Practical Financial Management 8th Edition by William R. Lasher - Test Bank
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Practical Financial Management 8th Edition by William R. Lasher - Test Bank

Practical Financial Management 8th Edition by William R. Lasher - Test Bank   Instant Download - Complete Test Bank With Answers     Sample Questions Are Posted Below   1. Which financial institution is not involved in the indirect method of financial intermediation?   a. Banks   b. Investment bankers   c. Mutual funds   …

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Practical Financial Management 8th Edition by William R. Lasher – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

1. Which financial institution is not involved in the indirect method of financial intermediation?
  a. Banks
  b. Investment bankers
  c. Mutual funds
  d. Pension funds
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:22 AM
2. Which of the following is not considered to be an institutional investor?
  a. Governments
  b. Pension funds
  c. Insurance companies
  d. Mutual funds
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:22 AM
3. Typically debt financing can be either short- or long-term, whereas equity financing is almost always long-term, the word “term” meaning:
  a. the time between a security’s issue and its retirement.
  b. the duration specified on all debt and equity securities.
  c. the amount of time necessary to realize the required return on the investment.
  d. All of the above
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:23 AM
4. The term of an investment can be described as either:
  a. long or short, long-term meaning any duration longer than five years.
  b. intermediate or short, intermediate being any duration longer than one year.
  c. long, intermediate, or short, intermediate being any duration longer than one year but shorter than five years.
  d. None of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:27 AM
5. The principal differences between capital markets and money markets are that:
  a. money and capital markets deal in the same securities, the only difference is term.
  b. both markets deal in short-term debt securities; however, capital markets deal also in equity securities which have an indefinite term.
  c. money markets deal only in short-term government debt.
  d. capital markets deal in long-term debt and equity securities, while money markets deal only in short-term debt.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:28 AM
6. Which of the following is/are a primary market transaction(s)?
  a. A company issues new stock.
  b. A company issues new bonds.
  c. An investor asks his broker to purchase 1,000 shares of Microsoft common stock from another stockholder.
  d. All of the above
  e. a. and b.
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:29 AM
7. The primary function of financial markets is to:
  a. ensure that interest and dividend payments are made to stockholders and bondholders.
  b. facilitate the payment for goods and services between producers and consumers.
  c. facilitate the movement of cash from savers to companies that need money.
  d. financial markets perform all of these functions.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:31 AM
8. Which of the following best describes the concept of maturity matching?
  a. Companies use funds from selling stocks to fund long-term projects and funds from selling bonds to fund short-term projects.
  b. Companies try to match the term of a project with the maturity of the financing that pays for it.
  c. Companies use funds from selling bonds to fund long-term projects and funds from selling stocks to fund short-term projects.
  d. Companies always use bonds to finance both short- and long-term projects because stocks have no maturity and therefore cannot be matched to the length of projects.
  e. None of the above describes the concept of maturity matching.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:31 AM
9. The sale of a 10-year bond by one investor to another investor would be considered a transaction that takes place in the:
  a. primary capital market.
  b. primary money market.
  c. secondary capital market.
  d. secondary money market.
  e. None of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:33 AM
10. Financial markets have the basic function of:
  a. providing liquidity.
  b. providing signaling and information.
  c. matching savers and users of funds.
  d. All the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:34 AM
11. Financial markets include:
  a. capital markets.
  b. money markets.
  c. primary markets.
  d. secondary markets.
  e. All of the above
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:36 AM
12. Financial intermediaries include:
  a. stock brokers.
  b. banks.
  c. securities dealers.
  d. All of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:37 AM
13. ____ markets deal in long-term securities having maturities greater than one year.
  a. Credit
  b. Money
  c. Super
  d. Capital
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:38 AM
14. ____ markets deal in short-term securities having maturities of one year or less.
  a. Credit
  b. Money
  c. Capital
  d. a and b only
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:40 AM
15. In the ____ market, the firm receives the proceeds from the sale of its securities.
  a. over-the-counter
  b. secondary
  c. fully integrated
  d. none of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:41 AM
16. Financial intermediaries are associated with:
  a. investment banks.
  b. direct transfers.
  c. indirect transfers.
  d. only money market transactions.
  e. b and c
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:42 AM
17. Financial intermediaries:
  a. make indirect transfers from investors to firms.
  b. pass securities through to investors.
  c. include stockbrokers.
