Question 1: ________bids for Treasury bonds specify a price that the bidder

is willing to pay and a dollar amount of securities to be purchased.

A. Competitive
B. Negotiable
C. Noncompetitive
D. Non-negotiable

Question 2: A bond that is bought at a price below its face value and the face
value is repaid at a maturity date is called a________
A. coupon bond.
B. fixed-payment loan.
C. discount bond.
D. simple loan.

Question 3: Which of the following can be described as involving direct

finance?
A. An insurance company buys shares of common stock in the over-the-
counter markets.
B. A corporation buys commercial paper issued by another corporation.
C. People buy shares in a mutual fund.
D.A corporation takes out a loan from a bank.
E. None of the above.

Question 4: In which of the following situations would you prefer to be the

lender?
A. The interest rate is 9 percent and the expected inflation rate is 7
percent.
B.The interest rate is 25 percent and the expected inflation rate is 50 percent.
C.The interest rate is 13 percent and the expected inflation rate is 15 percent.
D.The interest rate is 4 percent and the expected inflation rate is 1 percent.

Question 5: Which of the following statements is INCORRECT?

A . The municipal bond must pay a risk premium to compensate for the
possibility of default risk.
B. The income earned from municipal bonds is exempt from federal
taxes.
C. The Treasury bond must pay a slight premium to compensate for
being less liquid than municipal bonds.
D. All of the above are true.
Question 6: Financial intermediaries reduce transaction costs because
of________
A. Diversification
B. Asset transformation
C. Economies of scale
D. None of the above

Question 7: If bonds with different maturities are perfect substitutes, then the
________on these bonds must be equal.
A. surprise return
B. surplus return
C. expected return
D. excess return
Question 8: Markets in which transactions are done through computers and
telephone without any specific location are classified as
A. Capital counter market
B. Past counter market
C. Over-the-counter markets
D. Future counter market

Question 9 The concept of ________is based on the common-sense notion

that a dollar paid to you in the future is less valuable to you than a dollar
today.
A. interest
B. present value
C. deflation
D. future value

D. maturity, liquidity, and the income tax consideration of a security.

Question 21: Jackson Jury, a private investor, purchases a Treasury bill with
a $10,000 par value for $9,645. One hundred days later, Jackson sells the T-
bill for $9,719. What is Jackson's expected
A. 10.55 percent
C. 13.43 percent
B. 2.80 percent
D. 2.78 percent.
E. none of the above

Question 22: The risk of a short sale is that the stock price
A. will remain the same. -
C. may increase over time.
B. may decrease over time.
D. none of the above

Question 23: Which of the following securities has the lowest interest rate?
A. U.S. Treasury bonds
B. Junk bonds
C. Corporate Baa bonds
D. Investment-grade bonds

Question 24: The federal funds market allows depository institutions to

borrow
A. long-term funds from each other
B. short-term funds from the Treasury
C. short-term funds from each other
D. long-term funds from the Federal Reserve
E. B and D

Question 25: The first-time issuance of shares by a specific firm to the public
is referred as a(n)
B. secondary stock offering.
D. stock repurchase.
order to buy or sell a stock means to execute the transaction at the best
A. initial public offering (IPO).
C. initial rights issue.

Question 26: A________ order to buy or sell a stock means to execute the
transaction at the best possible price.
A. market
B. limit
C. stop-loss
D. stop-buy
Question 27: Municipal general obligation bonds are ________. Municipal
revenue bonds are ________.
A. supported by the municipal government's ability to tax; supported by
the municipal’s government's ability to tax
B.supported by the municipal government's ability to tax; supported by
revenue generated from the project
C. always subject to federal taxes; always exempt from state and local
taxes
D. typically zero-coupon bonds; typically zero-coupon bonds
Question 28: A protective covenant may________

A. specify all the rights and obligati at ions of the issuing firm and the
bondholders.
B. require the firm to retire a certain amount of the bond issue each year.
C. restrict the amount of additional debt the firm can issue.
D. none of the above
Question 29: A ten-year, inflation-indexed bond has a par value of $10,000
and a coupon rate of 5 percent. During the first six months since the bond
was issued, the inflation rate was 2 percent. Based on tins information, the
coupon payment after six months will be $
A. 250
B. 510
C. 500
D. 255
Question 30: An investor buys commercial paper with a 60-day maturity for
$985,000. Par value is
$1,000,000, and the investor holds it to maturity. What is the annualized
yield?
A. 8.78 percent
B. 9.00 percent
C. 8.90 percent
D. 8.62 percent
E. 9.14 percent
Question 31: Mutual funds are ________
A. investment intermediaries
B. contractual savings institutions

