FIN 3403 CH 11

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Why do issuers of commercial paper back up their paper with a line of credit at a​ bank? A. The issuers are able to save more even after considering payment of bank fees. B. It increases the interest rate for the purchasers of the paper. C. It increases the risk for the purchasers of the paper. D. It completely frees the issuer from the responsibility of paying for the outstanding paper. 2. In a ▼ repurchase agreement direct placement the issuer bypasses the dealer and sells securities directly to the end investor.

1. A. The issuers are able to save more even after considering payment of bank fees. 2. direct placement 3. negotiable certificate of deposit

Suppose an executive of a financial firm plans to invest in a Treasury bill which pays ​$500,000 when it matures in a year. 1. if the executive decides that she needs a yield of 2.5​%, the price she would be willing to pay for this Treasury bill today would be $: 2. If the executive raises her expectations for the Treasury​ bill's yield, the value of the security would be ▼ higher lower today.

1. PV = FV/(1+i)^n = 500,000 / (1.025)^1 = $487,804.88 2. lower

Identify the characteristic of a money market that offers the following benefits. 1. It makes money market securities very flexible instruments to use to fill​short-term financial needs. 2. The dealers and brokers bring customers together.

1. having an active secondary market 2. being a wholesale market

Why do investors temporarily warehouse funds in the money​ market? ​(Check all that apply.​) A. It enables them to earn exceptionally high returns. B. It reduces the opportunity cost of holding idle funds. C. It is the only investment option available for interim investment. D. It provides higher return than the money in banks.1. In his bid for​ 91-day $100 Treasury​ bills, Ted only includes the amount of securities he wants. His bid is would be called a ▼ competitive bid noncompetitive bid 2. The price Ted would pay for these bills would be ▼ same as greater than lower than the price paid by ▼ competitive bidders noncompetitive bidders

1. noncompetitive bid 2. same as competitive bidders

Identify whether the following statement is true or false. 1. FINRA performs the function of consolidating the regulatory and oversight functions of National Association of Securities Dealers​(NASD) with the New York Stock​ Exchange:

1. true

Identify the money market participants based on the given information. 1. These companies must maintain liquidity because of their unpredictable need for​ funds: 2. These companies raise funds by selling commercial paper and then lend these funds to consumers for the purchase of durable​ goods: 3. The companies​ "make a​ market" for money market​ securities: 4. They invest a portion of their cash in the money markets to take advantage of investment opportunities that might be identified in the stock or bond markets.

1.Insurance Companies 2. finance Companies 3. investment companies 4. pension funds

1. When inflation rose in the late​ 1970s, ▼ bank deposits money market mutual funds became a popular individual investment option. 2. There are no restrictions on commercial​ banks' holding of ▼ corporate bonds Treasury securities. 3. ▼ Not all All commercial banks deal in the secondary money market for their customers.

1.money market mutual funds 2. Treasury Securities not all - banks are prohibited from owning risky securities, like corporate bonds

Suppose a bond has a par value of ​$1,000​, a coupon interest rate of 10​%, and a market price of ​$900. The current yield of this bond is

11.11%

Suppose a corporate bond pays an interest rate of 7.5​% and the marginal tax rate is 28​%. Then the equivalent​ tax-free rate on the bond is: %

5.4

Which of the following money market instruments has the lowest​ rate? A. 4−week Treasury bills B. 1−month CDs C. The prime rate D. Eurodollars

A. 4−week Treasury bills

Which of the following are features of the Commodity Futures Modernization Act passed by the Congress in​ 2000? A. All of the above. B. It preempted states from enforcing gaming laws on derivative securities. C. It allowed investors to bet on securities they did not own. D. It removed credit default swaps from regulatory oversight.

A. All of the above.

Which of the following assets is likely to have a lower interest​ rate? ​ A. Equipment trust certificates B. Variable rate bonds. C. Mortgage bonds. D. Debentures.

A. Equipment trust certificates C. Mortgage bonds.

Which of the following is traded in the money​ market? A. Highly liquid securities B. Paper notes C. Coins D. Long term securities

A. Highly liquid securities The term money market is actually a misnomer.​ Money-currency-is not traded in the money markets. Because the securities that do trade there are​ short-term and highly​ liquid; however, they are close to being money.

Which of the following statements defines market interest​ rate? A. It is always equal to the interest rate currently in effect in the market for similar securities. B. It is the coupon interest payment divided by the market price. C. It is the annual interest rate on a bond. D. It is the present value of all future cash flows.

