Question 1

A "normal" yield curve is

Accepted Answer

A)  downward sloping.
B)  downward sloping,then upward sloping.
C)  upward sloping.
D)  upward sloping,then downward sloping.

Question 2

Which of the following is NOT a valid theory that attempts to explain the shape of the term structure of interest rates?

Accepted Answer

A)  the unbiased expectations theory
B)  the liquidity preference theory
C)  the market segmentation theory
D)  the Fisher Effect theory

Question 3

What is the term for a graphical representation of the relationship between interest rates and the maturities of debt securities?

Accepted Answer

A)  term curve
B)  maturity chart
C)  yield curve
D)  inflationary expectations

Question 4

Reynolds,Inc.needs to raise $5 million by selling common stock.Reynolds sells 1 million shares of stock at $5 each to Goldman Sachs,who then is responsible for selling the shares to investors.This is an example of a

Accepted Answer

A)  privileged subscription.
B)  standby agreement.
C)  negotiated purchase.
D)  commission or best-efforts agreement.

Question 5

Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

Accepted Answer

A)  capital market
B)  commercial banks
C)  money market
D)  stock market

Question 6

Bill is a public accountant auditing Expo Corporation.Based on information in Expo's confidential records,Bill recommends the purchase of Expo stock to his brother.

Accepted Answer

A)  Bill is involved in insider trading prohibited by the SEC.
B)  Bill's brother has no direct connection to Expo Corporation and therefore his purchase of the stock is not prohibited by insider trading laws.
C)  Bill is not an insider because he is not an officer or employee of Expo Corporation
D)  If Bill told a non-relative who purchases Expo stock,no insider trading laws would be violated.

Question 7

Which of the following is an example of both a capital market and a primary market transaction?

Accepted Answer

A)  The U.S.Government sells 3-month Treasury Bills.
B)  Microsoft common stock owned by an individual investor is sold to another investor.
C)  Ford Motor Company sells a new issue of common stock to raise funds through a public offering.
D)  No transactions occur in both primary and capital markets at the same time.

Question 8

The process of shelf-registration is beneficial to the issuing firm because it will reduce the time needed for the firm to take an issue to market.

Accepted Answer

A) True 
 B)False

Question 9

Prices of securities that are traded on the organized exchanges are determined by

Accepted Answer

A)  a "bid" and "ask" negotiation process amongst brokers who hold these securities in their own account.
B)  the Securities Exchange Commission.
C)  a continuous auction process reflecting the sentiments of buyers and sellers.
D)  the sellers of the securities.

Question 10

An investment banker assumes underwriting risk in both negotiated purchases and privileged subscriptions with standby agreements.

Accepted Answer

A) True 
 B)False

Question 11

Activities of the investment banker include

Accepted Answer

A)  assuming the risk of selling a security issue.
B)  selling new securities to the ultimate investors.
C)  providing advice to firms issuing securities.
D)  all of the above

Question 12

A real interest rate is the interest rate on a fixed-income security that has no risk in an economic environment of high inflation.

Accepted Answer

A) True 
 B)False

Question 13

A corporation needing cash sells securities to investors in the secondary market.

Accepted Answer

A) True 
 B)False

Question 14

Investment banking firms are prohibited from selling securities due to conflicts of interest.

Accepted Answer

A) True 
 B)False

Question 15

A basis point is equal to

Accepted Answer

A)  one percent.
B)  one-tenth of one percent.
C)  one-hundredth of one percent.
D)  one-half of one percent.

Question 16

Individuals,corporations,and governments can be either savings deficit units or savings surplus units.

Accepted Answer

A) True 
 B)False

Question 17

Common examples of financial intermediaries include all of the following EXCEPT

Accepted Answer

A)  Venture Capital Firms.
B)  Life Insurance Companies.
C)  Pension Funds.
D)  Mutual Funds.

Question 18

Financial markets exist in order to allocate savings in the economy to the demanders of those savings.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2011 (from highest to lowest standard deviation of returns) ?

Accepted Answer

A)  Treasury bills,long-term corporate bonds,common stocks,small firm common stocks
B)  small firm common stocks,common stocks,long-term corporate bonds,Treasury bills
C)  Treasury bills,common stocks,long-term corporate bonds,small firm common stocks
D)  Treasury bills,common stocks,small firm common stocks,long-term corporate bonds

Question 20

Spandra Electronics wants to raise money by selling stock.After talking to several investment banking firms,Spandra decides to hire Goldman Sachs to sell 5 million shares of its common stock.Goldman sells 4.5 million shares and returns the rest to Spandra.This is an example of

Accepted Answer

A)  a privileged subscription with a standby agreement.
B)  a commission or best-efforts agreement.
C)  a privileged subscription with a standby agreement
D)  a competitive bid purchase.

Exam 2: The Financial Markets and Interest Rates

Which of the following represents the correct ordering of standard deviation of returns over the period 1926 to 2011 (from highest to lowest standard deviation of returns) ?

Correct AnswerverifiedShow Answer

Prices of securities that are traded on the organized exchanges are determined by

Correct AnswerverifiedShow Answer

A basis point is equal to

Correct AnswerverifiedShow Answer

Investment banking firms are prohibited from selling securities due to conflicts of interest.

Correct AnswerverifiedShow Answer

A "normal" yield curve is

Correct AnswerverifiedShow Answer

Which of the following is NOT a valid theory that attempts to explain the shape of the term structure of interest rates?

Correct AnswerverifiedShow Answer

What is the term for a graphical representation of the relationship between interest rates and the maturities of debt securities?

Correct AnswerverifiedShow Answer

The process of shelf-registration is beneficial to the issuing firm because it will reduce the time needed for the firm to take an issue to market.

Correct AnswerverifiedShow Answer

Activities of the investment banker include

Correct AnswerverifiedShow Answer

A real interest rate is the interest rate on a fixed-income security that has no risk in an economic environment of high inflation.

Correct AnswerverifiedShow Answer

Bill is a public accountant auditing Expo Corporation.Based on information in Expo's confidential records,Bill recommends the purchase of Expo stock to his brother.

Correct AnswerverifiedShow Answer

Financial markets exist in order to allocate savings in the economy to the demanders of those savings.

Correct AnswerverifiedShow Answer

Spandra Electronics wants to raise money by selling stock.After talking to several investment banking firms,Spandra decides to hire Goldman Sachs to sell 5 million shares of its common stock.Goldman sells 4.5 million shares and returns the rest to Spandra.This is an example of

Correct AnswerverifiedShow Answer

Individuals,corporations,and governments can be either savings deficit units or savings surplus units.

Correct AnswerverifiedShow Answer

Common examples of financial intermediaries include all of the following EXCEPT

Correct AnswerverifiedShow Answer

Reynolds,Inc.needs to raise $5 million by selling common stock.Reynolds sells 1 million shares of stock at $5 each to Goldman Sachs,who then is responsible for selling the shares to investors.This is an example of a

Correct AnswerverifiedShow Answer

Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?

Correct AnswerverifiedShow Answer

An investment banker assumes underwriting risk in both negotiated purchases and privileged subscriptions with standby agreements.

Correct AnswerverifiedShow Answer

A corporation needing cash sells securities to investors in the secondary market.

Correct AnswerverifiedShow Answer

Which of the following is an example of both a capital market and a primary market transaction?

Correct AnswerverifiedShow Answer

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