  d. facilitate direct transfers from investors to firms.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:44 AM
18. The main purpose of an economy’s financial system is to facilitate the transfer of funds from:
  a. financial middlemen to financial intermediaries.
  b. consumer savers to business investors.
  c. primary claimholders to secondary claimholders.
  d. lenders to financial intermediaries.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:45 AM
19. Money markets deal in securities having maturities of ____; capital market securities have maturities ____.
  a. less than 18 months, greater than 18 months
  b. one year or less, greater than one year
  c. less than 9 months, greater than 9 months
  d. less than 6 months, greater than 6 months
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:46 AM
20. An investment banker is generally thought to be qualified to advise a corporation on a variety of matters, including all the following except:
  a. long range financial planning.
  b. the marketing of securities.
  c. the timing of securities.
  d. the firm’s new product marketing decisions.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:48 AM
21. Firms raise capital by issuing various types of ____ such as ____.
  a. securities, stocks and bonds
  b. consumer products, goods and services
  c. securities, interest and dividends
  d. taxes, bonds and savings accounts
  e. none of the above
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:51 AM
22. Which is not an example of a capital market security?
  a. Common stock
  b. A 30 day treasury bill
  c. Corporate bonds
  d. Preferred stock
  e. None of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:52 AM
23. A bank issuing a Certificate of Deposit (CD) to a depositor and then lending the money deposited to a business borrower is an example of a(n):
  a. direct transfer from a business to an investor.
  b. direct transfer through an investment bank.
  c. direct transfer through a financial intermediary.
  d. indirect transfer through an investment bank.
  e. indirect transfer through a financial intermediary.
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:53 AM
24. Which financial intermediary is not involved in the indirect method of financial intermediation?
  a. Investment banks
  b. Insurance companies
  c. Mutual funds
  d. Pension funds
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:54 AM
25. Which of the following would NOT be considered a capital market instrument?
  a. Common Stock
  b. Preferred Stock
  c. Treasury Bond
  d. Treasury Bill
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:55 AM
26. Money markets are markets for:
  a. foreign currency exchange.
  b. consumer automobile loans.
  c. corporate stocks.
  d. long-term bonds.
  e. short-term debt securities.
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:56 AM
27. Investment banks:
  a. help companies issue new securities.
  b. are part of the direct transfer of funds from investors to companies.
  c. generally line up buyers for new securities before they’re issued.
  d. All of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:58 AM
28. A thirty-year bond would be initially issued in which market(s)?
  a. Capital market
  b. Primary market
  c. Secondary market
  d. Both a and b
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 10:59 AM
29. A project’s duration should match the term of the financing that supports it. This is called the ____ principle.
  a. maturity matching
  b. term matching
  c. default matching
  d. repayment matching
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:04 AM
30. A five-year corporate bond would initially be issued in which market?
  a. Secondary market
  b. Primary market
  c. Money market
  d. None of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:05 AM
31. A sale of stock between two investors is a ____ market transaction.
  a. primary
  b. secondary
  c. money
  d. independent
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:06 AM
32. Which of the following is not a short-term debt instrument?
  a. Commercial paper
  b. Common stock
  c. Money market securities
  d. Treasury bills
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:07 AM
33. In order to “go public,” a company must take all of the following actions except:
  a. engage an investment bank to determine if a market exists for the company’s stock.
  b. prepare a prospectus.
  c. prepare a “red herring” and file it with the Commerce Department.
  d. receive approval of the prospectus from the SEC.
  e. offer stock to the public in an IPO.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:08 AM
34. The over-the-counter market differs from the New York Stock Exchange in that it:
  a. trades unlisted securities.
  b. is a physical trading place.
  c. uses the NASDAQ system.
  d. Both a & c
  e. All of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:10 AM
35. A red herring is:
  a. very volatile and risky.
  b. an unapproved prospectus.
  c. discloses information approved by the SEC.
  d. is given to an investor when a security is sold for the first time.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:11 AM
36. Which of the following is a characteristic(s) of initial public offerings (IPOs)?
  a. Very stable
  b. General public can get involved right away
  c. Institutions are the largest investors in IPOs
  d. Secondary market transaction
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:11 AM
37. The stock market is:
  a. an interconnected network of brokers and exchanges licensed by the government to assist investors in trading securities.
  b. located in a large building in New York City called the stock exchange.
  c. an exchange that allows people to trade stock certificates in person.
