投资学题库Chap002

投资学题库Chap002

Chapter 02

Asset Classes and Financial Instruments Multiple Choice Questions

1.Which of the following is not a characteristic of a money market instrument?

A. L iquidity

B. M arketability

C. L ong maturity

D. L iquidity premium

E. L ong maturity and liquidity premium

2.The money market is a subsector of the

A. c ommodity market.

B. c apital market.

C. d erivatives market.

D. e quity market.

E. N one of the options

3.Treasury Inflation-Protected Securities (TIPS)

A. p ay a fixed interest rate for life.

B. p ay a variable interest rate that is indexed to inflation, but maintain a constant principal.

C. p rovide a constant stream of income in real (inflation-adjusted) dollars.

D. h ave their principal adjusted in proportion to the Consumer Price Index.

E. p rovide a constant stream of income in real (inflation-adjusted) dollars and have their principal

adjusted in proportion to the Consumer Price Index.

4.Which one of the following is not a money market instrument?

A. T reasury bill

B. N egotiable certificate of deposit

C. C ommercial paper

D. T reasury bond

E. E urodollar account

5.T-bills are financial instruments initially sold by ________ to raise funds.

A. c ommercial banks

B. t he U.S. government

C. s tate and local governments

D. a gencies of the federal government

E. t he U.S. government and agencies of the federal government

6.The bid price of a T-bill in the secondary market is

A. t he price at which the dealer in T-bills is willing to sell the bill.

B. t he price at which the dealer in T-bills is willing to buy the bill.

C. g reater than the asked price of the T-bill.

D. t he price at which the investor can buy the T-bill.

E. n ever quoted in the financial press.

7.The smallest component of the money market is

A. r epurchase agreements.

B. s mall-denomination time deposits.

C. s avings deposits.

D. m oney market mutual funds.

E. c ommercial paper

8.The smallest component of the bond market is _______ debt.

A. T reasury

B. o ther asset-backed

C. c orporate

D. t ax-exempt

E. m ortgage-backed

9.The largest component of the bond market is _______ debt.

A. T reasury

B. a sset-backed

C. c orporate

D. t ax-exempt

E. m ortgage-backed

10.Which of the following is not a component of the money market?

A. R epurchase agreements

B. E urodollars

C. R eal estate investment trusts

D. M oney market mutual funds

E. C ommercial paper

11.Commercial paper is a short-term security issued by ________ to raise funds.

A. t he Federal Reserve Bank

B. c ommercial banks

C. l arge, well-known companies

D. t he New York Stock Exchange

E. s tate and local governments

12.Which one of the following terms best describes Eurodollars?

A. D ollar-denominated deposits only in European banks.

B. D ollar-denominated deposits at branches of foreign banks in the U.S.

C. D ollar-denominated deposits at foreign banks and branches of American banks outside the

U.S.

D. D ollar-denominated deposits at American banks in the U.S.

E. D ollars that have been exchanged for European currency.

13.Deposits of commercial banks at the Federal Reserve Bank are called

A. b ankers' acceptances.

B. r epurchase agreements.

C. t ime deposits.

D. f ederal funds.

E. r eserve requirements.

14.The interest rate charged by banks with excess reserves at a Federal Reserve Bank to banks

needing overnight loans to meet reserve requirements is called the

A. p rime rate.

B. d iscount rate.

C. f ederal funds rate.

D. c all money rate.

E. m oney market rate.

15.Which of the following statement(s) is(are) true regarding municipal bonds?

I) A municipal bond is a debt obligation issued by state or local governments.

II) A municipal bond is a debt obligation issued by the federal government.

III) The interest income from a municipal bond is exempt from federal income taxation.

IV) The interest income from a municipal bond is exempt from state and local taxation in the issuing state.

A. I and II only

B. I and III only

C. I, II, and III only

D. I, III, and IV only

E. I and IV only

16.Which of the following statements is true regarding a corporate bond?

A. A corporate callable bond gives the holder the right to exchange it for a specified number of

the company's common shares.

B. A corporate debenture is a secured bond.

C. A corporate indenture is a secured bond.

D. A corporate convertible bond gives the holder the right to exchange the bond for a specified

number of the company's common shares.

E. H olders of corporate bonds have voting rights in the company.

17.In the event of the firm's bankruptcy

A. t he most shareholders can lose is their original investment in the firm's stock.

B. c ommon shareholders are the first in line to receive their claims on the firm's assets.

C. b ondholders have claim to what is left from the liquidation of the firm's assets after paying the

shareholders.

D. t he claims of preferred shareholders are honored before those of the common shareholders.

E. t he most shareholders can lose is their original investment in the firm's stock and the claims of

preferred shareholders are honored before those of the common shareholders.