F. maturity, liquidity, and the income tax consideration of a security.

Question 21: Jackson Jury, a private investor, purchases a Treasury bill with
a $10,000 par value for $9,645. One hundred days later, Jackson sells the T-
bill for $9,719. What is Jackson's expected
A. 10.55 percent
C. 13.43 percent
B. 2.80 percent
D. 2.78 percent.
G. none of the above

Question 22: The risk of a short sale is that the stock price
A. will remain the same. -
C. may increase over time.
B. may decrease over time.
D. none of the above

Question 23: Which of the following securities has the lowest interest rate?
A. U.S. Treasury bonds
B. Junk bonds
C. Corporate Baa bonds
D. Investment-grade bonds

Question 24: The federal funds market allows depository institutions to

borrow
A. long-term funds from each other
B. short-term funds from the Treasury
C. short-term funds from each other
D. long-term funds from the Federal Reserve
E. B and D

Question 25: The first-time issuance of shares by a specific firm to the public
is referred as a(n)
B. secondary stock offering.
D. stock repurchase.
order to buy or sell a stock means to execute the transaction at the best
A. initial public offering (IPO).
C. initial rights issue.

Question 26: A________ order to buy or sell a stock means to execute the
transaction at the best possible price.
A. market
B. limit
C. stop-loss
D. stop-buy
Question 27: Municipal general obligation bonds are ________. Municipal
revenue bonds are ________.
E. supported by the municipal government's ability to tax; supported by
the municipal’s government's ability to tax
F.supported by the municipal government's ability to tax; supported by
revenue generated from the project
G. always subject to federal taxes; always exempt from state and local
taxes
H. typically zero-coupon bonds; typically zero-coupon bonds
Question 28: A protective covenant may________

A. specify all the rights and obligati at ions of the issuing firm and the
bondholders.
E. require the firm to retire a certain amount of the bond issue each year.
F. restrict the amount of additional debt the firm can issue.
G. none of the above
Question 29: A ten-year, inflation-indexed bond has a par value of $10,000
and a coupon rate of 5 percent. During the first six months since the bond
was issued, the inflation rate was 2 percent. Based on tins information, the
coupon payment after six months will be $
A. 250
B. 510
C. 500
D. 255
Question 30: An investor buys commercial paper with a 60-day maturity for
$985,000. Par value is
$1,000,000, and the investor holds it to maturity. What is the annualized
yield?
F. 8.78 percent
G. 9.00 percent
H. 8.90 percent
I. 8.62 percent
J. 9.14 percent
Question 31: Mutual funds are ________
A. investment intermediaries
B. contractual savings institutions
Question 32: If the liquidity premium exists. a flat yield curve
would be interpreted as the market expecting in interest
rates.
A. a large increase B. a slight decrease C. a slight
increase D. no changes
Question 33: The risk structure of interest rates is
A. the structure of how interest rates move over time .
B. the relationship among interest rates of different bonds with the
same maturity.
C. the relationship among the term to maturity of different bonds.
D. the relationship among interest rates on bonds with different
maturities.
Question 34: Which of the following statements is INCORRECT?
 A.Like debt securities, common stock is issued by firms to obtain
funds.
B.Stocks arc issued by corporations to raise long-term funds.
C.The secondary stock market enables investors to sell stocks
that they had previously purchased.
D.A stock is a certificate representing partial ownership in a
corporation.
E.All of the above
Question 35: When the lender and the borrower have different amounts
of information regarding a transaction, _is said to exist.
A. moral hazard B. fraud
C. adverse selection D. asymmetric information
Question 36: The problem created by asymmetric information before
the transaction occurs is called______while the problem created after the
_______transaction occurs is called
A. moral hazard; adverse selection
B. costly state verification; free-riding
C. free-riding; costly state verification
D. adverse selection; moral hazard
Question 37: Equity securities should normally have a
expected return and risk than money market securities.
A. lower; lower
B. lower; higher
C. higher: lower
D. higher; highe
Question 38: require the owner to clip coupons attached to
the bonds and send them to the issuer to receive coupon payments.
A. Registered B. Treasury C. CorporatD.
Bearer
Question 39: A rise in reserve requirements means that banks must hold more
reserves, which leads to a/an_of the monetary base and the money supply.
A. decline
B. increase
C. fluctuation
D. none of the above
Question 40: ______________provides the liquidity to security purchasers.
A. Primary market
B. Secondary market
C. Both of the above
D. None of the above