A. It is always equal to the interest rate currently in effect in the market for similar securities.

The​ ____ is the amount that the issuer of a bond must pay at maturity. A. Maturity value B. Coupon maturity value C. Par value D. Coupon rate 2. is the rate of interest paid by the issuer to the investor. 3. with market interest rates.

A. Maturity value C. Par value 2. Coupon rate 3. does not fluctuate

Which of the following is a difficulty faced when money market players are discussed by listing those who borrow and those who​ lend? A. Most participants operate on both sides of the market. B. The participants who borrow tend to hide it. C. This type of distinction is not at all useful. D. The data on lenders is not easily available.

A. Most participants operate on both sides of the market.

When a financial guarantee is provided with a​ bond, the bond purchaser is concerned with which of the​following? A. Only the financial health and the credit rating of the insurance company. B. Only the financial health and the credit rating of the bond issuer. C. Only the credit rating of the insurance company. D. Only the credit rating of bond issuer.

A. Only the financial health and the credit rating of the insurance company.

Which of the following is not a violation of rules by companies that trade in​ securities? A. Sale of registered securities. B. Late reporting. C. Excessive markups. D. Outside business activities.

A. Sale of registered securities.

Which of the following statements describes the Treasury STRIPS​ accurately? A. The bonds are also referred to as​ zero-coupon securities. B. The private sector never issues such type of bonds. C. It does not separate the periodic interest payments and the final principal repayment. D. The bonds are sold in the form of physical documents. Suppose a Treasury note with 8 years remaining to maturity consists of a single principal payment at maturity and 16 interest​ payments, one every six months for 8 years. When this note is​ stripped, the single Treasury note becomes ___ securities that can be traded individually.

A. The bonds are also referred to as​ zero-coupon securities. 17 (16 interest payments + maturity payment)

Identify which of the following statements regarding the​ inflation-indexed bonds are not true. A. These securities can be used by those who want to hold a very​ high-risk portfolio. B. It removes inflation risk arising from holding treasury securities. C. An interest rate on these securities changes based on the consumer price index. D. At​ maturity, the securities are redeemed at the greater of their​ inflation-adjusted principal.

A. These securities can be used by those who want to hold a very​ high-risk portfolio. C. An interest rate on these securities changes based on the consumer price index.

Which of the following is a feature of a revenue​ bonds? A. They are issued more frequently than general obligation bonds. B. Revenue of the particular project is used as repayment. C. None of the above. D. They are backed by full faith of the issuer.

A. They are issued more frequently than general obligation bonds. B. Revenue of the particular project is used as repayment.

Which of the following statements regarding capital market investors is​ true? A. They use capital market for​ long-term investment. B. They seek lower interest rates. C. They invest surplus funds in the capital market for​ short-term. D. They have the same motivation as money market investors.

A. They use capital market for​ long-term investment.

Which of the following were the reasons to introduce the trade reporting and compliance engine​ (TRACE)? A. To specify which bond transactions must be reported publicly. B. To provide a platform that makes transaction data available to the public. C. To provide financial guarantee to the bond. D. To help firms alter its capital structure.

A. To specify which bond transactions must be reported publicly. B. To provide a platform that makes transaction data available to the public.

When does an​ investor's bond sell at a​ premium? A. When the market price is higher than the par value. B. When the yield to maturity is equal to the coupon rate. C. When the market price is lower than the par value. D. When the bond price equals the par value.

A. When the market price is higher than the par value.

The​ ________ value of a bond is the amount that the issuer must pay at maturity. A. face B. present C. market D. discounted

A. face

If the repayment terms of a bond are not​ met, _____________. A. the holder of the bond has a claim on the assets of the issuer B. the issuer of the bond has to sell the assets to the investor C. the issuer of the bond is obligated to give bonus bonds to the investor D. the holder of the bond loses the interest amount paid on the bond

A. the holder of the bond has a claim on the assets of the issuer

Over​ time, the interest rates on many of the money market instruments appear to move​__________. A. very closely together as all have very low risk and are short term. B. remotely together as all have very high risk and are long term. C. very closely together as all have very high risk and are long term. D. remotely together as all have very low risk and are short term. 2.These instruments ▼ are are not priced competitively.

A. very closely together as all have very low risk and are short term. 2. are

(I) The coupon rate is the rate of interest that the issuer of the bond must pay. ​(II) The coupon rate on old bonds fluctuates with market interest rates so they will remain attractive to investors. 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.

