LearnSmart FIN 511

Both Treasury notes and Treasury bonds may be issued in increments of $ _____ (100/1,000) but are typically traded in denominations of $_____ (100/1,000).

$100 ; $1,000

Identify the statements that describe the similarities between Treasury bonds and Treasury notes. - Both Treasury bonds and Treasury notes are Issued with maturities ranging from 10 to 30 years. - Both Treasury bonds and Treasury notes make semiannual interest payments. - Both Treasury bonds and Treasury notes commonly trade in denominations of $1,000. - Both Treasury bonds and Treasury notes can be sold in increments of $100.

- Both Treasury bonds and Treasury notes make semiannual interest payments. - Both Treasury bonds and Treasury notes commonly trade in denominations of $1,000. - Both Treasury bonds and Treasury notes can be sold in increments of $100.

Which statements are true about bid-ask spreads? - Dealers buy at the bid price and sell at the ask price. - They are defined as the bid price minus the ask price. - They are a source of profit for a dealer. - Individual investors buy from dealers at the bid price and sell at the ask price.

- Dealers buy at the bid price and sell at the ask price. - They are a source of profit for a dealer.

Which statements are true about bid-ask spreads? - Individual investors buy from dealers at the bid price and sell at the ask price. - Dealers buy at the bid price and sell at the ask price. - They are defined as the bid price minus the ask price. - They are a source of profit for a dealer.

- Dealers buy at the bid price and sell at the ask price. - They are a source of profit for a dealer.

Which statements about preferred stock are true? - It conveys voting power regarding the management of the firm. - It pays a fixed stream of income without a contractual obligation to make the payments. - Corporations may exclude 50% of dividends received from domestic corporations from taxable income. - Their dividends are tax-deductible expenses to the issuing firms.

- It pays a fixed stream of income without a contractual obligation to make the payments. - Corporations may exclude 50% of dividends received from domestic corporations from taxable income.

Which of the following are true of short futures positions? - Potential losses are unlimited - Specify a transaction price - Increase in value when asset falls in price - Convey the obligation to deliver the asset - Convey the right to sell the asset - Require payment of premium

- Potential losses are unlimited - Specify a transaction price - Increase in value when asset falls in price - Convey the obligation to deliver the asset

Which statements about the equivalent taxable yield are correct? Define t as the marginal tax rate, rmuni as the rate on munis, and rtaxable as the taxable rate. - It is given by the equation rtaxable = (1-t) rmuni. - The tax advantage of munis makes them a "free lunch" in that they offer a higher after-tax return without more risk. - The cutoff tax bracket at which investors are indifferent between it and the muni rate is given by the expression 1 - rmunirtaxaablermunirtaxaable. - It is higher than the rate on munis because munis are tax advantaged.

- The cutoff tax bracket at which investors are indifferent between it and the muni rate is given by the expression 1 - rmunirtaxaablermunirtaxaable. - It is higher than the rate on munis because munis are tax advantaged.

Which of the following statements are true about public corporations? - The owners of the corporation manage the company themselves. - Their shareholders have unlimited liability. - The members of the board of directors are elected at the annual meeting. - Their common stock can be bought or sold freely on stock exchanges.

- The members of the board of directors are elected at the annual meeting. - Their common stock can be bought or sold freely on stock exchanges.

Which of the following statements are correct regarding commercial paper? - maturities range up to 350 days but most often are issued with a maturity of less than 30 days - is backed by a bank line of credit - considered to be a fairly safe asset due to the ability to be monitored and predicted over a short term.