18.Which of the following is true regarding a firm's securities?

A. C ommon dividends are paid before preferred dividends.

B. P referred stockholders have voting rights.

C. P referred dividends are usually cumulative.

D. P referred dividends are contractual obligations.

E. C ommon dividends usually can be paid if preferred dividends have been skipped.

19.Which of the following is true of the Dow Jones Industrial Average?

A. I t is a value-weighted average of 30 large industrial stocks.

B. I t is a price-weighted average of 30 large industrial stocks.

C. T he divisor must be adjusted for stock splits.

D. I t is a value-weighted average of 30 large industrial stocks and the divisor must be adjusted for

stock splits.

E. I t is a price-weighted average of 30 large industrial stocks and the divisor must be adjusted for

stock splits.

20.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

A. I only

B. I and II only

C. I and III only

D. I, II, and III

E. I I and III only

21.The Dow Jones Industrial Average (DJIA) is computed by

A. a dding the prices of 30 large \"blue-chip\" stocks and dividing by 30.

B. c alculating the total market value of the 30 firms in the index and dividing by 30.

C. a dding the prices of the 30 stocks in the index and dividing by a divisor.

D. a dding the prices of the 500 stocks in the index and dividing by a divisor.

E. a dding the prices of the 30 stocks in the index and dividing by the value of these stocks as of

some base date period.

22.Consider the following three stocks:

The price-weighted index constructed with the three stocks is

A. 30.

B. 40.

C. 50.

D. 60.

E. 70.

23.Consider the following three stocks:

The value-weighted index constructed with the three stocks using a divisor of 100 is

A. 1.2.

B. 1200.

C. 490.

D. 4900.

E. 49.

24.Consider the following three stocks:

Assume at these prices that the value-weighted index constructed with the three stocks is 490.

What would the index be if stock B is split 2 for 1 and stock C 4 for 1?

A. 265

B. 430

C. 355

D. 490

E. 1000

25.The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08

and a bid price of 104:04. As a buyer of the bond, what is the dollar price you

expect to pay?

A. $1,048.00

B. $1,042.50

C. $1,044.00

D. $1,041.25

E. $1,040.40

26.The price quotations of Treasury bonds in the Wall Street Journal show an ask price of 104:08

and a bid price of 104:04. As a seller of the bond what is the dollar price you expect to pay?

A. $1,048.00

B. $1,042.50

C. $1,041.25

D. $1,041.75

E. $1,040.40

27.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.

A. 8% and 10%

B. 8% and 8%

C. 6.4% and 8%

D. 6.4% and 10%

E. 10% and 10%

28.An investor purchases one municipal and one corporate bond that pay rates of return of 7.5% and

10.3%, respectively. If the investor is in the 25% marginal tax bracket, his or her after-tax rates of

return on the municipal and corporate bonds would be ________ and ______,

respectively.

A. 7.5% and 10.3%

B. 7.5% and 7.73%

C. 5.63% and 7.73%

D. 5.63% and 10.3%

E. 10% and 10%

29.If a Treasury note has a bid price of $975, the quoted bid price in the Wall Street Journal would

be

A. 97:50.

B. 97:16.

C. 97:80.

D. 94:24.

E. 97:75.

30.If a Treasury note has a bid price of $995, the quoted bid price in the Wall Street Journal would

be

A. 99:50.

B. 99:16.

C. 99:80.

D. 99:24.

E. 99:32.

31.In calculating the Standard and Poor's stock price indices, the adjustment for stock split occurs

A. b y adjusting the divisor.

B. a utomatically.

C. b y adjusting the numerator.

D. q uarterly, on the last trading day of each quarter.

32.Which of the following statements regarding the Dow Jones Industrial Average (DJIA) is false?

A. T he DJIA is not very representative of the market as a whole.

B. T he DJIA consists of 30 blue chip stocks.

C. T he DJIA is affected equally by changes in low- and high-priced stocks.

D. T he DJIA divisor needs to be adjusted for stock splits.

E. T he value of the DJIA is much higher than individual stock prices.

33.The index that includes the largest number of actively traded stocks is

A. t he NASDAQ Composite Index.

B. t he NYSE Composite Index.

C. t he Wilshire 5000 Index.

D. t he Value Line Composite Index.

E. t he Russell Index.

34.A 5.5% 20-year municipal 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

A. 8.20%.

B. 10.75%.

C. 11.40%.

D. 4.82%.

35.If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all

change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?