Does the government borrow from money​ markets? Why? A. ​Yes, because government revenues and government expenses occur at different times. B. ​No, because money markets cannot cater​ short-term fund needs. C. ​No, because money market securities are a high cost source of funds. D. ​Yes, because money markets provide funds for longer terms.

A. ​Yes, because government revenues and government expenses occur at different times.

The usual maturity range for fed funds is​ ________. A. 1 to 15 days B. 1 to 7 days C. 1 to 270 days D. ​4, 13, and 26 weeks

B. 1 to 7 days

Why do corporations and the U.S. government sometimes need to get their hands on funds​ quickly? A. Poor financial planning puts many corporations and government entities in situations where they cannot pay curreny bills. B. Cash inflows and outflows are rarely synchronized. C. Most of their funds are held in highly illiquid investment. D. The timing of many expenses is difficult to estimate.

B. Cash inflows and outflows are rarely synchronized.

Where does the capital market trading​ occur? A. Neither in the primary nor in the secondary market. B. Either in the primary or in the secondary market. C. Only in the primary market. D. Only in the secondary market.

B. Either in the primary or in the secondary market.

Who are the largest purchasers of capital market​ securities? A. Federal government B. Households C. Local government D. Corporations

B. Households

What is a​ bond? A. It is a group of securities that represent assets of a firm. B. It is a security that represents a debt owed by the issuer to the investor. C. It is a security that gives a right to buy or sell an​ underlying financial asset. D. It is a security that represents the ownership right in a firm.

B. It is a security that represents a debt owed by the issuer to the investor.

Which of the following is a difficulty faced when money market players are discussed by listing those who borrow and those who​ lend? A. This type of distinction is not at all useful. B. Most participants operate on both sides of the market. C. The participants who borrow tend to hide it. D. The data on lenders is not easily available.

B. Most participants operate on both sides of the market.

Which of the following instruments uses Treasury bills as​ collateral? A. Federal Funds B. Repos C. Negotiable certificates of deposit D. Commercial papers

B. Repos

Which of the following statements regarding the​ T-bills is​ true? A. The real interest rate on Treasury bills is always positive. B. The Treasury bills are very close to being​ risk-free C. The Treasury bills are not a discount instrument. D. The Treasury bills always keep up with inflation.

B. The Treasury bills are very close to being​ risk-free

Which of the following statements correctly describes the primary​ market? A. Corporations are not allowed to purchase the securities offered. B. The issuer of the security actually receives the proceeds of the sale. C. It involves the sale of already issued stocks and bonds. D. Only individual investors can purchase the securities offered. When firms sell securities for the very first​ time, the issue is ▼ an initial public offering a primary transaction a secondary transaction.

B. The issuer of the security actually receives the proceeds of the sale. an initial public offering (IPO)

Which of the following is a reason corporate bonds have a call​ provision? A. To permit bondholders a share in the​ firm's fortune. B. To buy back the bond as per the terms of the sinking fund. C. All of the above. D. To avoid sending a negative signal to the market.

B. To buy back the bond as per the terms of the sinking fund.

Commercial banks are large holders of​ ________ and are the major issuer of​ ________. A. ​Eurodollars; commercial paper B. U.S. government​ securities; negotiable certificates of deposit C. commercial​ paper; Eurodollars D. negotiable certificates of​ deposit; U.S. government securities

B. U.S. government​ securities; negotiable certificates of deposit

The market for Treasury bills is​ _____________. A. extremely deep but not liquid B. extremely deep and liquid C. extremely liquid but not deep D. neither deep nor liquid

B. extremely deep and liquid

Corporations may enter the capital markets because A. it is required by the Securities and Exchange Commission​ (SEC). B. they do not have sufficient capital to fund their investment opportunities. C. they want to preserve their capital to protect against expected needs. D. none of the above.

B. they do not have sufficient capital to fund their investment opportunities.

▼ Registered bonds Bond indentures describe the​ lender's rights and privileges and the​ borrowers' obligations. Corporate bonds generally have a face value ▼ less than $1000 more than $1000 equal to $1000

Bond indentures equal to $1000

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

C. Both are true

(I) Firms and individuals use the capital markets for long−term investments. ​(II) Capital markets provide an alternative to investment in assets such as real estate and gold. A. ​(I) is​ true, (II) false. B. ​(I) is​ false, (II) true. C. Both are true. D. Both are false.