- is backed by a bank line of credit - considered to be a fairly safe asset due to the ability to be monitored and predicted over a short term.

which statements are true of money market instruments? - they have relatively low credit risk -they are directly accessible to individual investors -they can be purchased indirectly through mutual funds - they include the entire fixed income market

- they have relatively low credit risk - they can be purchased indirectly through mutual funds

The fed funds rate is simply the rate of interest on: - long-term loans among investors - very short-term loans among investors - most mortgages - very short-term loans among financial institutions

- very short-term loans among financial institutions

T-Bill

A US government obligation with initial maturity of one year or less

Term Repo

An identical transaction except that the term of implicit loan can be 30 days or more

debenture bonds

Bonds that are unsecured (i.e., not backed by any collateral such as equipment).

______ bonds give the firm the option to repurchase the bond from the holder at a stipulated call price.

Callable

callable bonds

Firm has the option to repurchase the bond from the holder at a stipulated price

Secured Corporate Bonds

Have specific collateral backing them in the event of firm bankruptcy

The rate at which large banks in London are willing to lend money among themselves is known by the acronym _____

LIBOR or L.I.B.O.R

The ratio of the current stock price to last year's earnings per share is known as the ______-______ ratio

Price ; earnings

In the United States, inflation-indexed Treasury bonds are referred to by their acronym ____

TIPS

True or false: British regulators have proposed phasing out LIBOR by 2021 to be replaced with a rate called SONIA (Sterling Overnight Interbank Average Rate).

True

True or false: Repos or RPs are short for repurchase agreements and are considered a form of short-term borrowing.

True

The prohibition of trading for their own accounts by deposit-taking banks is the ______ Rule, named for the former Federal Reserve Chair. - Yellen - Bernanke - Greenspan - Volcker

Volcker

Repurchase Agreements

a form of short-term borrowing

CD

a time deposit with a bank

Repo

an agreement to sell and repurchase an asset

Banker's Acceptance

an order to pay a sum of money at a future date, like postdated check, used widely in foreign trade

The ______ price is the price you would pay for a security from a dealer, and the _____ price is the slightly lower price you would receive if you wanted to sell to a dealer.

ask ; bid

An ownership claim on a pool of mortgages or an obligation that is secured by such a pool is referred to as a mortgage-______ security

backed

Commercial paper, backed by a bank line of credit gives the _______ access to cash that can be used to pay off the paper at maturity.

borrower

The FHLB _____ money by ____ securities and ____ this money to savings and loan institutions to be lent in turn to individuals borrowing for home mortgages.

borrows ; issuing ; lends or lending

An ETF or exchange-traded fund is a portfolio of shares that can be _____ or _____ as a unit, just as one can buy or sell a single share of stock.

bought ; sold

future contract

calls for delivery of an asset at a specified deliver or maturiy date for an agreed-upon price

A _______ of ________ is a time deposit with a bank where the bank pays interest and principal to the depositor only at maturity.

certificate ; deposit

short position

commits to delivering the asset at contract maturity

______ mortgages satisfy certain underwriting guidelines before they may be purchased by Fannie Mae or Freddie Mac. whereas ______ mortgages are riskier loans made to financially weaker borrowers - Nonconforming; subprime - Conforming; prime - Conforming; subprime - Nonconforming; prime

confirming ; subprime

Because options provide payoffs that depend on the values of other securities or values, they are considered ______ assets.

derivative

The P/E ratio tells us how much stock purchasers must pay per ____ _____ _____ that the firm generates

dollar of earnings

True or false: Eurobonds are always denominated only in euros.

false

True or false: Time deposits may be withdrawn on demand.

false

Funds in the bank's reserve account are called ___

federal funds

convertible bonds

give the bondholder the option to convert each bond into a stipulated number of shares of stock

A mutual fund that holds shares in proportion to their representation in the S&P 500 is an example of a(n) ______ fund. Multiple choice question. index money market hedge exchange-traded

index

The two types of ______ bonds are 1) foreign bonds which are issued in foreign countries but in the currency of the investor and 2) Eurobonds which are denominated in a currency other than that of the country in which it is issued.

