Q&A Hero

Q: Which of the following statements about STRIPs is true? a. STRIPs are sold directly by the Treasury Department b. When a STRIP is created, all interest payments become one security and the principal payment becomes the other. c. Many small investors prefer STRIPs because they require a lower minimum investment than original Treasury notes and bonds. d. Treasury securities dealers create STRIPs because they expect to sell the created zero-coupon securities for more than what they paid for the original Treasury security. e. None of the above statements is true.

Q: Investors in U.S. Treasury STRIPs are primarily interested in eliminating which of the following bond investor risks? a. default risk b. price risk c. reinvestment risk d. foreign exchange risk

Q: The yield on a three-year Treasury note is 4.5% and the yield on a three-year TIPS is 2.4%. What is the market's estimate of the annual inflation rate over the next three years? a. 1.1% b. 1.6% c. 4.5% d. 2.4% e. 2.1%

Q: You purchase a Treasury inflation-protected note with an original principal amount of $1,000,000 and a 2.8 percent annual coupon (paid semiannually). What will the first coupon payment be if the semiannual inflation over the first six months is 1.2%? a. $14,168 b. $14,000 c. $28,336 d. $28,000 e. $12,336

Q: TIPS have less _____ risk than "regular" Treasury securities of the same maturity. a. default b. price c. liquidity d. foreign exchange

Q: The fastest growing debt sector in the U. S. is a. Treasury debt b. federal agency debt c. mortgage debt d. corporate debt

Q: A capital market financing is most likely to finance a. new plant and equipment. b. seasonal inventory needs. c. a quarterly dividend payment. d. the sale of common stock.

Q: The biggest supplier of funds in the capital markets are a. financial institutions b. state and local governments c. federal government d. households and non-profit organizations

Q: The secondary markets for capital market securities have facilitated economic growth in the U.S. because a. they help provide marketability for capital market claims. b. they have increased people's willingness to buy capital market claims. c. they make people more willing to invest because they can more easily diversify their risk. d. all of the above

Q: The conversion feature of a bond is to give the issuer the opportunity to repurchase bonds at a stated price prior to maturity.

Q: Bondholders will NOT convert their convertible bonds into shares of stock only when the conversion price is greater than the market price of the stock.

Q: The length of the maturity on a bond offering affects its cost. In general, the longer the maturity, the higher the cost.

Q: Callable bonds are the bonds that can be redeemed at par at the option of their holders either at specific date after the date of issue and every 1 to 5 years thereafter or when and if the firm takes specified actions such as being acquired, acquiring another company, or issuing a large amount of additional debt are called.

Q: The after-tax return on a 9 percent tax-exempt municipal bond to a commercial bank in the 34 percent tax bracket is 5.94 percent.

Q: Revenue bonds are generally considered more risky than general obligation bonds.

Q: One of the fastest growing loan areas for commercial banks in the 1980s was financial guarantees.

Q: Commercial banks purchase more tax-exempt securities when loan losses increase.

Q: Capital market borrowing by businesses is generally repaid from the cash flow generated by the assets financed.

Q: The primary market for junk bonds expanded for higher risk firms as the secondary market for junk bonds developed.

Q: The money market provides liquidity for deficit units; the capital market finances economic growth.

Q: Lower marginal tax rates increase the demand for tax-exempt securities.

Q: A state turnpike authority is more likely to issue revenue bonds than general obligation bonds.

Q: TIPS protect investors primarily from default risk.

Q: Households are the major investor in municipal bonds.

Q: A serial bond issue matures over a period of years.

Q: Most state and local government bonds are sold to finance education.

Q: A U.S. Treasury STRIP is a zero-coupon bond.

Q: Yields on U.S. Treasury "ask" prices are higher than yields quoted on "bid" prices.

Q: The volume of mortgages outstanding exceeds the volume of corporate bonds in the U.S.

Q: Financial institutions and households own about the same amount of financial assets.

Q: Households owe more financially than they own.

Q: Both governments and businesses issue both debt and equity capital market securities.

Q: Investors may invest in capital market securities either directly or indirectly.

Q: Life insurance companies are more likely to invest in corporate capital market securities than commercial banks.

Q: Capital market interest rates tend to be higher than money market rates for a given issuer.

Q: Money market securities are all debt securities, while capital market securities are either debt or equity securities.

Q: Capital market securities are more liquid than money market securities.

Q: Capital market securities are used to finance real capital investments.

Q: Purchasing T-bill via a computerized account without actually receiving the securities is achieved through a _______ Account. a. Direct Purchase b. Treasury Direct c. Fed Purchase d. Federal Benefit

Q: The Wall Street Journalpublishes T-bill price (bid/ask) based on the ___________ rate; with the __________ rate provided as the quoted (ask) yield on the T-bill. a. bond equivalent; bank discount b. effective annual; bank discount c. bank discount; bond equivalent d. bank equivalent; bank discount

Q: The smallest denomination of T-bills is a. $1,000 b. $10,000 c. $100,000 d. $1,000,000 e. $5,000,000

Q: The T-bill rate quoted by the Federal Reserve banks is the a. bank discount rate. b. the true rate. c. effective annual rate. d. bond equivalent rate. e. the primary rate

Q: Which of the following yield calculations on a Treasury bill provides the best comparison yield for competing coupon-bearing securities of the same maturity? a. bank discount rate b. CD equivalent rate c. bond equivalent rate d. the prime rate.

