Finance Question

- 1 of 5   ID: FS.S.OST.04A

All of the factors below can have an impact on interest rates. Select the most important 2 factors that would influence the primary market yield for a new issue of commercial paper.

	the general level of interest rates as measured by the risk free rate
	exchange rates
	liquidity in the secondary market
	market volatility
	the credit rating of the company issuing the commercial paper

[3  marks] -  2 of 5   ID: FS.MM.D.02A

a)Which of the following are money market securities? Select all that apply.

commercial paper promissory notes bank-accepted bills preference shares stock options

b)For most companies, the low risks of these securities are due to the fact that they are all secured:

true false

[6  marks] -  3 of 5   ID: FMTH.BO.PON.01.L

Calculate the purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent.

	Face Value	Coupon Rate	Years to Maturity	Market Rate
a)	$1,000	r = 8.75%	4	j2 = 8.75%
b)	$10,000	r = 7%	8	j2 = 5.25%
c)	$100	r = 12.75%	23	j2 = 14.5%

Quoted coupon rates and market rates are nominal annual rates compounded semi-annually.

a)Price = $

This bond is priced at: a discount par a premium

b)Price = $

This bond is priced at: a discount par a premium

c)Price = $

This bond is priced at: a discount par a premium

[2  marks] -  4 of 5   ID: FS.MM.D.03A

You are a money market dealer wanting to trade in discount securities. Answer the following questions using the options in the drop down lists.

a)You ring up other dealers because you want to sell securities. What bid or offer yield would you accept from them?

b)You are called by another dealer who wants you to buy securities. You do not want to buy them, but you must legally offer to do so. What bid or offer yield do you make?

[2  marks] -  5 of 5   ID: FS.BM.D.01A

Indicate whether the following statements about the risks faced by bond investors are true or false.

a)Reinvestment risk is the risk that an investor will not be able to purchase the same bond again when their current bond matures.	TrueFalse
b)Price risk is the risk that an increase in yields will cause bond prices to fall.	TrueFalse