C. Both are true.

Which of the following statements explains the situation in late the 1970s and early​ 1980s? A. There was no commercial bank​ interest-rate ceiling. B. There was rapid expansion of the banking industry. C. Inflation pushed​ short-term interest rates above the level that banks could legally pay. D. Investors pulled their money out of money markets and put it into banks.

C. Inflation pushed​ short-term interest rates above the level that banks could legally pay.

Which of the following statements explains the situation in late the 1970s and early​ 1980s? A. There was rapid expansion of the banking industry. B. Investors pulled their money out of money markets and put it into banks. C. Inflation pushed​ short-term interest rates above the level that banks could legally pay. D. There was no commercial bank​ interest-rate ceiling.

C. Inflation pushed​ short-term interest rates above the level that banks could legally pay. Glass Steagall Act 33 this caused money markets to grow rapidly and when the act was removed, it was too late because money markets developed so much.

Which of the following is a function of a financial​ guarantee? A. It helps bondholders convert their bonds into stocks. B. It provides a callable provision in the bond. C. It gives additional security to the bond purchaser in the event the issuer defaults. D. It acts as a restrictive covenant.

C. It gives additional security to the bond purchaser in the event the issuer defaults.

Which of the following statements regarding the money market is not​ true? A. It is a short term investment avenue that provides means to invest idle funds. B. It enables the ability to meet investment or deposit outflows. C. It has an underdeveloped secondary market. D. It provides a​ low-cost source of funds.

C. It has an underdeveloped secondary market.

Why do investors temporarily warehouse funds in the money​ market? ​(Check all that apply.​) A. It enables them to earn exceptionally high returns. B. It is the only investment option available for interim investment. C. It provides higher return than the money in banks. D. It reduces the opportunity cost of holding idle funds.

C. It provides higher return than the money in banks. D. It reduces the opportunity cost of holding idle funds.

In the late​ 1970s, why were junk bonds difficult to sell as compared to investment grade​ bonds? A. Default risk on these bonds was negligible. B. They did not have collateral pledged. C. No​ well-developed secondary market existed. D. All of the above.

C. No​ well-developed secondary market existed.

After a thorough financial​ analysis, a firm determines that it needs additional machines to meet the increased demand for its product. This analysis is made using interest rates that reflect the current ​long-term cost of funds to the firm. Suppose the firm chooses to finance these machines by issuing bonds. Which of the following could happen if there is an increase in the interest​ rate? A. The firm will have to reissue bonds at a higher rate on their maturity. B. There will be no impact on the firm but its investors suffer. C. The increased rate will be less critical compared to what it would have been under money market. D. The firm will not have enough cash flows to repay investors.

C. The increased rate will be less critical compared to what it would have been under money market.

Which of the following statements is not a feature of​ bonds? A. They have dependable cash flows. B. Their price fluctuates due to changes in market interest rate. C. They are riskier than stocks. D. They offer more security relative to stocks.

C. They are riskier than stocks.

Why may corporations raise funds through the capital​ market? A. To fund the national debt. B. To finance public projects. C. To preserve their capital to protect against unexpected needs. D. To finance their investment projects.

C. To preserve their capital to protect against unexpected needs. D. To finance their investment projects.

When inflation rose in the late​ 1970s, A. consumers moved money out of money market mutual funds because their returns did not keep pace with inflation. B. consumers were unable to take advantage of higher rates in money markets because of the requirement of large transaction sizes. C. brokerage houses introduced highly popular money market mutual​ funds, which drew significant amounts of money out of bank deposits. D. banks solidified their advantage over money markets by offering higher deposit rates.

C. brokerage houses introduced highly popular money market mutual​ funds, which drew significant amounts of money out of bank deposits.

Among the following money market​ securities, which one has the poorest secondary​ market? A. ​banker's acceptances B. Treasury bills C. commercial paper D. repurchase agreements

C. commercial paper

▼ Credit default swaps Investment grade bonds provide insurance against default in principal and interest payment of a credit instrument.

Credit default swaps`

Which of the following statements correctly describe the current​ price? A. It is set such that the seller is indifferent between continuing to receive the cash flow stream provided by the asset and receiving the offer price. B. It is set such that the seller prefers continuing to receive the cash flow stream provided by the asset over receiving the offer price. C. It is set such that the seller prefers receiving the offer price over continuing to receive the cash flow stream provided by the asset. D. As is the case with other financial​ assets, it is the present value of all future cash flows. A. Both A and B. B. Both A and D. C. Only B. D. Only D.

