What factors are encouraging financial institutions to offer overlapping financial services such as
banking, investment banking, brokerage, etc.? - Answers Regulatory changes allowing institutions to
offer more services
Technological improvements reducing the cost of providing financial services
Increasing competition from full-service global financial institutions
IBM creates and sells additional stock to the investment banker Morgan Stanley. Morgan Stanley then
resells the issue to the U.S. public.
This transaction is an example of a(n) - Answers primary market transaction.
A corporation seeking to sell new equity securities to the public for the first time in order to raise cash
for capital investment would most likely - Answers conduct an IPO with the assistance of an investment
banker.
The largest capital market security outstanding in 2010 measured by market value was - Answers
corporate stocks.
Depository institutions include - Answers banks and thrifts.
Financial intermediaries (FIs) can offer savers a safer, more liquid investment than a capital market
security, even though the intermediary invests in risky illiquid instruments because - Answers FIs can
diversify away some of their risk and closely monitor the riskiness of their assets.
Which of the following is/are money market instrument(s)? - Answers Negotiable CDs
The Securities Exchange Commission (SEC) does - Answers decide whether a firm making a public issue
has provided enough information for investors to decide whether the issue is fairly priced.
require exchanges to monitor trading to prevent insider trading.
attempt to reduce excessive price fluctuations.
monitor the major securities exchanges.
,The most diversified type of depository institutions is - Answers commercial banks.
Money markets trade securities that - Answers mature in one year or less.
have little chance of loss of principal.
Which of the following are capital market instruments? - Answers 10-year corporate bonds
30-year mortgages
20-year Treasury bonds
15-year U.S. government agency bonds
Commercial paper is - Answers a short-term unsecured promissory note issued by a company to raise
funds for a short time period.
A negotiable CD is - Answers a marketable bank issued time deposit that specifies the interest rate
earned and a fixed maturity date.
You go to the Wall Street Journal and notice that yields on almost all corporate and Treasury bonds have
decreased. The yield decreases may be explained by which one of the following? - Answers A decrease
in U.S. inflationary expectations
Of the following, the most likely effect of an increase in income tax rates would be to - Answers
decrease the savings rate.
decrease the supply of loanable funds.
increase interest rates.
An investor wants to be able to buy 4 percent more goods and services in the future in order to induce
her to invest today. During the investment period prices are expected to rise by 2 percent. Which
statement(s) below is/are true? - Answers 4 percent is the desired real risk-free interest rate.
6 percent is the approximate nominal rate of interest required
2 percent is the expected inflation rate over the period.
An investor requires a 3 percent increase in purchasing power in order to induce her to lend. She
expects inflation to be 2 percent next year. The nominal rate she must charge is about - Answers 5
percent.
, The term structure of interest rates is upward sloping for all bond types. A certain AAA rated non-
callable 10-year corporate bond has been issued at a 6.15 percent promised yield. Which one of the
following bonds probably has a higher promised yield? - Answers A callable AAA rated corporate bond
with a 15-year maturity.
Which of the following bond types pays interest that is exempt from federal taxation? - Answers
Municipal bonds
The relationship between maturity and yield to maturity is called the __________________. - Answers
term structure
Duration is - Answers the weighted average time to maturity of the bond's cash flows.
A security has an expected return less than its required return. This security is - Answers selling for more
than its PV.
A 10-year annual payment corporate coupon bond has an expected return of 11 percent and a required
return of 10 percent. The bond's market price is - Answers less than its PV.
Convexity arises because - Answers present values are a nonlinear function of interest rates.
The duration of a 180-day T-Bill is (in years) - Answers 0.493.
180/365
The interest rate used to find the present value of a financial security is the - Answers required rate of
return.
You would want to purchase a security if P ____________ PV or E(r) ____________ r. - Answers ≤; ≥
A decrease in interest rates will - Answers increase the bond's duration.
For large interest rate increases, duration _____________ the fall in security prices, and for large
interest rate decreases, duration ______________ the rise in security prices. - Answers overpredicts;
underpredicts
The primary policy tool used by the Fed to meet its monetary policy goals is - Answers open market
operations.
The Federal Reserve System is charged with - Answers conducting monetary policy and providing
payment and other services to a variety of institutions.
The _______________ is a nationwide network jointly operated by the Fed and private institutions that
electronically process credit and debit transfers of funds. - Answers ACH
Which of the following is the major monetary policy making body of the U.S. Federal Reserve System? -
Answers FOMC
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