Question 1

Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A) True 
 B)False

Question 2

The current yield on a bond is a good approximation of the bond's yield to maturity when the bond matures in five years or less and its price differs from its par value by a large amount.

Accepted Answer

A) True 
 B)False

Question 3

Most of the time, the interest rate on Treasury notes is below that on money market securities because of their low default risk.

Accepted Answer

A) True 
 B)False

Question 4

A sinking fund is a requirement in the bond indenture that the firm pay off a portion of the bond issue each year.

Accepted Answer

A) True 
 B)False

Question 5

(I)Most corporate bonds have a face value of $1,000, pay interest semiannually, and can be redeemed anytime the issuer wishes. (II)Registered bonds have now been largely replaced by bearer bonds, which do not have coupons.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 6

In a leveraged buy-out, a firm greatly increases its debt level by issuing junk bonds to finance the purchase of another firm's stock.

Accepted Answer

A) True 
 B)False

Question 7

(I)The primary issuers of capital market securities are federal and local governments, and corporations. (II)Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 8

(I)The primary issuers of capital market securities are financial institutions. (II)The largest purchasers of capital market securities are corporations.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 9

The Commodity Futures Modernization Act (2000)removed derivative securities, such as credit default swaps, from regulatory oversight.

Accepted Answer

A) True 
 B)False

Question 10

By the time the subprime financial crisis hit in force, Fannie and Freddie had ________ subprime and Alt-A assets on their books.

Accepted Answer

A) over $1 trillion of 
B) very few 
C) been prohibited from holding 
D) none of the above 
A) over $1 trillion of 
B) very few 
C) been prohibited from holding 
D) none of the above

Question 11

The largest purchasers of capital market securities are

Accepted Answer

A) households. 
B) corporations. 
C) governments. 
D) central banks. 
A) households. 
B) corporations. 
C) governments. 
D) central banks.

Question 12

Call provisions will be exercised when interest rates ________ and bond values ________.

Accepted Answer

A) rise; rise 
B) fall; rise 
C) rise; fall 
D) fall; fall 
A) rise; rise 
B) fall; rise 
C) rise; fall 
D) fall; fall

Question 13

The risk on an agency bond is

Accepted Answer

A) high. 
B) zero. 
C) moderate. 
D) low. 
A) high. 
B) zero. 
C) moderate. 
D) low.

Question 14

STRIPS (Separate Trading of Registered Interest and Principal Securities)are also called

Accepted Answer

A) interest-based securities. 
B) zero-coupon securities. 
C) leveraged securities. 
D) covenant securities. 
A) interest-based securities. 
B) zero-coupon securities. 
C) leveraged securities. 
D) covenant securities.

Question 15

The distribution of a firm's capital between debt and equity is its

Accepted Answer

A) current ratio. 
B) liability structure. 
C) acid ratio. 
D) capital structure. 
A) current ratio. 
B) liability structure. 
C) acid ratio. 
D) capital structure.

Question 16

The primary reason that individuals and firms choose to borrow long-term is to

Accepted Answer

A) reduce the risk that interest rates will fall before they pay off their debt. 
B) reduce the risk that interest rates will rise before they pay off their debt. 
C) reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments. 
D) reduce total interest payments over the life of the debt. 
A) reduce the risk that interest rates will fall before they pay off their debt. 
B) reduce the risk that interest rates will rise before they pay off their debt. 
C) reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments. 
D) reduce total interest payments over the life of the debt.

Question 17

The secondary market is where new issues of stocks and bonds are introduced.

Accepted Answer

A) True 
 B)False

Question 18

(I)Because interest rates on Treasury bills are more volatile than rates on long-term securities, the return on short-term Treasury securities is usually above that on longer-term Treasury securities. (II)A Treasury STRIP separates the periodic interest payments from the final principal repayment.

Accepted Answer

A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false. 
A) (I)is true, (II)false. 
B) (I)is false, (II)true. 
C) Both are true. 
D) Both are false.

Question 19

Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.

Accepted Answer

A) True 
 B)False

Question 20

Long-term unsecured bonds that are backed only by the general creditworthiness of the issuer are called

Accepted Answer

A) junk bonds. 
B) callable bonds. 
C) convertible bonds. 
D) debentures. 
A) junk bonds. 
B) callable bonds. 
C) convertible bonds. 
D) debentures.

Exam 12: The Bond Market

Governments never issue stock because they cannot sell ownership claims.

The current yield on a bond is a good approximation of the bond's yield to maturity when the bond matures in five years or less and its price differs from its par value by a large amount.

Most of the time, the interest rate on Treasury notes is below that on money market securities because of their low default risk.

A sinking fund is a requirement in the bond indenture that the firm pay off a portion of the bond issue each year.

(I)Most corporate bonds have a face value of $1,000, pay interest semiannually, and can be redeemed anytime the issuer wishes. (II)Registered bonds have now been largely replaced by bearer bonds, which do not have coupons.

In a leveraged buy-out, a firm greatly increases its debt level by issuing junk bonds to finance the purchase of another firm's stock.

(I)The primary issuers of capital market securities are federal and local governments, and corporations. (II)Governments never issue stock because they cannot sell ownership claims.

(I)The primary issuers of capital market securities are financial institutions. (II)The largest purchasers of capital market securities are corporations.

The Commodity Futures Modernization Act (2000)removed derivative securities, such as credit default swaps, from regulatory oversight.

By the time the subprime financial crisis hit in force, Fannie and Freddie had ________ subprime and Alt-A assets on their books.

The largest purchasers of capital market securities are

Call provisions will be exercised when interest rates ________ and bond values ________.

The risk on an agency bond is

STRIPS (Separate Trading of Registered Interest and Principal Securities)are also called

The distribution of a firm's capital between debt and equity is its

The primary reason that individuals and firms choose to borrow long-term is to

The secondary market is where new issues of stocks and bonds are introduced.

(I)Because interest rates on Treasury bills are more volatile than rates on long-term securities, the return on short-term Treasury securities is usually above that on longer-term Treasury securities. (II)A Treasury STRIP separates the periodic interest payments from the final principal repayment.

Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.

Long-term unsecured bonds that are backed only by the general creditworthiness of the issuer are called

Why Study Financial Markets and Institutions

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation

Why Do Interest Rates Change

How Do Risk and Term Structure Affect Interest Rates

Are Financial Markets Efficient

Why Do Financial Institutions Exist

Why Do Financial Crises Occur and Why Are They so Damaging to the Economy

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging With Financial Derivatives

Savings Associations and Credit Unions

Finance Companies

Filters

Call provisions will be exercised when interest rates and bond values .