Question 1

Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?

Accepted Answer

A)   15.4%
B)   23.7%
C)   39.5%
D)   17.3%
E)   12.4%

Question 2

Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

Accepted Answer

A)   Repos
B)   Bankers'acceptances
C)   Eurodollars
D)   Federal funds

Question 3

With regard to a futures contract, the short position is held by

Accepted Answer

A)   the trader who bought the contract at the largest discount.
B)   the trader who has to travel the farthest distance to deliver the commodity.
C)   the trader who plans to hold the contract open for the lengthiest time period.
D)   the trader who commits to purchasing the commodity on the delivery date.
E)   the trader who commits to delivering the commodity on the delivery date.

Question 4

The maximum maturity of commercial paper that can be issued without SEC registration is

Accepted Answer

A)   270 days.
B)   180 days.
C)   90 days.
D)   30 days.

Question 5

With regard to a futures contract, the long position is held by

Accepted Answer

A)   the trader who bought the contract at the largest discount.
B)   the trader who has to travel the farthest distance to deliver the commodity.
C)   the trader who plans to hold the contract open for the lengthiest time period.
D)   the trader who commits to purchasing the commodity on the delivery date.
E)   the trader who commits to delivering the commodity on the delivery date.

Question 6

Treasury Inflation-Protected Securities (TIPS)

Accepted Answer

A)   pay a fixed interest rate for life.
B)   pay a variable interest rate that is indexed to inflation but maintain a constant principal.
C)   provide a constant stream of income in real (inflation-adjusted)  dollars.
D)   have their principal adjusted in proportion to the Consumer Price Index.
E)   provide a constant stream of income in real (inflation-adjusted)  dollars and have their principal adjusted in proportion to the Consumer Price Index.

Question 7

The largest component of the fixed-income market is _______ debt.

Accepted Answer

A)   Treasury
B)   asset-backed
C)   corporate
D)   tax-exempt
E)   mortgage-backed

Question 8

In order for you to be indifferent between the after-tax returns on a corporate bond paying 7% and a tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be?

Accepted Answer

A)   22.6%
B)   21.4%
C)   26.2%
D)   19.8%
E)   Cannot be determined from the information given.

Question 9

The yield to maturity reported in the financial pages for Treasury securities

Accepted Answer

A)   is calculated by compounding the semiannual yield.
B)   is calculated by doubling the semiannual yield.
C)   is also called the bond equivalent yield.
D)   is calculated as the yield-to-call for premium bonds.
E)   is calculated by doubling the semiannual yield and is also called the bond equivalent yield.

Question 10

Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

Accepted Answer

A)   $10,000
B)   $100,000
C)   $250,000
D)   $500,000

Question 11

The ____ index represents the performance of the Japanese stock market.

Accepted Answer

A)   DAX
B)   FTSE
C)   Nikkei
D)   Hang Seng

Question 12

A call option allows the buyer to

Accepted Answer

A)   sell the underlying asset at the exercise price on or before the expiration date.
B)   buy the underlying asset at the exercise price on or before the expiration date.
C)   sell the option in the open market prior to expiration.
D)   sell the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.
E)   buy the underlying asset at the exercise price on or before the expiration date and sell the option in the open market prior to expiration.

Question 13

The money market is a subsector of the

Accepted Answer

A)   commodity market.
B)   capital market.
C)   derivatives market.
D)   equity market.
E)   None of the options are correct.

Question 14

In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

Accepted Answer

A)   33%
B)   72%
C)   15%
D)   28%
E)   Cannot be determined from the information given.

Question 15

Which of the following indices is(are)  market-value weighted?
I. The New York Stock Exchange Composite Index
II. The Standard and Poor's 500 Stock Index
III. The Dow Jones Industrial Average

Accepted Answer

A)   I only
B)   I and II only
C)   I and III only
D)   I, II, and III
E)   II and III only

Question 16

The Dow Jones Industrial Average (DJIA)  is computed by

Accepted Answer

A)   adding the prices of 30 large "blue-chip" stocks and dividing by 30.
B)   calculating the total market value of the 30 firms in the index and dividing by 30.
C)   adding the prices of the 30 stocks in the index and dividing by a divisor.
D)   adding the prices of the 500 stocks in the index and dividing by a divisor.
E)   adding the prices of the 30 stocks in the index and dividing by the value of these stocks as of some base

Question 17

An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

Accepted Answer

A)   7.2%; 9.1%
B)   7.2%; 7.735%
C)   6.12%; 7.735%
D)   8.471%; 9.1%

Question 18

For a taxpayer in the 25% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

Accepted Answer

A)   7.33%.
B)   10.75%.
C)   5.5%.
D)   4.125%.

Question 19

Deposits of commercial banks at the Federal Reserve Bank are called

Accepted Answer

A)   bankers'acceptances.
B)   repurchase agreements.
C)   time deposits.
D)   federal funds.
E)   reserve requirements.

Question 20

A bond that can be retired prior to maturity by the issuer is a(n)  ____________ bond.

Accepted Answer

A)   convertible
B)   secured
C)   unsecured
D)   callable
E)   Yankee

Exam 2: Asset Classes and Financial Instruments

The money market is a subsector of the

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With regard to a futures contract, the long position is held by

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Which of the following is used extensively in foreign trade when the creditworthiness of one trader is unknown to the trading partner?

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Certificates of deposit are insured for up to ____________ in the event of bank insolvency.

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The Dow Jones Industrial Average (DJIA) is computed by

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In order for you to be indifferent between the after-tax returns on a corporate bond paying 7% and a tax-exempt municipal bond paying 5.5%, what would your tax bracket need to be?

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Suppose an investor is considering a corporate bond with a 7.17% before-tax yield and a municipal bond with a 5.93% before-tax yield. At what marginal tax rate would the investor be indifferent between investing in the corporate and investing in the muni?

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The largest component of the fixed-income market is _______ debt.

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A call option allows the buyer to

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With regard to a futures contract, the short position is held by

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Deposits of commercial banks at the Federal Reserve Bank are called

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Which of the following indices is(are) market-value weighted? I. The New York Stock Exchange Composite Index II. The Standard and Poor's 500 Stock Index III. The Dow Jones Industrial Average

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For a taxpayer in the 25% marginal tax bracket, a 20-year municipal bond currently yielding 5.5% would offer an equivalent taxable yield of

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The ____ index represents the performance of the Japanese stock market.

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Treasury Inflation-Protected Securities (TIPS)

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An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

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A bond that can be retired prior to maturity by the issuer is a(n) ____________ bond.

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In order for you to be indifferent between the after-tax returns on a corporate bond paying 8.5% and a tax-exempt municipal bond paying 6.12%, what would your tax bracket need to be?

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The yield to maturity reported in the financial pages for Treasury securities

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The maximum maturity of commercial paper that can be issued without SEC registration is

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An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 15% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be __ and , respectively.

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