Question 1

Commercial banks that also provide investment banking services are called

Accepted Answer

A)  conglomerate banks. 
B)  multi-purpose banks. 
C)  investment enhanced banks. 
D)  universal banks. 
A)  conglomerate banks. 
B)  multi-purpose banks. 
C)  investment enhanced banks. 
D)  universal banks.

Question 2

The investment banker prefers to avoid a negotiated purchase because it tends to be the least profitable arrangement for the investment banker.

Accepted Answer

A) True 
 B)False

Question 3

The process of shelf-registration is beneficial to the issuing firm because it will reduce the time needed for the firm to take an issue to market.

Accepted Answer

A) True 
 B)False

Question 4

The Sarbanes-Oxley Act of 2002,in order to protect investors,requires a higher level of accountability for which of the following groups?

Accepted Answer

A)  corporate officers 
B)  public accountants 
C)  boards of directors 
D)  all of the above 
A)  corporate officers 
B)  public accountants 
C)  boards of directors 
D)  all of the above

Question 5

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

Accepted Answer

A) True 
 B)False

Question 6

A commitment fee is

Accepted Answer

A)  an amount paid on the unused portion of a loan in a private placement. 
B)  an amount paid by an investment banker to ensure the sale of securities. 
C)  paid by investors to guarantee that a company will borrow from them. 
D)  paid by bondholders to secure the right to convert bonds into common stock. 
A)  an amount paid on the unused portion of a loan in a private placement. 
B)  an amount paid by an investment banker to ensure the sale of securities. 
C)  paid by investors to guarantee that a company will borrow from them. 
D)  paid by bondholders to secure the right to convert bonds into common stock.

Question 7

Private placements usually have several advantages associated with them,but also tend to suffer from specific disadvantages.Which of the following is a disadvantage of a private placement when compared to other methods of selling new securities?

Accepted Answer

A)  strictly standardized features/terms 
B)  higher interest costs 
C)  reduced flotation costs 
D)  avoidance of registration with the SEC 
A)  strictly standardized features/terms 
B)  higher interest costs 
C)  reduced flotation costs 
D)  avoidance of registration with the SEC

Question 8

Money-market transactions include which of the following?

Accepted Answer

A)  any security that is paid for with cash 
B)  30-year U.S. Treasury bonds 
C)  all securities paid for with the proceeds of a money-market account 
D)  securities that have a maturity of less than one year 
A)  any security that is paid for with cash 
B)  30-year U.S. Treasury bonds 
C)  all securities paid for with the proceeds of a money-market account 
D)  securities that have a maturity of less than one year

Question 9

Insurance companies invest in the "long-end" of the securities market by purchasing securities with longer maturities.In which of the following instruments would an insurance company be least likely to invest most of its assets?

Accepted Answer

A)  corporate stocks 
B)  corporate bonds 
C)  mortgages 
D)  commercial paper 
A)  corporate stocks 
B)  corporate bonds 
C)  mortgages 
D)  commercial paper

Question 10

Which of the following statements is an example of a futures market transaction?

Accepted Answer

A)  An investor purchases 100 shares of IBM hoping to sell it in two years for a profit. 
B)  A company purchases an option to buy 1000 barrels of oil anytime between now and the end of the year. 
C)  A company agrees to purchase 1000 barrels of oil for delivery in six months at a price of $70 per barrel. 
D)  An executive has a portion of his current year salary deferred until he retires. 
A)  An investor purchases 100 shares of IBM hoping to sell it in two years for a profit. 
B)  A company purchases an option to buy 1000 barrels of oil anytime between now and the end of the year. 
C)  A company agrees to purchase 1000 barrels of oil for delivery in six months at a price of $70 per barrel. 
D)  An executive has a portion of his current year salary deferred until he retires.

Question 11

Prices of securities that are traded in the Over-the-Counter Markets are determined by

Accepted Answer

A)  the Federal Trade Commission. 
B)  a continuous modified auction process. 
C)  the buyers of these securities. 
D)  a "bid" and "ask" negotiation process of broker-dealers of these securities. 
A)  the Federal Trade Commission. 
B)  a continuous modified auction process. 
C)  the buyers of these securities. 
D)  a "bid" and "ask" negotiation process of broker-dealers of these securities.

Question 12

Financial markets exist in order to allocate savings in the economy to the demanders of those savings.

Accepted Answer

A) True 
 B)False

Question 13

On the basis of number of shares traded,more stocks are traded over the counter than on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following securities will likely have the highest liquidity premium?

Accepted Answer

A)  U.S. Treasury bond maturing in 2027 
B)  Bbb-rated corporate bond maturing in 2020 actively traded on a major exchange 
C)  Aaa-rated corporate bond maturing in 2015 not actively traded 
D)  U.S. Treasury bill 
A)  U.S. Treasury bond maturing in 2027 
B)  Bbb-rated corporate bond maturing in 2020 actively traded on a major exchange 
C)  Aaa-rated corporate bond maturing in 2015 not actively traded 
D)  U.S. Treasury bill

Question 15

Which of the following securities will likely have the highest maturity risk premium?

