1) Assume that the Treasury experiences a large increase in the budget deficit and issues a large number of T-bills. This action will _________________ the price of T-bills in the market and places __________________ pressure on the yield of T-bills.
[1] decrease; downward
[2] decrease; upward
[3] increase; upward
[4] increase; downward
2) True or False? A broker executes securities transactions between two parties and charges a fee reflected in the bid-ask spread.________________ _______
3) ________ facilitate transactions on the New York Stock Exchange by executing stock transactions for their clients.
[1] Floor brokers
[2] Capstone members
[3] Specialists
[4] none of the above
4) A(n) ______ in the discount rate may signal a simulative economic policy and anticipation that the Fed will attempt to ______ market interest rates.
[1] increase; increase
[2] increase; decrease
[3] decrease; increase
[4] decrease; decrease
5) In response to the September 11 attack, the Fed ________ the supply of loanable funds in the banking system, which placed _______ pressure on interest rates.
[1] decreased; upward
[2] decreased; downward
[3] increased; upward
[4] increased; downward
E) The Fed did not change the supply of loan able funds in response to the
September 11 attack.
6) Money market securities generally have ______. Capital market securities are typically expected to have a ______.
[1] less liquidity; higher annualized return
[2] more liquidity; lower annualized return
[3] less liquidity; lower annualized return
[4] more liquidity; higher annualized return
7) The ______ is directly responsible for controlling money supply growth.
[1] Federal Advisory Council
[2] FOMC
[3] Board of Governors
[4] president of the United States
8) Which of the following is not true with respect to the discount rate?
[1] An adjustment in the discount rate affects the money supply only if depository institutions respond to the adjustment.
[2] The discount window offers depository institutions three types of credit.
[3] To decrease the money supply, the Fed would increase the discount rate.
[4] All of the above are true with respect to the discount rate.
9) Kudrow stock just paid a dividend of $4.76 per share and plans to pay a dividend of $5 per share next year, which is expected to increase by 3 percent per year subsequently. The required rate of return is 15 percent. The value of Kudrow stock, according to the dividend discount model, is $__________.
[1] 39.67
[2] 41.67
[3] 33.33
[4] 31.73
E) none of the above
10) Determine which of the following is not a major component of the Federal Reserve System?
[1] member banks
[2] Federal Open Market Committee
[3] Securities and Exchange Commission
[4] Board of Governors
11) The federal government demand for loanable funds is __________. If the budget deficit was
expected to increase, the federal government demand for loanable funds would ________.
[1] interest elastic; decrease
[2] interest elastic; increase
[3] interest inelastic; increase
[4] interest inelastic; decrease
12) If analysts expect that the demand for loanable funds will increase, and the supply of loanable funds will decrease, they would most likely expect interest rates to ______ and prices of existing bonds to ______.
[1] increase; increase
[2] increase; decrease
[3] decrease; decrease
[4] decrease; increase
13) Historical evidence has shown that, when the Fed significantly increases money supply, U.S. inflation tends to ______ shortly thereafter which in turn places ______ pressure on U.S. interest rates.
[1] increase; downward
[2] increase; downward
[3] decrease; downward
[4] decrease; upward
14) Securities with maturities of one year or less are class¬ified as ____________________.
[1] capital market instruments.
[2] money market instruments.
[3] preferred stock.
[4] none of the above
15) The appropriate discount rate for valuing any bond is the____________.
[1] bond's coupon rate.
[2] bond's coupon rate adjusted for the expected infla¬tion rate over the life of the bond.
[3] Treasury bill rate with an adjustment to include a risk premium if one exists.
[4] yield that could be earned on alternative invest¬ments with similar risk and maturity.
16) A call provision normally _______________
[1] allows the firm to call bonds at par value.
[2] gives the firm the option to call bonds at market value.
[3] allows the firm to call bonds at a price below par value.
[4] requires the firm to call bonds at a price above par value.
