Question 1

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

Accepted Answer

A)  the corporate bonds are indirect securities and the life insurance policies are direct securities. 
B)  the corporate bonds are indirect securities and the life insurance policies are indirect securities. 
C)  the corporate bonds are direct securities and the life insurance policies are indirect securities. 
D)  the corporate bonds are direct securities and the life insurance policies are direct securities. 
A)  the corporate bonds are indirect securities and the life insurance policies are direct securities. 
B)  the corporate bonds are indirect securities and the life insurance policies are indirect securities. 
C)  the corporate bonds are direct securities and the life insurance policies are indirect securities. 
D)  the corporate bonds are direct securities and the life insurance policies are direct securities.

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Organized stock exchanges provide the benefits of a continuous market,fair security pricing,and helping businesses raise new capital.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following securities will likely have the highest default 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 5

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Accepted Answer

A) True 
 B)False

Question 6

Money market instruments include:

Accepted Answer

A)  common stock. 
B)  preferred stock. 
C)  T-bonds. 
D)  T-bills. 
A)  common stock. 
B)  preferred stock. 
C)  T-bonds. 
D)  T-bills.

Question 7

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 8

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

Accepted Answer

A) True 
 B)False

Question 9

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.The one-year interest rate one year from now is 8.34%.According to the liquidity preference theory,the risk premium for the second one-year investment is

Accepted Answer

A)  0.50%. 
B)  0.34%. 
C)  0.30%. 
D)  1.66%. 
A)  0.50%. 
B)  0.34%. 
C)  0.30%. 
D)  1.66%.

Question 10

Which of the following statements about investment banking in the United States is most correct?

Accepted Answer

A)  Investing banking is dominated by a few, very large, stand-alone investment banking firms, such as Bear Stearns. 
B)  The investment banking industry is dominated by large banks that are also investment bankers. 
C)  The top five banks involved in investment banking account for less than 25% of the industry's total market share. 
D)  The investment banking industry became more competitive following the financial crisis in 2007 and 2008. 
A)  Investing banking is dominated by a few, very large, stand-alone investment banking firms, such as Bear Stearns. 
B)  The investment banking industry is dominated by large banks that are also investment bankers. 
C)  The top five banks involved in investment banking account for less than 25% of the industry's total market share. 
D)  The investment banking industry became more competitive following the financial crisis in 2007 and 2008.

Question 11

Each purchase occurring in the secondary markets increases the total stock of financial assets that exist in the economy.

Accepted Answer

A) True 
 B)False

Question 12

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.According to the unbiased expectations theory,the one-year interest rate one year from now must be equal to

Accepted Answer

A)  5.00%. 
B)  8.00%. 
C)  8.04%. 
D) 10.00%. 
A)  5.00%. 
B)  8.00%. 
C)  8.04%. 
D) 10.00%.

Question 13

One advantage of organized stock exchanges is increased stock price volatility resulting from the efficient exchange of pricing information.

Accepted Answer

A) True 
 B)False

Question 14

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 15

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

Question 16

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct except:

Accepted Answer

A)  company officers. 
B)  outside members of the board of directors. 
C)  lawyers. 
D)  investors. 
A)  company officers. 
B)  outside members of the board of directors. 
C)  lawyers. 
D)  investors.

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

The difference between the price the corporation gets and the public offering price is called the broker-dealer spread.

Accepted Answer

A) True 
 B)False

Question 19

Capital market transactions include which of the following?

Accepted Answer

A)  any security that is purchased from a brokerage firm that is well capitalized 
B)  common stock of a public corporation 
C)  all securities that are purchased in the open market 
D)  U.S. Treasury bills 
A)  any security that is purchased from a brokerage firm that is well capitalized 
B)  common stock of a public corporation 
C)  all securities that are purchased in the open market 
D)  U.S. Treasury bills

Question 20

A basis point is equal to

Accepted Answer

A)  one percent. 
B)  one-tenth of one percent. 
C)  one-hundredth of one percent. 
D)  one-half of one percent. 
A)  one percent. 
B)  one-tenth of one percent. 
C)  one-hundredth of one percent. 
D)  one-half of one percent.

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

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

Organized stock exchanges provide the benefits of a continuous market,fair security pricing,and helping businesses raise new capital.

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

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Money market instruments include:

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

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.The one-year interest rate one year from now is 8.34%.According to the liquidity preference theory,the risk premium for the second one-year investment is

Which of the following statements about investment banking in the United States is most correct?

Each purchase occurring in the secondary markets increases the total stock of financial assets that exist in the economy.

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.According to the unbiased expectations theory,the one-year interest rate one year from now must be equal to

One advantage of organized stock exchanges is increased stock price volatility resulting from the efficient exchange of pricing information.

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?

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?

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct except:

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

The difference between the price the corporation gets and the public offering price is called the broker-dealer spread.

Capital market transactions include which of the following?

A basis point is equal to

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

Current Asset Management

International Business Finance

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Exam 2: The Financial Markets and Interest Rates

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

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

Organized stock exchanges provide the benefits of a continuous market,fair security pricing,and helping businesses raise new capital.

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

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Money market instruments include:

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

When the corporation sells securities directly to the investment public without involving an investment banker,it is called a privileged subscription.

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.The one-year interest rate one year from now is 8.34%.According to the liquidity preference theory,the risk premium for the second one-year investment is

Which of the following statements about investment banking in the United States is most correct?

Each purchase occurring in the secondary markets increases the total stock of financial assets that exist in the economy.

The one-year interest rate is 4%.The interest rate for a two-year security is 6%.According to the unbiased expectations theory,the one-year interest rate one year from now must be equal to

One advantage of organized stock exchanges is increased stock price volatility resulting from the efficient exchange of pricing information.

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?

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?

The Sarbanes-Oxley Act of 2002 holds all of the following groups strictly accountable in a legal sense for any instances of misconduct except:

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

The difference between the price the corporation gets and the public offering price is called the broker-dealer spread.

Capital market transactions include which of the following?

A basis point is equal to

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

Current Asset Management

International Business Finance

Filters