Current price is the present value of all future cash flows. The value of all financial assets is found the same way. The current price must be such that the seller is indifferent between continuing to receive the cash flow stream provided by the asset and receiving the offer price. B. Both A and D.

Which of the following money market instruments usually have the shortest​ maturity? A. Treasury Bills B. Negotiable certificates of deposit C. ​Banker's acceptance D. Federal funds

D. Federal funds

Who among the following cannot be an issuer of capital market​ securities? A. Local government B. Federal government C. Corporations D. Households

D. Households

Which of the following statements is correct regarding the municipal bond​ market? A. Municipal government can print money to pay off its debt if necessary. B. Municipal government is exempt from financial distress. C. Default rates are lower during periods when the economy is weak. D. Municipal bonds are not​ default-free.

D. Municipal bonds are not​ default-free.

Identify which of the following statements regarding the agency bonds is true. A. The bonds are issued for the purpose of raising funds for private needs. B. The government explicitly guarantees such bonds. C. The bonds are not secured by any type of loans. D. The risk on such bonds is very low.

D. The risk on such bonds is very low

Which of the following money market securities offers the highest liquidity through a secondary​ market? A. Federal funds B. Commercial paper C. Eurodollar deposits D. Treasury bills

D. Treasury bills

Money market instruments A. mature in one year or less. B. are usually sold in large denominations. C. have low default risk. D. are characterized by all of the above. E. are characterized by only A and B of the above.

D. are characterized by all of the above.

Do we need money markets in the presence of the banking​ industry? A. ​Yes, because​ short-term securities offered by money markets are more liquid and safer than the bank securities are. B. ​No, because money markets never have a cost advantage over banks in providing​ short-term funds. C. ​No, because the money markets are subject to more governmental costs than the banks are. D. ​Yes, because the banking industry is subject to more regulations than the money markets are.

D. ​Yes, because the banking industry is subject to more regulations than the money markets are.

Most of the​ time, the interest rate on Treasury notes and bonds is​ ________ that on money market securities because of​ ________ risk. A. ​below; interest−rate B. ​above; default C. ​below; default D. ​above; interest−rate

D. ​above; interest−rate

If the Fed wants to raise the federal funds interest​ rate, it will​ ________ securities to​ ________ the banking system. A. ​buy; remove reserves from B. ​buy; add reserves to C. ​sell; add reserves to D. ​sell; remove reserves from

D. ​sell; remove reserves from

Brokerage firms that offered money market security accounts in the 1970s had a cost advantage over banks in attracting funds because the brokerage firms A. were not subject to the deposit interest rate ceilings. B. were not subject to deposit reserve requirements. C. were not limited in how much they could borrow from depositors. D. had the advantage of all the above. E. had the advantage of only A and B of the above.

E. had the advantage of only A and B of the above.

Individuals and households frequently purchase capital market securities through financial institutions such as: A. pension funds. B. mutual funds. C. money market mutual funds. D. all of the above. E. only A and B of the above.

E. only A and B of the above.

▼ Commercial papers Eurodollars Repurchase agreements are similar to the Federal funds in the sense that they are most commonly used by banks to meet an overnight shortfall of funds and their rate tends to be very close to the Federal funds rate.

Eurodollars

Suppose an executive of a financial firm plans to invest in a Treasury bill which pays ​$100,000 when it matures in a year. 1. if the executive decides that she needs a yield of 2​%, the price she would be willing to pay for this Treasury bill today would be ​$:

PV = FV/(1+i)^n = 100,000 / (1 + 0.02)^1 = 98,039.22

Identify the type of treasury security based on the given information. Less than 1 year 1 to 10 years 10 to 30 years Federal government notes and bonds are ▼ free of default risk absolutely risk-free

Treasury bill Treasury Note Treasury Bond free of default risk

Should a firm have to​ liquidate, its bondholders will have ▼ a lower priority a higher priority of receiving payment over its stockholders.

a higher priority

Bond holders face risk of suffering a loss due to changes in the interest rate. This risk is known as ▼ an indenture an interest rate risk a default risk

an interest rate risk

1. Current yield is an ▼ approximation exact measure of yield to maturity on coupon bonds 2. Current yield equals yield to maturity if the ▼ bond price equals the par value of the bond bond price is greater than the par value of the bond bond price is less than the par value of the bond 3. The current yield and yield to maturity are always ▼ positively negatively related to the price of the bond.

