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(TCO 5) The yield curve is a plot of (Points 4) maturity changes as risk changes. yields of securities with different levels of default risk

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1. (TCO 5) The yield curve is a plot of (Points : 4)

       maturity changes as risk changes.
       
yields of securities with different levels of default risk.
       
yields by maturity of securities with similar default risk.
       
interest rates over time.

 

Question 2.2. (TCO 5) According to the expectations theory of the term structure of interest rates, if the yield curve slopes _______, the markets expect short-term interest rates to _______ in the future. (Points : 4)

       upward; increase
       
downward; decrease
       
upward; decrease
       
Both – upward; increase and downward; decrease

 

Question 3.3. (TCO 5) According to the expectations theory, what is the one-year forward rate three years from now if three- and four-year spot rates are 5.50% and 5.80%, respectively? (Points : 4)

       The rate cannot be calculated from the information above
       
6.2%
       
6.7%
       
5.6%

 

Question 4.4. (TCO 5) The major determinant of the bond ratings assigned by Moody's, Standard and Poor's, or Fitch is (Points : 4)

       marketability.
       
tax treatment.
       
term to maturity.
       
default risk.

 

Question 5.5. (TCO 5) _____ provide bond ratings. (Points : 4)

       The government
       
Investors
       
Corporations
       
Rating agencies

 

Question 6.6. (TCO 6) Investors in the money markets are generally not willing to take which of the following risks? (Points : 4)

       Default risk
       
Interest rate risk
       
Liquidity risk
       
All of the above

 

Question 7.7. (TCO 6) Federal Funds are (Points : 4)

       Treasury deposits.
       
Federal Reserve assets.
       
commercial bank deposits at the Federal Reserve.
       
overnight interbank loans.

 

Question 8.8. (TCO 6) _____ is a money market security represented by the largest dollar amount outstanding. (Points : 4)

       Commercial paper
       
A municipal security
       
Negotiable CDs
       
Treasury bills

 

Question 9.9. (TCO 6) Which of the following securities are examples of a money market security? (Points : 4)

       Treasury bills
       
Certificates of deposit
       
Banker's acceptance
       
All of the above

 

Question 10.10. (TCO 6) If a firm is to sell securities with the agreement to buy them back later at a higher price, this is a _____. (Points : 4)

       repurchase agreement
       
purchase agreement
       
reverse purchase agreement
       
reverse repurchase agreement

 

Question 11.11. (TCO 7) Capital markets received the largest supply of funds from (Points : 4)

       financial institutions.
       
state and local governments.
       
federal government.
       
households.

 

Question 12.12. (TCO 7) Corporations will typically use capital market financing for (Points : 4)

       new plant and equipment.
       
seasonal inventory needs.
       
a quarterly dividend payment.
       
the sale of common stock.

 

Question 13.13. (TCO 7) United States Treasury STRIP investments help to eliminate (Points : 4)

       default risk.
       
price risk.
       
reinvestment risk.
       
foreign exchange risk.

 

Question 14.14. (TCO 7) _____ would be least likely to purchase a tax-exempt municipal Bond. (Points : 4)

       Variables commercial bank
       
Casualty insurance company
       
Mutual funds
       
Individuals in low tax brackets

 

Question 15.15. (TCO 7) In the 1980s, which of the follow securities issues was popular with low credit quality businesses? (Points : 4)

       The municipal bond market
       
The junk bond market
       
The investment-grade bond market
       
The secondary market

 

Question 16.16. (TCO 7) Multinational firms look at Eurocurrency markets as a source of attractively priced working capital loans because (Points : 4)

       lower regulatory costs allow lenders to offer lower cost loans.
       
with transactions starting at $500,000, economies of scale provide better pricing.
       
higher credit checking costs and other processing costs lowers lending rates.
       
lower regulatory costs allow lenders to offer lower cost loans and With transactions starting at $500,000, economies of scale provide better pricing.

 

Question 17.17. (TCO 8) In a decreasing rate environment, with an ARM, most likely the (Points : 4)

       borrower's payments will increase.
       
maturity of the loan will be extended.
       
principal of the loan will increase.
       
borrower's payments will decrease.

 

Question 18.18. (TCO 8) If interest rates are expected to increase, most likely, the manager of a thrift institution would want to hold a _____ mortgage. (Points : 4)

       balloon payment, 10 years
       
rollover mortgage, two years
       
adjustable-rate mortgage, monthly
       
fixed-rate mortgage, 15 years

 

Question 19.19. (TCO 8) The _____ sector is the largest sector of the capital debt market. (Points : 4)

       corporate bonds
       
mortgages
       
state and municipal bonds
       
U.S. Treasury debt

 

Question 20.20. (TCO 8) The Federal Home Loan Mortgage Corporation (Freddie Mac) had an original purpose to (Points : 4)

       make home loans to low income individuals.
       
purchase the conventional mortgages from thrift institutions.
       
purchase the insured conventional mortgages from financial institutions.
       
purchase the government insured mortgages from thrift institutions.

 

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