  d. very much like a department store in that stocks from different industries are traded.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:34 AM
38. Established through the Securities Exchange Act of 1934, the Securities and Exchange Commission is charged with the responsibility to:
  a. oversee financial market activities.
  b. promote fairness in stock dealings in public and private companies.
  c. enforce the laws preventing certain manipulative and deceptive behavior.
  d. a and c
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:35 AM
39. The Securities and Exchange Commission is responsible for:
  a. approving new issues of corporate stock.
  b. supervising the trading of securities.
  c. the enforcement of insider trading laws.
  d. All of the above
  e. a and b
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:36 AM
40. The document which details the issuer’s finances and must be provided to each potential buyer of the security is called the:
  a. indenture.
  b. tombstone.
  c. registration statement.
  d. prospectus.
  e. All of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:37 AM
41. The preliminary prospectus is commonly known as a(n):
  a. indenture.
  b. tombstone.
  c. registration statement.
  d. red herring.
  e. debenture.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:42 AM
42. The term “red herring” relates to the:
  a. SEC’s approval of a stock offering from a company whose future is questionable.
  b. circulation of the company’s prospectus prior to approval by the SEC.
  c. document distributed to potential investors that is stamped “incomplete information.”
  d. SEC’s conditional approval of the prospectus.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:43 AM
43. The initial public offerings, or IPOs:
  a. do not require the SEC’s final approval of the prospectus.
  b. always result in immediate wealth for the executives of the company who have divested most of their ownership through the offering.
  c. represent a very risky subdivision of the general stock market.
  d. All of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:43 AM
44. The over-the-counter market differs from the New York Stock Exchange in that:
  a. the stocks, although publicly traded, are not listed on an exchange.
  b. only relatively small companies are traded because larger companies are required to be traded on exchanges.
  c. NASDAQ quotations apply only to smaller, less capitalized firms.
  d. All of the above
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:44 AM
45. Which organization typically helps a company market new securities?
  a. Commercial bank
  b. Insurance company
  c. Investment bank
  d. Mutual fund
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:45 AM
46. The individual on the exchange floor who supervises trading in a stock and ensures that the market remains orderly is called a(n):
  a. institutional investor.
  b. floor broker.
  c. security analyst.
  d. designated market maker.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:48 AM
47. Which of the following is not true concerning privately held companies?
  a. Generally does not have a large number of shareholders.
  b. Cannot make sales solicitations across state lines.
  c. Sales are severely restricted by federal regulation.
  d. Stock cannot be sold to anyone other than current stockholders.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:49 AM
48. If a stock has a dividend yield of 1.50%, and pays an annual dividend of $.80, its price is:
  a. $11.25.
  b. $21.00.
  c. $53.33.
  d. None of the above.
ANSWER:  c
RATIONALE:  .80/.015=53.33
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:50 AM
49. Which of the following is an electronic exchange and does not have a physical location?
  a. American Stock Exchange
  b. NASDAQ
  c. New York Stock Exchange
  d. Money market
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:51 AM
50. In an efficient market:
  a. new information is quickly disseminated.
  b. an investor cannot consistently beat the market.
  c. all available information is reflected in stock price.
  d. all of the above.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:53 AM
51. Interest is defined as the:
  a. return on all investments.
  b. return on debt investments.
  c. return on equity investments.
  d. the one year return on investments in stocks or bonds.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:54 AM
52. The date on which a bond’s principal is paid off is its:
  a. call date.
  b. maturity date.
  c. redemption date.
  d. All of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:55 AM
53. Non-amortized debt requires:
  a. both interest and principal to be paid annually.
  b. principal to be repaid annually and interest to be paid semiannually.
  c. interest to be paid regularly and principal to be repaid at maturity.
  d. None of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:57 AM
54. Stock and bond markets:
  a. are independent of each other as to prevailing rates of return.
  b. offer identical returns in order to compete for the investors’ dollars.
  c. would offer identical returns if the respective investments had identical terms to maturity.
  d. offer returns that tend to move up and down together although equity returns are higher because stocks are riskier than bonds.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 11:58 AM
55. Interest rates and stock prices move:
  a. randomly exhibiting no causal relationship.
  b. in opposite directions.
  c. up and down together.
  d. None of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:01 PM
56. Investors demand higher returns on stock investments when:
  a. inflationary pressures are low.
  b. interest rates increase offering stockholders attractive alternative investment opportunities.
