Exam 2: The Financial Markets and Interest Rates

When an investment banking firm "underwrites" an issue of securities,the firm is performing which of the following?

A life insurance company purchases $1 billion of corporate bonds from premiums collected on its life insurance policies.Therefore

All of the following are typically advantages of private placements EXCEPT

Investment firms,such as Goldman Sachs,assist the transfer of capital by

Only individual investors participate in public offerings,while institutional investors participate in private placements.

An investor buys a 20-year BBB-rated corporate bond with a nominal annual rate of return of 10%.The average inflation rate is expected to be 2%.The default risk premium is expected to be 5% and the maturity premium is 4%.Calculate the real rate of interest.

Which of the following represents the correct ordering of returns over the period 1926 to 2011 (from lowest to highest return)?

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

The rate of return available on the next best investment alternative for the saver refers to the opportunity cost of funds.

The Securities and Exchange Commission (SEC)

The telecommunications system that provides a national information linkup among brokers and dealers operating in the over-the-counter market is called

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?

An example of a primary market transaction involving a money market security is

Which of the following statements is false?

In August 2004,Google first sold its common stock to the public at $85 per share and raised $1.76 billion.This is an examples of

Private placements are

Over-the-counter markets include all security markets,with the exception of organized exchanges.

It is common practice among the largest corporations to sell their securities directly to investors.

John calls his stockbroker and instructs him to purchase 100 shares of Microsoft Corporation common stock.This transaction occurs in the

You are considering an investment in a U.S.Treasury bond but you are not sure what rate of interest it should pay.Assume that the real risk-free rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity risk premium is 2.5%; and,the default risk premium for AAA-rated corporate bonds is 3.5%.What rate of interest should the U.S.Treasury bond pay?