Questions -
QUESTION 1 - The term "financial system" refers to the collection of markets, individuals and institutions, laws, regulations and techniques through which securities are traded and interest rates determined.
True
False
QUESTION 2 - The primary task of a financial system is to move scarce loanable funds from those who save to those who borrow to buy goods and services and to make investments in new equipment and facilities so that the global economy can grow and increase the standard of living enjoyed by its citizens.
True
False
QUESTION 3 - The largest borrower in the U.S. money market is Citibank, the nation's largest commercial bank.
True
False
QUESTION 4 - It is necessary for a monetary unit to have an intrinsic value as a commodity to be accepted as a medium of exchange.
True
False
QUESTION 5 - The household sector is typically a net lender (or supplier) of funds in the financial marketplace.
True
False
QUESTION 6 - Interest rates on securities issued by borrowers in the economy other than the government must reflect the different types and degrees of risk that investors in those securities must assume.
True
False
QUESTION 7 - The risk-free interest rate represents the return you can expect for taking no risk.
True
False
QUESTION 8 - The dividend yield is the only return that a shareholder can expect from share ownership.
True
False
QUESTION 9 - One of the most important contributions of the financial markets is to make possible the exchange of current income/consumption for greater consumption in the future.
True
False
QUESTION 10 - For households, savings are equal to personal income minus current consumption and minus taxes.
True
False
QUESTION 11 - What is meant by the term "red herring?"
A Red Herring is an opinion on a stock written by an analyst who does not usually cover the stock in question
A Red Herring is a preliminary prospectus that can be sent to a prospective buyer of an IPO.
A Red Herring is a red silk neck tie that has a herring bone pattern woven into it.
A Red Herring is a term for a sales pitch that brokers can make to their clients.
None of the above
QUESTION 12 - Net wealth (also called net worth) for an economic unit equals:
Total assets plus equity capital
Total assets less real (non-financial) assets
Total assets minus total liabilities
Total savings plus holding of financial assets
None of the above
QUESTION 13 - Which one of the following is not a financial asset?
A single family home
A Common stock
A Corporate Bond
A Municipal Bond
A T-Bill
QUESTION 14 - The government sector in the economy usually is a:
Balanced-budget sector
Surplus-budget sector
Deficit-budget sector
Financially neutral sector
None of the above
QUESTION 15 - The revenue stream associated with a bond normally consists of
Periodic identical coupon payments
Par value every six months
Par value at maturity
A and C are correct
None of the above
QUESTION 16 - How does the interest rate measure known as the holding-period yield differ from the yield to maturity?
QUESTION 17 - What is an adjustable rate mortgage (ARM)? How does one work? There is a type of ARM called an Option ARM. What are they and how do they work?
QUESTION 18 - A municipal bond you are considering as an investment currently pays a yield of 6.75%.
a) Calculate the tax equivalent yield if your marginal tax rate is 28%.
b) Calculate the tax equivalent yield if your marginal tax rate is 21%
Show your work.
QUESTION 19 - Explain why bond yields and bond prices are inversely related? What does this relationship tell you about the market value of a bond on a day when interest rates rise. Would you want to be managing a portfolio of bonds on that day? Why or why not?
QUESTION 20 - What is inflation? Why is it important?