Accepted Answer

A)  U.S. Treasury bond maturing in 2027 
B)  Bbb-rated corporate bond maturing in 2020 actively traded on a major exchange 
C)  Aaa-rated corporate bond maturing in 2015 not actively traded 
D)  U.S. Treasury bill 
A)  U.S. Treasury bond maturing in 2027 
B)  Bbb-rated corporate bond maturing in 2020 actively traded on a major exchange 
C)  Aaa-rated corporate bond maturing in 2015 not actively traded 
D)  U.S. Treasury bill

Question 16

Given the rate information in the table below,estimate the nominal rate for a AA-rated corporate bond.Assume a liquidity premium of 8 basis points.Identify as part of your answer the inflation risk premium,the default risk premium,the maturity premium,and the liquidity premium.
3-month T-bills 2.0%
30-year Treasury bonds 5.0%
AA-rated corp.bonds 8.0%
Inflation Rate 1.0%

Accepted Answer

k* = 2.0% - 1.0% = 1.0%
IRP =

Question 17

Cash markets are often referred to as spot markets.

Accepted Answer

A) True 
 B)False

Question 18

What are the five key methods by which securities are distributed to final investors?

Accepted Answer

A Negotiated Purchase: In a negotiated u

Question 19

ExxonMobil generates about $50 billion in cash annually from its operations and invests about half of that on new exploration.Therefore,ExxonMobil is an example of a(n)

Accepted Answer

A)  savings surplus unit. 
B)  savings deficit unit. 
C)  investment banker. 
D)  financial intermediary. 
A)  savings surplus unit. 
B)  savings deficit unit. 
C)  investment banker. 
D)  financial intermediary.

Question 20

Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

Accepted Answer

A)  capital market 
B)  commercial banks 
C)  money market 
D)  stock market 
A)  capital market 
B)  commercial banks 
C)  money market 
D)  stock market

Commercial banks that also provide investment banking services are called

The investment banker prefers to avoid a negotiated purchase because it tends to be the least profitable arrangement for the investment banker.

The process of shelf-registration is beneficial to the issuing firm because it will reduce the time needed for the firm to take an issue to market.

The Sarbanes-Oxley Act of 2002,in order to protect investors,requires a higher level of accountability for which of the following groups?

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

A commitment fee is

Private placements usually have several advantages associated with them,but also tend to suffer from specific disadvantages.Which of the following is a disadvantage of a private placement when compared to other methods of selling new securities?

Money-market transactions include which of the following?

Insurance companies invest in the "long-end" of the securities market by purchasing securities with longer maturities.In which of the following instruments would an insurance company be least likely to invest most of its assets?

Which of the following statements is an example of a futures market transaction?

Prices of securities that are traded in the Over-the-Counter Markets are determined by

Financial markets exist in order to allocate savings in the economy to the demanders of those savings.

On the basis of number of shares traded,more stocks are traded over the counter than on organized exchanges.

Which of the following securities will likely have the highest liquidity premium?

Which of the following securities will likely have the highest maturity risk premium?

Cash markets are often referred to as spot markets.

What are the five key methods by which securities are distributed to final investors?

ExxonMobil generates about $50 billion in cash annually from its operations and invests about half of that on new exploration.Therefore,ExxonMobil is an example of a(n)

Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

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

Commercial banks that also provide investment banking services are called

The investment banker prefers to avoid a negotiated purchase because it tends to be the least profitable arrangement for the investment banker.

The process of shelf-registration is beneficial to the issuing firm because it will reduce the time needed for the firm to take an issue to market.

The Sarbanes-Oxley Act of 2002,in order to protect investors,requires a higher level of accountability for which of the following groups?

Transactions in common stock occur in the money market,due to the large amount of money involved in such transactions.

A commitment fee is

Private placements usually have several advantages associated with them,but also tend to suffer from specific disadvantages.Which of the following is a disadvantage of a private placement when compared to other methods of selling new securities?

Money-market transactions include which of the following?

Insurance companies invest in the "long-end" of the securities market by purchasing securities with longer maturities.In which of the following instruments would an insurance company be least likely to invest most of its assets?

Which of the following statements is an example of a futures market transaction?

Prices of securities that are traded in the Over-the-Counter Markets are determined by

Financial markets exist in order to allocate savings in the economy to the demanders of those savings.

On the basis of number of shares traded,more stocks are traded over the counter than on organized exchanges.

Which of the following securities will likely have the highest liquidity premium?

Which of the following securities will likely have the highest maturity risk premium?

Cash markets are often referred to as spot markets.

What are the five key methods by which securities are distributed to final investors?

ExxonMobil generates about $50 billion in cash annually from its operations and invests about half of that on new exploration.Therefore,ExxonMobil is an example of a(n)

Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

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