approximation bond price equals the par value of the bond negatively

Suppose that Ciaz Corporation from the U.S. wants to buy mobile phones from Nicolas manufacturing corporation in China. Nicolas manufacturing corporation does not want to ship the phones without being​ paid, and Ciaz Corporation is reluctant to send money to China before receiving the equipment. In this​ case, issue of a ▼ commercial paper repurchase agreement banker's acceptance by ▼ Ciaz Corporation a bank the Fed Nicolas manufacturing corporation could solve the problem.

banker's acceptance a bank

The distribution of a​ firm's capital between debt and equity is called its ▼ capital distribution funding structure capital structure

capital structure

The U.S. Treasury Department is always a ▼ supplier demander of money market funds. It is the largest of all money market ▼ suppliers borrowers worldwide. The Fed will ▼ purchase sell Treasury securities if it believes interest rates should be lowered.

demander borrowers purchase

General obligation bonds are backed by ▼ full faith and credit cash flow of the issuer.

full faith and credit

Capital market securities have an original maturity that is ___ one year. Which of the following is not an example of a capital market​ security? A. Mortgages B. Treasury bills C. Stocks D. Bonds

greater than B. Treasury bills

Most​ long-term interest rates are ▼ lower higher than​ short-term rates.

higher

Most capital market transactions occur ▼ over the phone in organized exchanges. Trading is governed by the ▼ exchange rules over-the-counter rules.

in organized exchanges. exchange rules

Suppose Peninsula Corporation does not prefer to hold idle cash balances. It holds​ $200m surplus cash in December 2016 that it plans to use for paying bonuses to its employees in April 2017. 1. In this​ case, it would make an ▼ interim investment in the money market investment in a 5-year bond investment in stocks

interim investment in the money market

Suppose Peninsula Corporation does not prefer to hold idle cash balances. It holds​ $200m surplus cash in December 2016 that it plans to use for paying bonuses to its employees in April 2017. In this​ case, it would make an ▼ investment in a 5-year bond investment in stocks interim investment in the money market.

interim investment in the money market.

During the 1970s and early​ 1980s, the interest rate on​ 10-year Treasury bonds was ___ the rate of inflation.

less than

If the market price of the bond is greater than the par value of the​ bond, then the current yield of the bond will be ▼ less than equal to greater than the coupon rate of the bond.

less than

Money market securities have ▼ high low, default risk. They mature in ▼ one year or less one year or more from their original issue date. Flexibility and innovation ▼ are are not, the characteristics of the money market.

low default risk one year or less are Flexibility and innovation are two important characteristics of any financial​ market, and the money market is no exception. Despite the wholesale nature of the money​ market, innovative securities and trading methods have been developed to give small investors access to money market securities.

Mostly, the rate of return on the 90 day Treasury bills is ____ the rate of return on the​ 20-year Treasury bonds. The​ short-term rates are ___ than​ long-term rates.

lower than more volatile

he current yield and yield to maturity are always ▼ negatively positively related to the price of the bond.

negatively

A money market instrument worth​ $10 million with a maturity of 3​ months, is issued by a bank. This instrument has a specified maturity date and it can be bought and sold until maturity. The trader who holds the instrument at maturity gets the principal and interest. 3. Such an instrument is likely to be a ▼ commercial paper negotiable certificate of deposit banker's acceptance

negotiable certificate of deposit

Money market mutual funds ▼ do no offer offer liquidity intervention.

offer

Bonds are traded ▼ on public markets over the counter

over the counter

Convertible bonds are issued by the firm if it believes that the stock prices are going to ▼ fall rise in the future. When a firm chooses to issue​ stock, the market thinks that the stock price of the firm is going to ▼ rise fall in the future.

rise fall

Long-term bonds do not include ▼ corporate bonds shares issued by a firm long-term government notes municipal bonds

shares issued by a firm

Governments never issue: stocks bonds

stock

A secondary market is where ▼ new issues of stocks and bonds are introduced the short-term securities are sold the sale of previously issued securities takes place

the sale of previously issued securities takes place

Treasury bonds have ▼ very low moderate very high interest rates.

very low

Suppose the coupon rate of a two year corporate bond with semi-annual compounding is 7​% and the par value of the bond is ​$1000. If interest rates have risen to 8​% since the bond was​ issued, then the price of the bond is: $

​$981.85


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