Question 1

Federally-sponsored agency debt

Accepted Answer

A) is legally insured by the U.S.Treasury. 
B) would probably be backed by the U.S.Treasury in the event of a near-default. 
C) has a small positive yield spread relative to U.S.Treasuries. 
D) would probably be backed by the U.S.Treasury in the event of a near-default and has a small positive yield spread relative to U.S.Treasuries.

Question 2

The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104.25 and a bid price of 104.125.As a seller of the bond, what is the dollar price you expect to receive?

Accepted Answer

A) $1,048.00 
B) $1,042.50 
C) $1,041.25 
D) $1,041.75

Question 3

In the event of the firm's bankruptcy,

Accepted Answer

A) the most shareholders can lose is their original investment in the firm's stock. 
B) common shareholders are the first in line to receive their claims on the firm's assets. 
C) bondholders have claim to what is left from the liquidation of the firm's assets after paying the shareholders. 
D) the claims of preferred shareholders are honored before those of the common shareholders. 
E) the most shareholders can lose is their original investment in the firm's stock and the claims of preferred shareholders are honored before those of the common shareholders.

Question 4

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

Accepted Answer

A) Repos 
B) Bankers' acceptances 
C) Eurodollars 
D) Federal funds A bankers' acceptance facilitates foreign trade by substituting a bank's credit for that of the trading partner.

Question 5

You sold a futures contract on oats at a futures price of 2.33, and at the time of expiration, the price was 2.61.What was your profit or loss?

Accepted Answer

A) $1375.00 
B) -$1400.00 
C) -$27.50 
D) $27.50

Question 6

In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs

Accepted Answer

A) by adjusting the divisor. 
B) automatically. 
C) by adjusting the numerator. 
D) quarterly on the last trading day of each quarter.

Question 7

An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively.If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A) 7.2%; 9.1% 
B) 7.2%; 7.735% 
C) 6.12%; 7.735% 
D) 8.471%; 9.1%

Question 8

Which one of the following is not a money market instrument?

Accepted Answer

A) Treasury bill 
B) Negotiable certificate of deposit 
C) Commercial paper 
D) Treasury bond

Question 9

Consider the following three stocks:  The price-weighted index constructed with the three stocks is

Accepted Answer

A) 30. 
B) 40. 
C) 50. 
D) 60.

Question 10

The ____ index represents the performance of the U.K.stock market.

Accepted Answer

A) DAX 
B) FTSE 
C) Nikkei 
D) Hang Seng

Question 11

The stocks on the Dow Jones Industrial Average

Accepted Answer

A) have remained unchanged since the creation of the index. 
B) include most of the stocks traded on the NYSE. 
C) are changed occasionally as circumstances dictate. 
D) consist of stocks on which the investor cannot lose money.

Question 12

Unsecured bonds are called

Accepted Answer

A) junk bonds. 
B) debentures. 
C) indentures. 
D) subordinated debentures. 
E) either debentures or subordinated debentures.

Question 13

A put option allows the holder to

Accepted Answer

A) buy the underlying asset at the strike price on or before the expiration date. 
B) sell the underlying asset at the strike price on or before the expiration date. 
C) sell the option in the open market prior to expiration. 
D) sell the underlying asset at the strike price on or before the expiration date and sell the option in the open market prior to expiration.

Question 14

You purchased a futures contract on oats at a futures price of 2.33, and at the time of expiration, the price was 2.61.What was your profit or loss?

Accepted Answer

A) $1400.00 
B) -$1375.00 
C) -$27.50 
D) $27.50

Question 15

T-bills are financial instruments initially sold by ________ to raise funds.

Accepted Answer

A) commercial banks 
B) the Canadian government 
C) state and local governments 
D) agencies of the federal government

Question 16

An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and 10.3%, respectively.If the investor is in the 25% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A) 7.5%; 10.3% 
B) 7.5%; 7.73% 
C) 5.63%; 7.73% 
D) 5.63%; 10.3%

Question 17

You sold a futures contract on corn at a futures price of 3.31, and at the time of expiration, the price was 3.43.What was your profit or loss?

Accepted Answer

A) -$12.00 
B) $12.00 
C) -$600 
D) $600

Question 18

The ____ is an example of a U.S.index of large firms.

Accepted Answer

A) Wilshire 5000 
B) DJIA 
C) DAX 
D) Russell 2000

Question 19

A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond.

Accepted Answer

A) convertible 
B) secured 
C) unsecured 
D) callable

Question 20

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet reserve requirements is called the

Accepted Answer

A) prime rate. 
B) discount rate. 
C) federal funds rate. 
D) call money rate.

Exam 2: Financial Markets, Asset Classes and Financial Instruments