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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


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)

tax treatment.
term to maturity.
default risk.


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

       The government
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.


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
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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