  c. the pure rate of interest changes to compensate for an economic slowdown.
  d. None of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:03 PM
57. Which of the following arises because long-term bond prices change more with interest rate movements than short-term bond prices?
  a. Liquidity risk
  b. Maturity risk
  c. Default risk
  d. Inflation risk
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:05 PM
58. Interest rates are set by:
  a. the forces of supply and demand in the market for debt.
  b. the Federal Reserve, the nation’s central bank which regulates the banking industry.
  c. senior banking executives on the basis of the funds banks have available to lend.
  d. the president and his council of economic advisors.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:07 PM
59. The increased volatility of longer term bonds in response to interest rate movements is reflected in the:
  a. pure interest rate.
  b. default risk premium.
  c. liquidity risk premium.
  d. maturity risk premium.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:08 PM
60. The supply of loanable funds ultimately depends on:
  a. the Federal Reserve’s monetary and economic policy.
  b. commercial banks’ inclination to lend at prevailing interest rates.
  c. the time preference for consumption.
  d. the opportunities available to use the funds.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:10 PM
61. If inflation is viewed as a “sustained increase in the general level of prices,” an increase in the price of a specific market basket of goods from $34.50 six months ago $35.71 today would suggest that the annual rate of inflation is:
  a. 3.4%.
  b. $1.21.
  c. 3.5%.
  d. 7.0%.
ANSWER:  d
RATIONALE:  (1.21/34.5) × 2 = .07
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:11 PM
62. Which of the following is not a source of risk?
  a. Liquidity risk
  b. Deferred consumption risk
  c. Maturity risk
  d. Default risk
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:11 PM
63. The interest rates we observe in the economy differ from the risk-free rate because of:
  a. the real rate of interest.
  b. diversification.
  c. risk premiums.
  d. all the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:12 PM
64. The term structure of interest rates or yield curve is the pattern of interest rate yields for securities that differ only in:
  a. default risk.
  b. liquidity premiums.
  c. the yield to maturity.
  d. the length of time to maturity.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:16 PM
65. The “yield curve”:
  a. always has a positive slope.
  b. shows the relationship between default risk and the return on securities.
  c. has constant slope and height over time.
  d. a and b
  e. None of the above
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:18 PM
66. The nominal interest rate on a loan:
  a. never equals its real interest rate.
  b. exceeds the real interest rate by a default risk premium.
  c. differs from the real interest rate by an inflation premium.
  d. cannot by directly observed.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:21 PM
67. The maturity risk premium reflects a preference by many lenders for:
  a. shorter maturities.
  b. reducing yields.
  c. high yield securities.
  d. longer maturities.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:22 PM
68. The interest rates we observe on financial instruments are based on the following components:
  a. the real risk-free rate.
  b. inflationary expectations.
  c. risk premiums.
  d. All the above
  e. None of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:23 PM
69. Which of the following is not a component of the interest rate model?
  a. Default risk premium
  b. The activities of the Federal Reserve Bank
  c. Pure interest rate
  d. Maturity risk premium
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:25 PM
70. Which of the following risk premiums apply to both corporate securities and federal government securities?
  a. Default risk only
  b. Liquidity risk only
  c. Maturity risk only
  d. Both default risk and liquidity risk
  e. Both liquidity risk and maturity risk
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:25 PM
71. Which of the following definitions does not describe the risk-free rate?
  a. The interest rate for a stable, prosperous company
  b. The pure rate plus an inflation premium
  c. The rate on a 90-day treasury bill
  d. The conceptual floor for the structure of interest rates
  e. All of the above describe the risk-free rate.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:26 PM
72. Which of the following theories can be used to explain the shape of both inverted and normal yield curves?
  a. The expectations theory only
  b. The liquidity preference theory only
  c. The market segmentation theory only
  d. Both the expectations theory and the liquidity preference theory
  e. Both the expectations theory and the market segmentation theory
ANSWER:  e
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:29 PM
73. Which of the following statements is/are TRUE?
  a. A yield curve plots interest rates against time to maturity.
  b. A normal yield curve is upward sloping.
  c. Average expected inflation is reflected in interest rates.
  d. Both a & c
  e. All of the above
ANSWER:  e
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:30 PM
74. A 30 year corporate bond pays a higher interest rate than a 30 year federal government bond. This is due to a higher ____ premium on the corporate bond.