17) If security prices fully reflect all market related informa¬tion (such as historical price patterns) but do not fully reflect all other public informa¬tion, security markets are
[1] weak form efficient.
[2] semi strong form efficient.
[3] strong form efficient.
[4] B and C.
E) None of the above.
18) Assume that you purchased bonds of a corporation one year ago. Today, it is announced that the firm plans a leveraged buyout. The market value of your bonds will ______ as a result.
____________
[1] rise
[2] decline
[3] be zero
[4] be unaffected
19) If the economy weakens, there is _________ pressure on interest rates. If the Federal Reserve increases the money supply there is ______ pressure on interest rates (assume that inflationary expectations are not affecte[4].
[1] upward; upward
[2] upward; downward
[3] downward; upward
[4] downward; downward
20) If interest rates suddenly ____________, those existing bonds that have a call feature are __________ likely to be called.______________
[1] decline; more
[2] decline; less
[3] increase; more
[4] none of the above
21) The ______ is commonly used to determine what a stock's price should have been.
[1] capital asset pricing model
[2] Treynor Index
[3] Sharpe Index
[4] B and C
22) When financial institutions expect interest rates to ______, they may ______.
[1] increase; sell bonds and buy short term securities
[2] increase; sell short term securities and buy bonds
[3] decrease; sell bonds and buy short term securities
[4] B and C
23) Which of the following transactions would not be considered a secondary market transaction?
____________
[1] an individual investor purchases some existing shares of stock in IBM through his broker
[2] an institutional investor sells some Disney stock through its broker
[3] Microsoft issues new shares of common stock using its investment bank
[4] all of the above would occur on the New York Stock Exchange
24) An institution that originates and holds a fixed rate mortgage is adversely affected by _______ interest rates; the borrower who was provided the mortgage is adversely affected by _______ interest rates.
[1] stable; decreasing
[2] increasing; stable
[3] increasing; decreasing
[4] decreasing; increasing
25) Mortgage companies specialize in ___________________.
[1] purchasing mortgages originated by other financial institutions.
[2] investing and maintaining mortgages that they create.
[3] originating mortgages and selling those mortgages.
[4] borrowing money through the creation of mortgages that is used to invest in real estate.
26) A short-interest ratio of 20 or more indicates that many investors ___________
[1] believe that the stock price is currently overvalued.
[2] believe that the stock price is currently undervalued.
[3] are selling the stock short.
[4] both A and C.
27) The first-time issuance of shares by a specific firm to the public is referred to as a(n)
[1] stock repurchase.
[2] secondary stock offering.
[3] initial rights issue.
[4] initial public offering (IPO).
28) If the Treasury uses a relatively large proportion of ______ debt to finance the deficit, this may place upward pressure on ______ interest rates, and corporations may reduce their investment in fixed assets.
[1] long-term; long-term
[2] long-term; short-term
[3] short-term; long-term
[4] b and c
29) American Depository Receipts (ADRs) are attractive to U.S. investors because __________
[1] U.S. analysts do not follow them closely.
[2] companies represented by ADRs are required to file financial statements consistent with those in the United States.
[3] both A and B.
[4] reliable quotes on ADR prices are sporadically available.
30) Shareholders can most easily measure a firm's performance by monitoring changes in its __________ over time.
[1] share price
[2] employee job descriptions
[3] Board of Directors
[4] asset size
31) Treasury bills are sold through _____ when initially issued. ______________
[1] insurance companies
[2] commercial paper dealers
[3] auction
[4] finance companies
32) Global crowding out is described in the text to mean the impact of ________________.
[1] excessive U.S. population growth on interest rates.
[2] excessive global population growth on interest rates.
[3] an excessive budget deficit in one country on interest rates of another country.
[4] an excessive budget deficit in one country on exchange rates.
33) ____________ facilitate transactions on the New York Stock Exchange by taking positions in specific stocks; they also stand ready to buy or sell these stocks.
[1] Floor brokers
[2] Capstone members
[3] Specialists
[4] none of the above