Question 1

The yield curve in 2009 was very low,with short-term rates close to zero and long-term rates below 5 percent.What factors contributed to such low interest rates?

Accepted Answer

The answer of The yield curve in 2009 was very...

Question 2

The investment banker performs what three basic functions?

Accepted Answer

A)  underwriting, distributing, and regulating 
B)  underwriting, advising, and price-pegging 
C)  underwriting, distributing, and advising 
D)  underwriting, distributing, and negotiating

Question 3

Individuals,corporations,and governments can be either savings deficit units or savings surplus units.

Accepted Answer

A) True 
 B)False

Question 4

The current rate of return on a one-year U.S.Government security is 3%.The rate of return on a two-year U.S.Government security is 5%.According to the expectations theory,what is the return on a one-year U.S.Government security purchased one year from today?

Accepted Answer

The answer of The current rate of return on a...

Question 5

Explain the difference between (a)public offerings and private placements,(b)primary markets and secondary markets,(c)the money market and the capital market,and (d)organized security exchanges and over-the-counter markets.

Accepted Answer

The answer of Explain the difference between (a)public offerings and...

Question 6

Flotation costs are typically greater in the secondary market than in the primary market.

Accepted Answer

A) True 
 B)False

Question 7

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.

Question 8

In a private placement,the securities are offered and sold to a limited number of investors.

Accepted Answer

A) True 
 B)False

Question 9

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.

Question 10

General Electric (GE)has been a public company for many years with its common stock traded on the New York Stock Exchange.If GE decides to sell 500,000 shares of new common stock,the transaction will be describe as

Accepted Answer

A)  an initial public offering. 
B)  a secondary market transaction because GE common stock has been trading for years. 
C)  a seasoned equity offering because GE has sold common stock before. 
D)  a money-market transaction because GE raises new money to fund its business.

Question 11

Suppose the following rates are averages for banks in your area: interest checking accounts pay 1%,savings accounts pay 2%,and one-year certificates of deposit pay 3%.All accounts are federally insured by the FDIC.The difference in rates can be explained mainly by

Accepted Answer

A)  liquidity premiums. 
B)  default risk premiums. 
C)  maturity premiums. 
D)  inflation risk premiums.

Question 12

Which of the following would NOT normally be considered a "flotation cost"?

Accepted Answer

A)  underwriter's spread 
B)  dividends 
C)  legal fees 
D)  printing and engraving expenses

Question 13

A real interest rate is the interest rate on a fixed-income security that has no risk in an economic environment of high inflation.

Accepted Answer

A) True 
 B)False

Question 14

The provisions of the Sarbanes-Oxley Act of 2002,or SOX,apply to all U.S.-based corporations,as well as to foreign corporations conducting business in U.S.markets.

Accepted Answer

A) True 
 B)False

Question 15

The costs associated with issuing securities to the public can be high.Some types of securities have greater expenses associated with them than others.Which of the following is the most costly security to issue?

Accepted Answer

A)  common stock 
B)  corporate bonds 
C)  preferred stock 
D)  all of the above

Question 16

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?

Accepted Answer

A)  8.5% 
B)  6.0% 
C)  5.0% 
D)  2.5%

Question 17

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%.

Question 18

Over the period 1926 to 2014,the standard deviation of returns has been the greatest for which of the following?

Accepted Answer

A)  Treasury bills 
B)  corporate bonds 
C)  government bonds 
D)  common stocks

Question 19

What was the average annual rate of return on 3-month U.S.Treasury bills during the period 1990 to 2014?

Accepted Answer

A)  2.15% 
B)  4.23% 
C)  3.04% 
D)  5.68%

Question 20

The nominal interest rate is 7% and the expected inflation rate is 2%.Based on the Fisher effect,the real rate of interest is

Accepted Answer

A)  5.0%. 
B)  6.86%. 
C)  5.1%. 
D)  4.9%.

Exam 2: The Financial Markets and Interest Rates

The yield curve in 2009 was very low,with short-term rates close to zero and long-term rates below 5 percent.What factors contributed to such low interest rates?

The investment banker performs what three basic functions?

Individuals,corporations,and governments can be either savings deficit units or savings surplus units.

The current rate of return on a one-year U.S.Government security is 3%.The rate of return on a two-year U.S.Government security is 5%.According to the expectations theory,what is the return on a one-year U.S.Government security purchased one year from today?

Explain the difference between (a)public offerings and private placements,(b)primary markets and secondary markets,(c)the money market and the capital market,and (d)organized security exchanges and over-the-counter markets.

Flotation costs are typically greater in the secondary market than in the primary market.

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

In a private placement,the securities are offered and sold to a limited number of investors.

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

General Electric (GE) has been a public company for many years with its common stock traded on the New York Stock Exchange.If GE decides to sell 500,000 shares of new common stock,the transaction will be describe as

Suppose the following rates are averages for banks in your area: interest checking accounts pay 1%,savings accounts pay 2%,and one-year certificates of deposit pay 3%.All accounts are federally insured by the FDIC.The difference in rates can be explained mainly by

Which of the following would NOT normally be considered a "flotation cost"?

A real interest rate is the interest rate on a fixed-income security that has no risk in an economic environment of high inflation.

The provisions of the Sarbanes-Oxley Act of 2002,or SOX,apply to all U.S.-based corporations,as well as to foreign corporations conducting business in U.S.markets.

The costs associated with issuing securities to the public can be high.Some types of securities have greater expenses associated with them than others.Which of the following is the most costly security to issue?

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

Over the period 1926 to 2014,the standard deviation of returns has been the greatest for which of the following?

What was the average annual rate of return on 3-month U.S.Treasury bills during the period 1990 to 2014?

The nominal interest rate is 7% and the expected inflation rate is 2%.Based on the Fisher effect,the real rate of interest is