  a. inflation
  b. default risk
  c. maturity risk
  d. Both a & b
  e. All of the above
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:31 PM
75. If the yield curve is normal, what is the interest rate on a 20-year Treasury bond, compared to the interest rate on a 5-year Treasury bond?
  a. The interest rate on the 20-year bond will be more than the interest rate on the 5-year bond.
  b. The interest rate on the 5-year bond will be more than the interest rate on the 20-year bond.
  c. The interest rates of the two bonds will be equal.
  d. It is impossible to tell without knowing the relative risks of the bonds.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:32 PM
76. The ____ theory states that the yield curve slopes upward or downward based on the predicted future interest rates.
  a. expectations
  b. liquidity preference
  c. market segmentation
  d. maturity risk
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:33 PM
77. An inverted yield curve:
  a. exists when short-term interest rates are higher than long-term interest rates.
  b. exists when long-term interest rates are higher than short-term interest rates.
  c. is also known as a normal yield curve.
  d. Both a & c
  e. Both b & c
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:34 PM
78. Which of the following is not associated with federal government debt?
  a. Liquidity risk
  b. Default risk
  c. Maturity Risk
  d. Both a & b
  e. All of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:35 PM
79. The yield curve is:
  a. inverted when short-term rates are higher than long-term rates.
  b. normal when it slopes upward to the right.
  c. a plot of interest rates versus term, also called the term structure of interest rates.
  d. All of the above
ANSWER:  d
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:37 PM
80. The liquidity preference theory of interest rates suggests that:
  a. interest rates move randomly and without a pattern.
  b. the yield curve is inverted because lenders prefer longer-term, more expensive debt.
  c. the yield curve is upward sloping because lenders prefer shorter-term loans.
  d. None of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:38 PM
81. The market segmentation theory proposes that:
  a. the yield curve is upward sloping since lenders prefer shorter-term loans.
  b. the debt market is represented by a single supply/demand diagram.
  c. the debt market is represented by a series of supply/demand diagrams each representing a different term, and that these operate independently of one another.
  d. the yield curve is inverted because lenders prefer longer-term loans at lower rates.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:39 PM
82. You have just looked up the stock quotation for Premier Images, Inc. in the Wall Street Journal. The PE ratio is listed as 20. The dividend is shown as $1.00, and the stock just closed (last) at $42.00. What are the yield % and the earnings per share (EPS) for Premier Images, Inc.?
  a. Yield = 2.4%; EPS = $2.10
  b. Yield = 2.4%; EPS = $5.00
  c. Yield = 2.4%; EPS = $20.00
  d. Yield = 5.0%; EPS = $2.10
  e. Yield = 5.0%; EPS = $5.00
ANSWER:  a
RATIONALE:  Yield = $1/$42 = 2.4%; EPS = $42/20 = $2.10
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:41 PM
83. If a stock that has earnings per share of $1.50 is quoted in the Wall Street Journal as having a price-earnings ratio of 13, the closing price on that day must be:
  a. $13.50.
  b. $15.50.
  c. $17.50.
  d. $19.50.
ANSWER:  d
RATIONALE:  Price per share = $1.50 × 13 = $19.50
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:42 PM
84. Given the following closing stock quote, what was the closing price two business days ago.
YTD 52 Weeks YLD VOL NET
% CHG Hi Lo STOCK (SYM) % PE 100s LAST CHG
21% 81 32 XYZ (XYZ) 2.5% 22 25000 51 +.50
  a. $50.50
  b. $51.00
  c. $51.50
  d. $52.00
ANSWER:  a
RATIONALE:  Prior day closing price = $51.00 – .50 = $50.50
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:43 PM
85. Economists forecast the following inflation rates for the next four years:
Year Inflation Rate
1 3%
2 4%
3 5%
4 6%
What inflation adjustment should be included in the interest rate on a three-year loan made today?
  a. 3%, because that’s the rate at the time the loan is made and borrowers won’t pay any more
  b. 4%, because that’s the average expected inflation rate over the life of the loan
  c. 6%, because that’s the rate that will exist when the lender is loaning the money out again
  d. 6%, because at a lower rate the lender will have lost purchasing power by the time it lends the money out again
ANSWER:  b
RATIONALE:  (3% + 4% + 5%)/3 = 4%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:44 PM
86. Economists forecast the following inflation rates for the next four years
Year Inflation Rate
1 3%
2 4%
3 5%
4 6%
What inflation adjustment should be included in the interest rate on a four-year loan made today?