international

long position

is held by the trader who commits to purchasing the asset on the deliver date

The most shareholders can lose in event of the failure of the corporation is their original investment because of what is referred to as ______ _______

limited liability

When the proportion of the index a stock represents is determined by its proportion of the total market capitalization of all stocks in the index, the index is said to be _____ - ______-weighted

market value

Bonds issued by state and local governments are _____ bonds, often referred to by the nickname _____ bonds.

municipal ; munis or muni

Common stocks represent _____ shares in a corporation.

ownership

Because stockholders are the last in line of all those who have a claim on the assets and income of the corporation they are considered ____ claimants

residual

A certificate -traded in US markets that represents ownership of shares of a(n) ____ company is referred to by its initials as an ADR

shareholding

Commercial Paper (CP)

short-term unsecured debt issued by large , well known corporations

The equivalent taxable yield is simply the _____-_____ rate divided by 1-t

tax-free

Reverse Repo

the mirror image of a repo

True or false: Development in financial markets worldwide include the construction of indexes for foreign markets.

true

Which of the following are true statements regarding ADRs? Multiple select question. were created to make it easier for foreign firms to satisfy US security registration requirements. may correspond to ownership of a fraction of a foreign share are certificates traded in US markets representing ownership in shares of domestic companies

were created to make it easier for foreign firms to satisfy US security registration requirements. may correspond to ownership of a fraction of a foreign share

Which of the following are mortgage-related government agencies, created because Congress believed that adequate credit was not being received through normal private sources. - Federal Home Loan Bank (FHLB) - Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). - Federal National Mortgage Association (FNMA or Fannie Mae) - Federal Government Mortgage Association (FGMA or Froggy Mae) - Government National Mortgage Association (GNMA or Ginnie Mae)

- Federal Home Loan Bank (FHLB) - Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). - Federal National Mortgage Association (FNMA or Fannie Mae) - Government National Mortgage Association (GNMA or Ginnie Mae)

Which statements are true of the DJIA? - It is based on 500 firms. - It is a market-value-weighted index. - It has been calculated since 1896. - It must be adjusted for stock splits.

- It has been calculated since 1896. - It must be adjusted for stock splits.

Which statements are true of the S&P 500? - It is based on the free float. - It must be adjusted for stock splits. - It is based on 500 firms. - It is a price-weighted index.

- It is based on the free float. - It is based on 500 firms.

Which statements are true about municipal bonds? - Their interest income is exempt from federal income taxation. - Because they are risk-free, they offer lower interest rates than other bonds. - They are insured by the Federal Deposit Insurance Corporation. - Their interest income is usually exempt from state and local taxation in the issuing state. - Capital gains taxes must be paid if they are sold for more than the investor's purchase price.

- Their interest income is exempt from federal income taxation. - Their interest income is usually exempt from state and local taxation in the issuing state. - Capital gains taxes must be paid if they are sold for more than the investor's purchase price.

Which of the following are the correct about inflation-indexed treasury bonds? - Their yields are interpreted as real interest rates. - They offer a "free lunch" because of their inflation protection. - The principal amount on them is adjusted in proportion to increases in the Consumer Price Index. - They provide a constant stream of income in real dollars.

- Their yields are interpreted as real interest rates. - The principal amount on them is adjusted in proportion to increases in the Consumer Price Index. - They provide a constant stream of income in real dollars.

Why might the rating agencies have so dramatically underestimated credit risk in subprime securities? - Default probabilities had been estimated using historical data that did not include periods of rising rates. - They extrapolated historical default experience to a new sort of borrower pool. - Since they were paid to provide ratings by the issuers of the securities, they faced pressure to provide generous ratings. - Default probabilities had been estimated using historical data from an unrepresentative period characterized by a housing boom.

- They extrapolated historical default experience to a new sort of borrower pool. - Since they were paid to provide ratings by the issuers of the securities, they faced pressure to provide generous ratings. - Default probabilities had been estimated using historical data from an unrepresentative period characterized by a housing boom.