real risk-free interest rate premium 
D)  default-risk premium

Question 8

The prime lending rate is the base rate on

Accepted Answer

A)  mortgage loans. 
B)  home equity loans. 
C)  auto loans. 
D)  corporate loans. 
A)  mortgage loans. 
B)  home equity loans. 
C)  auto loans. 
D)  corporate loans.

Question 9

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is MOST correct concerning flotation costs?

Accepted Answer

A)  Flotation costs are the same for common stock, preferred stock and bonds because they reflect mainly printing costs and legal fees. 
B)  Flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher, allowing for economies of scale. 
C)  Flotation costs as a percentage of gross proceeds increase as the size of the security issue increases. 
D)  Flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock. 
A)  Flotation costs are the same for common stock, preferred stock and bonds because they reflect mainly printing costs and legal fees. 
B)  Flotation costs are generally higher for bonds rather than stocks because the dollar amounts involved are much higher, allowing for economies of scale. 
C)  Flotation costs as a percentage of gross proceeds increase as the size of the security issue increases. 
D)  Flotation costs are higher for common stocks than for preferred stocks and bonds due to the higher level of risk associated with owning common stock.

Question 11

Which of the following is an example of both a capital market and a primary market transaction?

Accepted Answer

A)  The U.S. Government sells 3-month Treasury bills. 
B)  Microsoft common stock owned by an individual investor is sold to another investor. 
C)  Ford Motor Company sells a new issue of common stock to raise funds through a public offering. 
D)  No transactions occur in both primary and capital markets at the same time. 
A)  The U.S. Government sells 3-month Treasury bills. 
B)  Microsoft common stock owned by an individual investor is sold to another investor. 
C)  Ford Motor Company sells a new issue of common stock to raise funds through a public offering. 
D)  No transactions occur in both primary and capital markets at the same time.

Question 12

The term structure of interest rates usually indicates that longer terms to maturity have higher expected returns.

Accepted Answer

A) True 
 B)False

Question 13

What was the average annual rate of return on long-term government bonds (30-year Treasury bonds)during the period 1990 to 2014?

Accepted Answer

A)  4.14% 
B)  5.88% 
C)  5.49% 
D)  7.82% 
A)  4.14% 
B)  5.88% 
C)  5.49% 
D)  7.82%

Question 14

An example of a secondary market transaction involving a capital market security is

Accepted Answer

A)  a new issue of a security with a very short maturity. 
B)  a new issue of a security with a very long maturity. 
C)  the transfer of a previously-issued security with a very short maturity. 
D)  the transfer of a previously-issued security with a very long maturity. 
A)  a new issue of a security with a very short maturity. 
B)  a new issue of a security with a very long maturity. 
C)  the transfer of a previously-issued security with a very short maturity. 
D)  the transfer of a previously-issued security with a very long maturity.

Question 15

Venture capitalists typically provide funds to high-risk startup companies but take no active role in their management.

Accepted Answer

A) True 
 B)False

Question 16

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

Accepted Answer

A) True 
 B)False

Question 17

A liquidity-risk premium is the additional return required by investors for securities that cannot quickly be converted into cash at a reasonably predictable price.

Accepted Answer

A) True 
 B)False

Question 18

Private placements are

Accepted Answer

A)  limited to debt securities. 
B)  limited to equity securities. 
C)  available for both debt and equity securities, but the market is dominated by equity issues. 
D)  especially appealing to new, small, and medium-sized companies. 
A)  limited to debt securities. 
B)  limited to equity securities. 
C)  available for both debt and equity securities, but the market is dominated by equity issues. 
D)  especially appealing to new, small, and medium-sized companies.

Question 19

The investment banker does NOT underwrite the securities to be issued in which of the following?

Accepted Answer

A)  initial public offering 
B)  primary market transaction 
C)  firm commitment 
D)  best efforts 
A)  initial public offering 
B)  primary market transaction 
C)  firm commitment 
D)  best efforts

Question 20

Capital markets are all the financial institutions that help a business raise long-term capital.

Accepted Answer

A) True 
 B)False

Given the anticipated rate of inflation (i)of 2.13% and the real rate of interest (R)of 3.1%,find the nominal rate of interest (r).

Advantages of private placements do NOT include which of the following?

Which of the following represents the correct ordering of returns over the period 1926 to 2014 (from lowest to highest return)?

If a corporation wants a guarantee that all of its shares of stock will be sold,it should use which of the following distribution methods?

Seasoned secondary offerings occur in the secondary market.

Investment banking firms offer to facilitate the sale of securities to the public in a variety of ways.Which of the following methods guarantees the corporation with a pre-determined price for the securities?

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

The prime lending rate is the base rate on

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

Which of the following statements is MOST correct concerning flotation costs?

Which of the following is an example of both a capital market and a primary market transaction?

The term structure of interest rates usually indicates that longer terms to maturity have higher expected returns.

What was the average annual rate of return on long-term government bonds (30-year Treasury bonds)during the period 1990 to 2014?

An example of a secondary market transaction involving a capital market security is

Venture capitalists typically provide funds to high-risk startup companies but take no active role in their management.

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

A liquidity-risk premium is the additional return required by investors for securities that cannot quickly be converted into cash at a reasonably predictable price.

Private placements are

The investment banker does NOT underwrite the securities to be issued in which of the following?

Capital markets are all the financial institutions that help a business raise long-term capital.

An Introduction to the Foundations of Financial Management

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters

Exam 2: The Financial Markets and Interest Rates

Given the anticipated rate of inflation (i)of 2.13% and the real rate of interest (R)of 3.1%,find the nominal rate of interest (r).

Advantages of private placements do NOT include which of the following?

Which of the following represents the correct ordering of returns over the period 1926 to 2014 (from lowest to highest return)?

If a corporation wants a guarantee that all of its shares of stock will be sold,it should use which of the following distribution methods?

Seasoned secondary offerings occur in the secondary market.

Investment banking firms offer to facilitate the sale of securities to the public in a variety of ways.Which of the following methods guarantees the corporation with a pre-determined price for the securities?

The ________ is the premium to compensate for the price change expected to occur over the life of the bond or investment instrument.

The prime lending rate is the base rate on

Registration of securities by the SEC indicates to investors that the risk of those securities is reasonable.

Which of the following statements is MOST correct concerning flotation costs?

Which of the following is an example of both a capital market and a primary market transaction?

The term structure of interest rates usually indicates that longer terms to maturity have higher expected returns.

What was the average annual rate of return on long-term government bonds (30-year Treasury bonds)during the period 1990 to 2014?

An example of a secondary market transaction involving a capital market security is

Venture capitalists typically provide funds to high-risk startup companies but take no active role in their management.

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

A liquidity-risk premium is the additional return required by investors for securities that cannot quickly be converted into cash at a reasonably predictable price.

Private placements are

The investment banker does NOT underwrite the securities to be issued in which of the following?

Capital markets are all the financial institutions that help a business raise long-term capital.

An Introduction to the Foundations of Financial Management

Understanding Financial Statements and Cash Flows

Evaluating a Firms Financial Performance

The Time Value of Money

The Meaning and Measurement of Risk and Return

The Valuation and Characteristics of Bonds

The Valuation and Characteristics of Stock

The Cost of Capital

Capital-Budgeting Techniques and Practice

Cash Flows and Other Topics in Capital Budgeting

Determining the Financing Mix

Dividend Policy and Internal Financing

Short-Term Financial Planning

Working-Capital Management

International Business Finance

Cash,receivables,and Inventory Management

Filters