  a. 3%, because that’s the rate at the time the loan is made and borrowers won’t pay any more
  b. 6%, because that’s the rate that will exist when the loan is repaid and the lender can loan the money out again
  c. 4.5%, because that’s the average expected inflation rate over the life of the loan
  d. at least 7%, because the lender needs to protect itself from unexpectedly high inflation rates
ANSWER:  c
RATIONALE:  (3% + 4% + 5% + 6%)/4 = 4.5%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:45 PM
87. Assume that the pure interest rate is expected to be 3% for the foreseeable future, and inflation is expected to be 3%, 4% and 5% for each of the next three years and 6% thereafter. What is the base rate component for a 10-year bond?
  a. 6.00%
  b. 7.40%
  c. 8.00%
  d. 8.20%
  e. 9.00%
ANSWER:  d
RATIONALE:  (3% + [3% + 4% + 5%(3) + 6%(5)]/10 = 8.20%)
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:46 PM
88. Use the following information to calculate the interest rate on an eight-year bond just issued by Becher Inc.
Inflation: next two years = 2.5%
            year 3 and beyond = 4.5%
Pure Rate = 2.0%
Maturity Risk Premium = zero for a 1-year maturity, increasing by 0.1% each year thereafter
Default Risk Premium = 1.5%
Liquidity Risk Premium = 0.0% for treasuries; 0.5% for corporate bonds
  a. 7.7%
  b. 8.2%
  c. 8.7%
  d. 9.2%
  e. 9.4%
ANSWER:  c
RATIONALE:  INFL = (2(2.5%) + 6(4.5%))/8 = 4.0% Rate = 2.0% + 4.0% + 1.5% + 0.5% + 0.7% = 8.7%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 12:47 PM
89. Assume the expected inflation rate is 5% for each of the next two years and 7% per year for the three years after. Calculate the inflation adjustment (INFL) for a 5-year loan.
  a. 6.2%
  b. 6.5%
  c. 7.0%
  d. 7.5%
ANSWER:  a
RATIONALE:  INFL = (5% + 5% + 7% + 7% + 7%)/5 = 6.2%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 1:01 PM
90. What is the real rate of interest on a $50,000 loan if $62,000 repays the loan after one year, given a rate of inflation of 12%?
  a. 18%
  b. 24%
  c. 12%
  d. 10%
  e. 21%
ANSWER:  c
RATIONALE:  62/50 – 1 = 24% Real rate = 24% – 12% = 12%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 1:04 PM
91. An investor desires to earn a real interest rate of 6%. If the expected rate of inflation is 5%, what nominal rate of interest would the investor set on a loan if all risk premiums are zero?
  a. 8%
  b. 9%
  c. 10%
  d. 11%
  e. 12%
ANSWER:  d
RATIONALE:  6% + 5% =11%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:57 AM
DATE MODIFIED:  7/8/2015 1:06 PM
92. The yield on a certain 20-year corporate bond is 14%. The yield on 90-day treasury bills is 8% while 20-year treasury securities are yielding 12%. What is the default risk premium on the corporate bond?
  a. 0%
  b. 1%
  c. 2%
  d. 3%
  e. 4%
ANSWER:  c
RATIONALE:  MR = 12% – 8% = 4% 14% = 8% + DR + MR = 8% + DR + 4% DR = 2%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:14 PM
93. Marshall Manufacturing has just borrowed money at 13% for 2 years. The pure rate of interest is 2%. Marshall’s default risk premium is 4%, its liquidity risk premium is 2%, and its maturity risk premium is 0.5%. Inflation is expected to be 3% during the first year of the loan’s life. What does the lender expect the inflation rate to be in the loan’s second year?
  a. 3%
  b. 4%
  c. 5%
  d. 6%
ANSWER:  d
RATIONALE:  k = kPR + INFL + DR + LR + MR 13% = 2% + INFL + 4% + 2% + 0.5% INFL = 4.5% 4.5% = (3% + X)/2 X = 6% = Expected inflation rate in the loan’s second year
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:15 PM
94. Hatter Enterprises has just borrowed money at 12% for 3 years. The pure rate of interest is 2%. Hatter’s default risk premium is 3%, its liquidity risk premium is 3%, and its maturity risk premium is 1%. Inflation is expected to be 3% in the first year of the loan and 4% in the second year. What does the lender expect the inflation rate to be in the loan’s third year?
