Fin 321 Investments Exam 1

The price quotations of Treasury bonds in the Wall StreetJournal 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?

$1,041.25?????

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

Bankers' acceptances A bankers' acceptance facilitates foreign trade by substituting a bank's credit for that of the trading partner.

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

Negotiable certificate of deposit treasury bond commercial paper treasury bill eurodollar account answer: Treasury bond Money market instruments are instruments with maturities of one year or less, which applies to all of the options except Treasury bonds.

Which of the following is true regarding a firm's securities?

Preferred dividends are usually cumulative. Preferred dividends must be paid first and any skipped preferred dividends must be paid before common dividends may be paid.

A fixed-income security pays

a fixed stream of income or a stream of income that is determined according to a specified formula for the life of the security.

Money market securities

are short term, generally very low risk, and highly marketable

The value of a derivative security

depends on the value of the related security.

Financial assets permit all of the following except

elimination of risk. Financial assets do not allow risk to be eliminated. However, they do permit allocation of risk, consumption timing, and separation of ownership and control.

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

federal funds rate. The federal funds are required for the bank to meet reserve requirements, which is a way of influencing the money supply.

The means by which individuals hold their claims on real assets in a well-developed economy are

financial assets Financial assets allocate the wealth of the economy. Example: it is easier for an individual to own shares of an auto company than to own an auto company directly.

Although derivatives can be used as speculative instruments, businesses most often use them to

hedge risks Firms may use forward contracts and futures to protect against currency fluctuations or changes in commodity prices. Interest-rate options help companies control financing costs.

Commercial paper is a short-term security issued by ________ to raise funds.

large, well-known companies Commercial paper is short-term unsecured financing issued directly by large, presumably safe corporations.

Freddie Mac and Ginnie Mae were organized to provide

liquidity for the mortgage market.

In 2016, ________ was the most significant FINANCIAL asset of U.S. households in terms of total value.

pension reserves

New issues of securities are sold in the ________ market(s).

primary New issues of securities are sold in the primary market.

In 2016, ________ was the most significant REAL asset of U.S. households in terms of total value.

real estate

A form of short-term borrowing by dealers in government securities is (are)

repurchase agreements. Repurchase agreements are a form of short-term borrowing, where a dealer sells government securities to an investor with an agreement to buy back those same securities at a slightly higher price.

A municipal bond issued to finance an airport, hospital, turnpike, or port authority is typically a

revenue bond. Revenue bonds depend on revenues from the project to pay the coupon payment and are normally issued for airports, hospitals, turnpikes, or port authorities. General obligation bonds are backed by the taxing power of the municipality. Industrial development bonds are used to support private enterprises.

A put option allows the holder to

sell the underlying asset at the strike price on or before the expiration date. A put option allows the buyer to sell the underlying asset at the strike price on or before the expiration date.

Asset allocation refers to

the allocation of assets into broad asset classes. Asset allocation refers to the allocation of assets into broad asset classes.