Question 1

2 / 2 pts

The largest secondary money market in the U.S. is the market for T-bills.

  

True

   

False

 

 

Question 2

2 / 2 pts

With TIPS, the security's coupon rate is changed every six months by the inflation rate as  measured by the CPI.

  

True

   

False

 

 

Question 3

2 / 2 pts

Fed funds are generally short term unsecured loans while repos are short term secured loans.

  

True

   

False

 

 

Question 4

2 / 2 pts

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

  

True

   

False

 

 

Question 5

2 / 2 pts

A banker’s acceptance has a greater than one year maturity.

  

True

   

False

 

 

Question 6

1 / 1 pts

Which of the following is the major monetary policy making body of the U.S. Federal Reserve System?

 

  

FOMC

   

OCC

   

FRB bank presidents

   

U.S. Congress

 

 

IncorrectQuestion 7

0 / 1 pts

Depository institutions include:

  

Banks

   

Thrifts

   

Finance companies

   

All of the above

   

Banks and thrifts

 

 

Question 8

1 / 1 pts

According to the Unbiased Expectations Theory

  

markets are segmented and buyers stay in their own segment

   

liquidity premiums are negative and time varying

   

the term structure will most often be upward sloping

   

the long-term spot rate is an average of the current and expected future short-term interest rates

   

forward rates are less than the expected future spot rates

 

 

Question 9

1 / 1 pts

The fed funds rate is the rate that

  

Banks charge for loans to corporate customers

   

Banks charge to lend foreign exchange to customers

   

The Federal Reserve charges on emergency loans to commercial banks

   

Banks charge each other on loans of excess reserves

   

Banks charge securities dealers to finance their inventory

 

 

Question 10

1 / 1 pts

If the Fed wishes to stimulate the economy it could

 

I.  Buy U.S. government securities

II. Raise the discount rate

III. Lower reserve requirements

  

I and III only

   

II and III only

   

I and II only

   

II only

 

 

UnansweredQuestion 11

0 / 5 pts

What are three (3) advantages of owning bond mutual funds as opposed to having individual bonds?

Your Answer:

 

Question 12

4 / 4 pts

An eight-year corporate bond has a 7 percent coupon rate.  What should be the bond's price if the required return is 6 percent and the bond pays interest semiannually?

Your Answer:

Ans: Value of bond = Interest * PVAF (3 % , 16 years ) + Face value of bond at the end of 16 years * PVF (3%, 16 years)

= 1000 * 7% * 1/2 * 12.5611 + 1000 * 0.6231

= 439.6386 + 623.1669

= 1062.81

 

Question 13

4 / 4 pts

An investor is in the 28% federal tax bracket. For this investor a municipal bond paying 6% interest is equivalent to a corporate bond paying what interest rate?

Your Answer:

6%(1-28)=

0.06/(1-0.28)=0.83333

=8.33%

 

Question 14

2 / 4 pts

The interest rate on 30 Year T-bonds is 3¼%, while the coupon rate for UPS bonds is 4½%, for Wal-Mart the rate is 6 ½% and 5.6% for CIT Group. Which corporate bond has the highest default risk premium?

Your Answer:

Default risk premium is higher for Walmart.

Default risk premium is effectively the difference between debt instrument rate and risk free rate. From the given data the coupon rate is highest for Walmart and  it has high default risk premium.

 

 

Question 15

4 / 4 pts

You have the possibility to purchase a money market instrument maturing in 150 days, which offers a 5% per annum rate. What would be the effective annual interest rate on this security?

Your Answer:

 calculate holding period yield = 5% * 150/365 = 2.0548%

Effective aanual yield = (1 + HPY) ^365/t – 1
Effective aanual yield = (1+ 0.020548) ^(365/150) - 1
Effective aanual yield = 1.050739 - 1 = 5.0738% (approximate)