Multiple Choice Quiz
(See related pages)
1
Which of the following is an example of a money market instrument?
Mortgage-backed securities
A)
B)
C)
D)
Federal funds
Treasury notes
Federal agency debt
2
Which of the following observations about preferred stock dividends is true?
For tax purposes, preferred stock payments are treated as interest on debt.
A)
B)
Preferred dividends are usually noncumulative.
C)
Preferred stock payments are not tax-deductible expenses for the firm paying the
dividend.
D)
Preferred dividends must be paid in full after the dividends are be paid to holders of
common stock.
3
Callable bonds give the issuing company the option to _______________.
pay no coupon on the bonds until maturity
A)
B)
C)
cancel the company's obligation to pay bond interest
convert the bonds to common stock
D)
repurchase the bonds
4
Which of the following observations concerning repos is correct?
They are short-term sales of government securities.
A)
B)
C)
D)
They do not involve repurchase clauses.
They are considered unsafe in terms of credit risk.
The term of the transaction is usually one year or more.
5
A trader who takes a long position in a corn futures contract has _______________ to
______________ a specified quantity of corn on the delivery date, at an agreed upon price.
an obligation; buy
A)
B)
C)
D)
an obligation; sell
the right; sell
the right; buy
6
The Dow Jones Industrial Average is a _______________.
a market value-weighted index
A)
B)
market-share weighted index
C)
D)
a price-weighted average
float-adjusted average
7
The price which the owner of a put option receives from selling the stock named in the
option contract is called the _______________.
cut-off price
A)
B)
C)
D)
expiration price
exercise price
market price
8
In the event of a company's bankruptcy, _______________.
the firm's bondholders are individually liable for the firm's obligations
A)
B)
C)
D)
shareholders' maximum loss is their original investment plus legal costs
bondholders have a claim to what remains from the liquidation of the firm's assets
after paying shareholders' claims
common shareholders are last in line to receive their claims on the firm's assets
9
A bond that has no collateral is called a _______________.
debenture
A)
B)
C)
D)
zero-coupon bond
callable bond
convertible bond
10
Which of the following is characteristic of common stock as an investment?
Capital security
A)
B)
C)
D)
Unlimited liability
Residual claimant
Assured dividends
11
What are the characteristics of money market securities?
Short maturity, low liquidity and high credit risk
A)
B)
C)
D)
Short maturity, low liquidity and low credit risk
Short maturity, high liquidity and high credit risk
Short maturity, high liquidity and low credit risk
12
A bond denominated in a currency other than that of the country in which it is issued is
known as a _______________.
A)
B)
C)
D)
swap
Yankee bond
Eurobond
debenture
13
Investors purchase Treasury bills at a _______________ from the stated maturity value
and receive a payment equal to the _______________ of the bill at maturity.
discount; face value
A)
B)
C)
D)
premium; face value plus interest
discount; face value plus interest
premium; face value
14
Which of the following tells us how much stock purchasers must pay per dollar of earnings
the firm generates for each share?
EBITDA
A)
B)
C)
D)
Dividend yield
Earnings per share
P/E ratio
15
Which of the following observations describes a mortgage-backed security?
Mortgage lenders originate loans and then sell packages of these loans in the
A)
primary market.
B)
Issuers of mortgage-backed securities buy their claim to the cash outflows from the
mortgages as loans are paid off.
C)
It is an ownership claim in a pool of mortgages or an obligation that is secured by
such a pool.
D)
Investors cannot buy and sell securitized mortgages like other bonds.