A. T he stock trading at the highest dollar price per share

B. T he stock having the greatest amount of debt in its capital structure

C. T he stock having the greatest amount of equity in its capital structure

D. T he stock having the lowest volatility

36.The stocks on the Dow Jones Industrial Average

A. h ave remained unchanged since the creation of the index.

B. i nclude most of the stocks traded on the NYSE.

C. a re changed occasionally as circumstances dictate.

D. c onsist of stocks on which the investor cannot lose money.

E. i nclude most of the stocks traded on the NYSE and are changed occasionally as

circumstances dictate.

37.Federally sponsored agency debt

A. i s legally insured by the U.S. Treasury.

B. w ould probably be backed by the U.S. Treasury in the event of a near-default.

C. h as a small positive yield spread relative to U.S. Treasuries.

D. w ould probably be backed by the U.S. Treasury in the event of a near-default and has a small

positive yield spread relative to U.S. Treasuries.

E. i s legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S.

Treasuries.

38.Brokers' calls

A. a re funds used by individuals who wish to buy stocks on margin.

B. a re funds borrowed by the broker from the bank, with the agreement to repay the bank

immediately if requested to do so.

C. c arry a rate that is usually about one percentage point lower than the rate on U.S. T-bills.

D. a re funds used by individuals who wish to buy stocks on margin and are funds borrowed by

the broker from the bank, with the agreement to repay the bank immediately if requested to do so.

E. a re funds used by individuals who wish to buy stocks on margin and carry

a rate that is usually

about one percentage point lower than the rate on U.S. T-bills.

39.A form of short-term borrowing by dealers in government securities is

A. r eserve requirements.

B. r epurchase agreements.

C. b ankers' acceptances.

D. c ommercial paper.

E. b rokers' calls.

40.Which of the following securities is a money market instrument?

A. T reasury note

B. T reasury bond

C. M unicipal bond

D. C ommercial paper

E. M ortgage security

41.The yield to maturity reported in the financial pages for Treasury securities

A. i s calculated by compounding the semiannual yield.

B. i s calculated by doubling the semiannual yield.

C. i s also called the bond equivalent yield.

D. i s calculated as the yield-to-call for premium bonds.

E. i s calculated by doubling the semiannual yield and is also called the bond equivalent yield.

42.Which of the following is not a mortgage-related government or government-sponsored agency?

A. T he Federal Home Loan Bank

B. T he Federal National Mortgage Association

C. T he U.S. Treasury

D. F reddie Mac

E. G innie Mae

43.In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5%

and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

A. 33%

B. 72%

C. 15%

D. 28%

E. C annot tell from the information given

44.What does the term negotiable mean with regard to negotiable certificates of deposit?

A. T he CD can be sold to another investor if the owner needs to cash it in before its maturity date.

B. T he rate of interest on the CD is subject to negotiation.

C. T he CD is automatically reinvested at its maturity date.

D. T he CD has staggered maturity dates built in.

E. T he interest rate paid on the CD will vary with a designated market rate.

45.Freddie Mac and Ginnie Mae were organized to provide

A. a primary market for mortgage transactions.

B. l iquidity for the mortgage market.

C. a primary market for farm loan transactions.

D. l iquidity for the farm loan market.

E. a source of funds for government agencies.

46.The type of municipal bond that is used to finance commercial enterprises such as the

construction of a new building for a corporation is called

A. a corporate courtesy bond.

B. a revenue bond.

C. a general obligation bond.

D. a tax anticipation note.

E. a n industrial development bond.

47.Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a

municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?

A. 15.4%

B. 23.7%

C. 39.5%

D. 17.3%

E. 12.4%

48.Which of the following are characteristics of preferred stock?

I) It pays its holder a fixed amount of income each year at the discretion of its

managers.

II) It gives its holder voting power in the firm.

III) Its dividends are usually cumulative.

IV) Failure to pay dividends may result in bankruptcy proceedings.

A. I, III, and IV

B. I, II, and III

C. I and III

D. I, II, and IV

E. I, II, III, and IV

49.Bond market indexes can be difficult to construct because

A. t hey cannot be based on firms' market values.

B. b onds tend to trade infrequently, making price information difficult to obtain.

C. t here are so many different kinds of bonds.

D. p rices cannot be obtained for companies that operate in emerging markets.

E. c orporations are not required to disclose the details of their bond issues.

50.With regard to a futures contract, the long position is held by

A. t he trader who bought the contract at the largest discount.

B. t he trader who has to travel the farthest distance to deliver the commodity.

C. t he trader who plans to hold the contract open for the lengthiest time period.

D. t he trader who commits to purchasing the commodity on the delivery date.

E. t he trader who commits to delivering the commodity on the delivery date.

51.In order for you to be indifferent between the after-tax returns on a corporate bond paying 9% and

a tax-exempt municipal bond paying 7%, what would your tax bracket need to be?

A. 17.6%

B. 27%

C. 22.2%

D. 19.8%

E. C annot tell from the information given