Investments Final Ch.1- 5

A 5.5% 20 year muni bond is currently priced to yield 7.2%. For a taxpayer in the 33% marginal tax bracket, this bond would offer an equivalent taxable yield of

10.75% 0.072 = r(1-t); 0.072 = r(0.67); r= 10.75%

An investor purchases one municipal and one corporate bond that pay rates of return of 8% and 10%, respectively. If the investor is in the 20% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

8%; 8%

In which of the following indices is(are) market-value weighted? I) The New York Stock Exchange Composite Index II) The Standard and Poor's 500 Stock Index III) The Dow Jones Industrial Average

I and II only the Dow jones is a price-weighted index

Which of the following correctly describes a repurchase agreement

The sale of a security with a commitment to repurchase the same security at a specified future date and a designated price

The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks needing overnight loans to meet requirements is called the

federal funds rate

Treasury inflation-protected securities (TIPS)

provide a constant stream of income in real (inflation-adjusted) dollars and have their principal adjusted in proportion to the Consumer Price Index

The Sarbanes Oxley act

requires corporations to have more independent directors, CFO vouch for accounting statements, prohibits auditing firms from providing other services to clients, independent directors and requires CFO to vouch

The bid price of a t-bill in the secondary market is

the price at which the dealer in T-bill is willing to buy the bill (dealers are used in the secondary market not investors)

the maximum maturity of commercial paper that can be issued without SEC registration is

270 days

_______ were designed to concentrate the credit risk of a bundle of loans on one class of investors, leaving the other investors in the pool relatively protected from that risk

Collateralized debt obligations

_____ are, in essence, an insurance contract against the default of one or more borrowers

Credit default swaps

Until 1999, the ____ Act(s) prohibited banks in the United States form both accepting deposits and underwriting securities

Glass-Steagall

Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensation II) Hiring bickering family members as corporate spies III) Boards of directors forcing out underperforming management IV) Security analysts monitoring the firm closely V) Takeover threats

I, III, IV, V

the money market is a subsector of the - commodity market - capital market -derivatives market - equity market

None of these

The spread between the LIBOR and the Treasury-bill rate is called the

TED spread

Which of the following portfolio construction methods starts with security analysis

bottom-up top down starts with asset allocation

Financial assets

indirectly contribute to the country's productive capacity

Which is not a characteristic of a money market instrument

long maturity and liquidity premium