finance ch 7, hw 6

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One of the characteristics of all exchange markets is that they have a physical geographic location where you can observe trading taking place. True False

False

Regional and National stock exchanges, insurance companies, and mutual funds are all examples of financial intermediaries. True False

True

Which one of the following statements is correct? a. All of the major stock exchanges are U.S. based. b. The NYSE was created by the National Association of Securities Dealers in the early 1930s. c. The Chicago Stock Exchange is a dealer market. d. OTC markets have a physical trading floor generally located in either New York City or Chicago. e. The primary purpose of the NYSE is to match buyers with sellers.

e. The primary purpose of the NYSE is to match buyers with sellers.

When commercial paper is issued, it is issued to mature in no more than 270 days in order to avoid burdensome securities regulation requirements. True False

True

Calculate the compounding factor that would be used to determine the future value of an annuity for an investment of 5.32 years if the appropriate rate of return was set at 8.54 %. a. 6.3988 b. 1.5465 c. 31.4461 d. 5.2618 e. 3.9816

a. 6.3988

Which one of the following parties can sell shares of ABC stock in the primary market? a. ABC company b. Any corporation, other than the ABC company c. Any institutional shareholder d. Any private individual shareholder e. Only officers and directors of ABC company

a. ABC company

Security dealers: a. match buyers with sellers. b. buy and sell from their own inventory. c. operate on a physical trading floor. d. operate exclusively in auction markets. e. are limited to trading non-listed stocks.

b. buy and sell from their own inventory.

An auction market: a. is an electronic means of exchanging securities. b. has a physical trading floor. c. handles primary market transactions exclusively. d. is also referred to as an OTC market. e. is dealer-based.

b. has a physical trading floor.

The Men's Store charges 1.5 percent interest per month. What rate of interest are its credit customers actually paying? a. 18.00 percent b. 18.92 percent c. 19.56 percent d. 19.90 percent e. 20.23 percent

c. 19.56 percent

One example of a primary market transaction would be the: a. sale of 100 shares of stock by Maria to her best friend. b. purchase by Theo of 5,000 shares of stock from his father. c. sale of 1,000 shares of newly issued stock by Alt Company to Miquel. d. sale by Terry of 50,000 shares of stock to his brother. e. sale of 5,000 shares of stock owned by a corporate CEO to his son.

c. sale of 1,000 shares of newly issued stock by Alt Company to Miquel.

You contacted your stock broker this morning and placed an order to sell 300 shares of a stock that trades on the NYSE. This sale will occur in the: a. dealer market. b. over-the-counter market. c. secondary market. d. primary market. e. tertiary market.

c. secondary market.

First Bank offers personal loans at 7.6 percent compounded monthly. Second Bank offers similar loans at 7.75 percent compounded semi-annually. Which one of the following statements is correct concerning these loans? a. The First Bank loan has an effective rate of 7.67 percent. b. The Second Bank loan has an effective rate of 8.03 percent. c. The annual percentage rate for the Second Bank loans is 7.99 percent. d. Borrowers should prefer the loans offered by Second Bank. e. The First Bank offers the best deal on loans.

e. The First Bank offers the best deal on loans.

Anna pays 1.5 percent interest monthly on her credit card account. When the interest rate on that debt is expressed as if it were compounded only annually, the rate would be referred to as the: a. annual percentage rate. b. compounded rate. c. quoted rate. d. stated rate. e. effective annual rate.

e. effective annual rate.

The issuer of a security must be involved in all _____ transactions involving that security. a. exchange-listed b. secondary market c. over-the-counter d. dealer market e. primary market

e. primary market

The money market includes financial assets expected to mature within one year. True False

True

The spot market is a market in which a transaction takes place with immediate delivery of an item being purchased and sold. True False

True

In a primary market transaction, the funds move from a buyer of the security to the seller of the security rather than to the issuer of the security. The issuer of the security is only interested in the price at which the securities were sold. True False

False

The capital market includes financial assets expected to mature within one year. True False

False

The difference between the Over the Counter Market and the Exchange Market is that the Over the Counter Market conducts trading at specific geographic locations hence the name Over the Counter Market. True False

False

The futures market is a market in which a transaction takes place with immediate delivery of an item being purchased and sold. True False

False

The lead or originating underwriter for a securities offering may assemble a selling syndicate as well as an underwriting syndicate for all offerings except all or nothing underwritings which require underwriting syndicates only. True False

False

The marketability characteristic of an asset refers to the speed with which the asset can be converted into cash without loss of value. True False

False

A broker-dealer firm is operating as a broker when it is handling transactions for customers rather than for itself. True False

True

A private placement offering of securities does not have to be registered with the SEC. True False

True

In a secondary market transaction, the funds move from a buyer of the security to the seller of the security rather than to the issuer of the security. The issuer of the security is only interested in the price at which the securities were sold. True False

True

In financial market transactions involving financial intermediaries, the financial intermediary receives a claim on the user of the funds, while the investor or saver receives a claim on the intermediary. True False

True

Secondary markets provide benefits to the marketplace. These include the benefits of liquidity and the efficient allocation of capital. True False

True

Securities are financial assets with no explicit value of their own. True False

True

The liquidity characteristic of an asset refers to the speed with which the asset can be converted into cash without loss of value. True False

True

The marketability characteristic of an asset refers to the level of ease or the ability of buyers or sellers of a security to create and complete a transaction. True False

True


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