1. (TCO 7) The secondary markets for capital market securities have facilitated economic growth in the U.S. because (Points : 3)

       they help provide marketability for capital market claims.

       they have increased people's willingness to buy capital market claims.

       they make people more willing to invest because they can more easily diversify their risk.

       All of the above

 

Question 2.2. (TCO 7) A capital market financing is most likely to finance (Points : 3)

       new plant and equipment.

       seasonal inventory needs.

       a quarterly dividend payment.

       the sale of common stock.

 

Question 3.3. (TCO 7) 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 1.4%? (Points : 3)

       $28,000

       $14,000

       $14,196

       $14,169

 

Question 4.4. (TCO 7) 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? (Points : 3)

       1.1%

       4.5%

       2.4%

       2.1%

 

Question 5.5. (TCO 7) Investors in U.S. Treasury STRIPs are primarily interested in eliminating which of the following bond investor risks? (Points : 3)

       Default risk

       Price risk

       Reinvestment risk

       Foreign exchange risk

 

Question 6.6. (TCO 7) Which of the following terms is not commonly associated with municipal bonds? (Points : 3)

       Inflation-protected bonds

       Serial bonds

       General obligation bonds

       Revenue bonds

 

Question 7.7. (TCO 7) If average corporate bond and tax-exempt municipal bond rates were 9.33% and 5.25% respectively, an investor in the 34% marginal corporate tax bracket would purchase (Points : 3)

       the tax-exempt bond.

       the corporate bond.

       either security (i.e., the investor is indifferent).

       the security with the higher pre-tax yield.

 

Question 8.8. (TCO 7) Most general obligation bonds are backed by (Points : 3)

       corporations.

       brokers.

       the issuing government.

       None of the above

 

Question 9.9. (TCO 7) Corporate bonds are less marketable than money market instruments and corporate equities because (Points : 3)

       they have special features (e.g., call provisions) that make them difficult to value.

       they are long-term securities, which tend to be riskier and less marketable.

       they have special features (e.g., call provisions) that make them difficult to value and they are long-term securities, which tend to be riskier and less marketable.

       corporate bonds are in fact not less marketable than money market instruments and corporate equities.

 

Question 10.10. (TCO 7) Bonds may be classified as junk bonds because they (Points : 3)

       are issued in large volumes.

       originate within small businesses.

       have high default risk.

       None of the above

 

Question 11.11. (TCO 7) Which of the following is not a reason that foreign exchange markets exist? (Points : 3)

       To provide for efficient exchange between governments.

       To exchange purchasing power between trading partners with different local currencies.

       To provide a means for passing the risk associated with changes in foreign exchange rates to professional risk-takers.

       To accommodate credit extension and delayed payments for goods and services between countries.

 

Question 12.12. (TCO 7) The current exchange rate between U.S. Dollar and Euro is $1.355/.738. It means that (Points : 3)

       one Euro can buy 0.738 Dollars.

       one Dollar can buy 0.738 Euros.

       one Euro can buy 1.355 Dollars.

       both one Dollar can buy 0.738 Euros and one Euro can buy 1.355 Dollars.

 

Question 13.13. (TCO 7) When a balance of payments trade balance is in a deficit position, (Points : 3)

       sell financial assets to foreign entities.

       buy more imports.

       borrow from foreign countries.

       sell financial assets to foreign entities and buy more imports.

 

Question 14.14. (TCO 7) A _______ draft is paid on demand; whereas a bank would pay a _______ draft at maturity. (Points : 3)

       electronic; time

       letter; electronic

       time; sight

       sight; time

 

Question 15.15. (TCO 7) Eurocurrency markets are a source of attractively priced working capital loans for multinational firms because (Points : 3)

       lower regulatory costs allow lenders to offer lower cost loans.

       with transactions starting at $500,000, economies of scale provide better pricing.

       lower credit checking costs and other processing costs lowers lending rates.

       All of the above

 

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