Question 1

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 2

Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A) True 
 B)False

Question 3

A firm will borrow long-term

Accepted Answer

A) if the extra interest cost of borrowing long-term is less than the expected cost of rising interest rates before it retires its debt. 
B) if the extra interest cost of borrowing short-term due to rising interest rates does not exceed the expected premium that is paid for borrowing long-term. 
C) if short-term interest rates are expected to decline during the term of the debt. 
D) if long-term interest rates are expected to decline during the term of the debt. 
A) if the extra interest cost of borrowing long-term is less than the expected cost of rising interest rates before it retires its debt. 
B) if the extra interest cost of borrowing short-term due to rising interest rates does not exceed the expected premium that is paid for borrowing long-term. 
C) if short-term interest rates are expected to decline during the term of the debt. 
D) if long-term interest rates are expected to decline during the term of the debt.

Question 4

The current yield on a $6,000, 10 percent coupon bond selling for $5,000 is

Accepted Answer

A) 5%. 
B) 10%. 
C) 12%. 
D) 15%. 
A) 5%. 
B) 10%. 
C) 12%. 
D) 15%.

Question 5

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following are true for the current yield?

Accepted Answer

A) The current yield is defined as the yearly coupon payment divided by the price of the security. 
B) The current yield and the yield to maturity always move together. 
C) The formula for the current yield is identical to the formula describing the yield to maturity for a discount bond. 
D) All of the above are true. 
E) Only A and B of the above are true. 
A) The current yield is defined as the yearly coupon payment divided by the price of the security. 
B) The current yield and the yield to maturity always move together. 
C) The formula for the current yield is identical to the formula describing the yield to maturity for a discount bond. 
D) All of the above are true. 
E) Only A and B of the above are true.

Question 7

(I)There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges. (II)When firms sell securities for the very first time, the issue is an initial public offering.

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

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

Accepted Answer

The answer of What types of risks should bondholders be...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

Accepted Answer

A) True 
 B)False

Question 12

The security with the longest maturity is a Treasury

Accepted Answer

A) note. 
B) bond. 
C) acceptance. 
D) bill. 
A) note. 
B) bond. 
C) acceptance. 
D) bill.

Question 13

(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 14

Most of the time, the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

Accepted Answer

A) above; interest-rate 
B) above; default 
C) below; interest-rate 
D) below; default 
A) above; interest-rate 
B) above; default 
C) below; interest-rate 
D) below; default

Question 15

Treasury bonds are subject to ________ risk but are free of ________ risk.

Accepted Answer

A) default; interest-rate 
B) default; underwriting 
C) interest-rate; default 
D) interest-rate; underwriting 
A) default; interest-rate 
B) default; underwriting 
C) interest-rate; default 
D) interest-rate; underwriting

Question 16

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 17

What is a bond indenture?

Accepted Answer

The answer of What is a bond indenture?...

Question 18

Most corporate bonds have a face value of $1,000, are sold at a discount, and can only be redeemed at the maturity date.

Accepted Answer

A) True 
 B)False

Question 19

The ________ value of a bond is the amount that the issuer must pay at maturity.

Accepted Answer

A) market 
B) present 
C) discounted 
D) face 
A) market 
B) present 
C) discounted 
D) face

Question 20

To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the same as the market rate.

Accepted Answer

A) True 
 B)False

Exam 12: The Bond Market

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

Governments never issue stock because they cannot sell ownership claims.

A firm will borrow long-term

The current yield on a $6,000, 10 percent coupon bond selling for $5,000 is

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

Which of the following are true for the current yield?

(I)There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges. (II)When firms sell securities for the very first time, the issue is an initial public offering.

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

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

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

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

The security with the longest maturity is a Treasury

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

Most of the time, the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

Treasury bonds are subject to ________ risk but are free of ________ risk.

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

What is a bond indenture?

Most corporate bonds have a face value of $1,000, are sold at a discount, and can only be redeemed at the maturity date.

The ________ value of a bond is the amount that the issuer must pay at maturity.

To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the same as the market rate.

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

Most of the time, the interest rate on Treasury notes and bonds is that on money market securities because of risk.

Treasury bonds are subject to risk but are free of risk.