Q: Calculate the bond equivalent yieldon a 52-day T-bill selling for 98.555% of its face value. a. 10.85% b. 10.75% c. 10.54% d. 10.29%

Q: The bank discount rate (ask) on a 71-day T-bill is 4.86%. What is the bond equivalent yield on the T-bill? a. 4.86% b. 4.92% c. 4.98% d. 5.14%

Q: The bank discount rate (ask) on a 91-day T-bill is 5.35%. What is the price of the $1000 T-bill? a. $976.40 b. $986.48 c. $981.20 d. $989.45

Q: What is the bank discount rate on a $100,000 face value T-bill priced at $97,500, maturing in 181days? a. 2.50% b. 4.84% c. 4.97% d. 5.10% e. 5.17%

Q: When a firm issuing commercial paper uses a backup line of credit, it _____. a. increases the credit risk for investors b. decreases the credit risk for investors c. has no impact on investors d. decreases the marketability of commercial paper

Q: Which of the following money market rates is studied closely for indicators of changes in Federal Reserve monetary policy? a. Federal Funds b. Treasury bills c. commercial paper d. banker's acceptances

Q: A time draft drawn on and accepted by a commercial bank that orders to pay a specified amount of money to the bearer on a given date is called a _______ a. letter of credit b. negotiable certificate of deposit c. banker's certificate of support d. reverse repurchase agreement e. banker's acceptance

Q: Which of the following money market instruments is notsold on a discount basis? a. commercial paper b. negotiable certificates of deposit c. Treasury bills d. banker's acceptances e. All of the above instruments are sold on a discount basis.

Q: Banks invest in government securities for a variety of reasons except a. income. b. safety. c. acceptable for collateral. d. high relative yield.

Q: Large industrial U.S. corporations are involved in the money market by a. investing excess cash balances. b. buying and selling goods on credit in international trade. c. issuing commercial paper. d. all of the above

Q: An important economic function of the U.S. government security dealer is to a. underwrite Treasury securities. b. "make a market" for Treasury securities. c. support open market operations of the Federal Reserve. d. all of the above

Q: Money market securities have very little a. default risk. b. price risk. c. marketability risk. d. all of the above.

Q: Which of the following money market securities is backed by specified collateral? a. negotiable CDs b. banker's acceptances c. repurchase agreements d. commercial paper

Q: The money market security represented by the largest dollar amount outstanding is a. commercial paper. b. federal agency issues. c. negotiable CDs. d. Treasury bills.

Q: Issuers of commercial paper tend to be a. large financial and nonfinancial firms b. firms with high credit risk c. small banks d. wealthy individuals e. both aand b

Q: Which of the following securities is nota money market security? a. Ba-rated corporate bonds b. Treasury bills c. certificates of deposit d. banker's acceptance e. P2-rated commercial paper

Q: Which of the following money market instruments would typically be used in international transactions? a. a Treasury bill b. a banker's acceptance c. commercial paper d. a negotiable CD

Q: Which of the following statements about federal agency securities is true? a. All federal agency debt is explicitly guaranteed by the federal government. b. All federal agencies are owned by the federal government. c. Federal agency securities usually have yields of 3 to 20 basis points below Treasury bills. d. All of above statements are true. e. None of the above statements is true.

Q: Which of the following statements is true? a. Discount yield is always lower than bond equivalent yield on the same security. b. Discount yield is always higher than bond equivalent yield on the same security. c. Discount yield is always equal to bond equivalent yield on the same security. d. Discount yield can be lower or higher than bond equivalent yield on the same security.

Q: Banks can satisfy their short-term borrowing needs by Federal Funds purchased. Federal Funds sold. issuing negotiable CDs. both aand c

Q: The most common money market instrument utilized in the Fed's open market operations is a. Federal Funds. b. commercial paper. c. Treasury bills. d. Agency securities.

Q: Federal Funds are typically a. Treasury deposits. b. Federal Reserve assets. c. commercial bank deposits at the Federal Reserve. d. overnight interbank loans settled in immediately available funds

Q: Which of the following may be a liability of a non-financial business corporation? a. commercial paper b. Federal Funds c. Treasury securities d. agency securities

Q: Which statement about Treasury bills isNOTtrue? a. They have maturities less than one year. b. Most are sold by "book-entry" method. c. They are sold at a discount. d. Interest on T-bills is tax-deductible for federal income tax purposes.

Q: Which of the following statements about the money market is true? a. The money market is a dealer market linked by efficient communications systems. b. Money market transactions are seldom over $1 million. c. Money market transactions include more "primary market" trades for a security than secondary market trades. d. Most money market transactions are conducted by mail. e. All of the above statements are true.

Q: Investors in the money markets are generally willing to take which of the following risks? a. default risk b. interest rate risk c. liquidity risk d. all of the above e. none of the above

Q: Which of the following is NOTa characteristic of money market instruments? a. short term to maturity b. small denominations c. low default risk d. high marketability e. All of the above are characteristics of money market securities.

Q: A short term unsecured promissory note issued by a company is Negotiable CD.

Q: Fed funds are short term unsecured loans while repos are short term secured loans from Federal Reserve Banks.

Q: The benefits of money market securities are low denomination, low systemic risk investments designed to appeal to individual investors with excess cash.

Q: Reverse repos are contracts that require a firm to first sell securities with the agreement to buy them back in a short period at a higher price.

Q: Non-competitive bidders in the U. S. Treasury security auctions pay the weighted average price of all accepted competitive bids.

Q: Competitive bids in T-bill auctions require the bidder to specify only the quantity of bills desired.

Q: The money market provides liquidity for deficit spending units; the capital market finances economic growth.

Q: Interest arbitrage keeps the interest rates of the many money market securities equal.

Q: Commercial banks are important indirect guarantors of commercial paper.

Q: The higher yields of federal agency securities relative to T-bills is attributed mostly to the lower marketability of agency securities.