Chapter 2 HW

Which of the following can be described as involving indirect​ finance? A. You buy shares in a mutual fund. B. A corporation buys a short−term security issued by another corporation in the primary market. C. You buy a U.S. Treasury bill from the U.S. Treasury. D. You make a loan to your neighbor.

A

Which of the following is not a secondary​ market? A. IPO market B. futures market C. options market D. foreign exchange market

A

When an investment bank​ ________ securities, it guarantees a price for a​ corporation's securities and then sells them to the public. A. overwrites B. underwrites C. overtakes D. undertakes

B

Equity holders are a​ corporation's ________. That means the corporation must pay all of its debt holders before it pays its equity holders. A. underwriters B. brokers C. debtors D. residual claimants

D

Primary market 3 Capital market 4 Money market 1 Secondary market 2 Debt market 5

1. A financial market in which only​ short-term debt instruments​ (generally those with original maturity of less than one​ year) are traded. 2. A financial market in which securities that have been previously issued can be resold. 3. A financial market in which new issues of a​ security, such as a bond or a​ stock, are sold to initial buyers by the corporation or government agency borrowing the funds. 4. A market in which​ longer-term debt​ (generally those with original maturity of one year or​ greater) and equity instruments are traded. 5. A market where bonds or​ mortgages, which are contractual agreements by the borrower to pay the holder of the instrument fixed dollar amounts at regular intervals until a specified date when a final payment is​ made, are traded. 6. A market in which dealers at different locations who have an inventory of securities stand ready to buy and sell securities to anyone who comes to them and is willing to accept their price.

Which of the following can be described as involving direct​ finance? A. People buy shares in a mutual fund. B. A corporation issues new shares of stock. C. An insurance company buys shares of common stock in the over−the−counter markets. D. A pension fund manager buys a short−term corporate security in the secondary market.

B

Which of the following statements about financial markets and securities is​ true? A. A debt instrument is intermediate term if its maturity is less than one year. B. The maturity of a debt instrument is the number of years​ (term) to that​ instrument's expiration date. C. A bond is a longminus−term security that promises to make periodic payments called dividends to the​ firm's residual claimants. D. A debt instrument is intermediate term if its maturity is ten years or longer.

B

Assume that you borrow​ $2000 at​ 10% annual interest to finance a new business project. For this loan to be​ profitable, the minimum amount this project must generate in annual earnings is A. ​$400. B. ​$201. C. ​$200. D. ​$199.

C

Long−term debt has a maturity that is​ ________. A. between five and ten years. B. less than a year. C. ten years or longer. D. between one and ten years.

C

Which of the following can be described as direct​ finance? A. You buy shares in a mutual fund. B. You take out a mortgage from your local bank. C. You borrow​ $2500 from a friend. D. You buy shares of common stock in the secondary market.

C

Which of the following is not a function or service provided by secondary markets LOADING... ​? A. Providing information to borrowers and lenders about expectations and attitudes of the economic climate B. Determining the price of the security that the issuing firm sells in the primary market C. Providing liquidity to owners of existing financial instruments D. Matching lenders​ (savers) with borrowers in need of funds

D

Which of the following statements about the characteristics of debt and equity is​ false? A. They both involve a claim on the​ issuer's income. B. They can both be minus−term financial instruments. C. They both enable a corporation to raise funds. D. They can both be minus−term financial instruments.

D

If the maturity of a debt instrument is less than one​ year, the debt is called​ ________.

short-term