  a. 2%
  b. 4%
  c. 6%
  d. 8%
ANSWER:  a
RATIONALE:  k = kPR + INFL + DR + LR + MR 12% = 2% + INFL + 3% + 3% + 1% INFL = 3% 3% = (3% + 4%+ X)/3 X = 2% = Inflation rate in Year 3
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:16 PM
95. Riordan Services Inc. just issued a 2-year bond at a 15% interest rate. Riordan’s default risk premium has been estimated at 2.5%, its liquidity risk premium is about 2%, and its maturity risk premium is 3%. Inflation is expected to be 5% in the bond’s first year and 4% in its second year. What is the implied pure rate of interest?
  a. 3%
  b. 4%
  c. 5%
  d. 6%
ANSWER:  a
RATIONALE:  k = kPR + INFL + DR + LR + MR INFL = (5% + 4%)/2 = 4.5% 15% = kPR + 4.5% + 2.5% + 2% + 3% kPR = 3%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:17 PM
96. What would be the interest rate on a 10-year Treasury note, given the following information?
  kpr = 1%
  MR = 0.1% for a 1-year loan, increasing by 0.1% each additional year.
  LR = 0.5% for a security with low liquidity and 1.0% for one with very low liquidity.
  DR= 0 for a 1-year loan, 0.1% for a 2-year loan, increasing by 0.15 % for each additional
           year.
  Expected inflation rates:
   Year 1 = 3.0%
   Year 2 = 4.0%
   Year 3 and thereafter: 5.0%
  a. 6.7%
  b. 7.0%
  c. 7.2%
  d. 8.1%
ANSWER:  a
RATIONALE:  1% + 0.1%(10) + 0 + 0 + (3% + 4% + 5%(8))/10 = 1% + 1% + 4.7% = 6.7%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
OTHER:  TYPE: Problems
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:18 PM
97. The federal government can always avoid default on its issues because of its unique right to:
  a. change Treasury bond yields to zero at its discretion.
  b. print money.
  c. tax.
  d. wage war.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:19 PM
98. By which means does the production sector supply money to the consumption sector?
  a. Product purchases
  b. Wages
  c. Labor services
  d. Supplying goods and services
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:20 PM
99. By which means does the consumption sector supply money to the production sector?
  a. Product purchases
  b. Wages
  c. Labor services
  d. Supply of goods and services
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:20 PM
100. In general, the financial markets provide a vehicle for:
  a. the production sector to save money.
  b. the consumption sector to spend money.
  c. the consumption sector to invest money.
  d. the production sector to supply money to the consumption sector.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:21 PM
101. Which is an example of debt financing?
  a. Issuing stock to raise capital
  b. Using the company’s earnings to fund a project
  c. A leasing agreement
  d. Issuing bonds to raise capital
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:22 PM
102. ____ are traded in capital markets.
  a. Only stocks
  b. Only bonds
  c. Long-term bonds and stocks
  d. Only short-term bonds
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:25 PM
103. Assuming a project is expected to last fifteen years, which form of funding would be most consistent with the idea of maturity matching?
  a. Fifteen-year bonds issued in the money market
  b. Fifteen-year bonds issued in the capital market
  c. Stock issued in the capital market
  d. Stock issued in the money market
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:26 PM
104. Which statement is true about institutional investors?
  a. Institutional investors are responsible for the majority of trading on major exchanges.
  b. Institutional investors own the majority of stock listed on the major exchanges.
  c. Institutional investors tend to not be financial intermediaries.
  d. Institutional investors are not influential in setting prices in the secondary market.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:27 PM
105. What is the role of a designated market maker?
  a. The same role as a floor broker
  b. The same role as a local broker
  c. To trade securities that are not traded on an exchange
  d. To supervise each stock traded in an auction-like processes
ANSWER:  d
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:28 PM
106. Which exchange does not have a physical location?
  a. New York Stock Exchange (NYSE)
  b. American Stock Exchange (AMEX)
  c. National Association of Securities Dealers Automated Quotation System (NASDAQ)
  d. Securities and Exchange Commission (SEC)
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:29 PM
107. Which of the following is associated with the Sarbanes-Oxley Act?
  a. PCAOB now monitors the activities of public accounting firms.
  b. Auditing firms should provide clients with management consulting.
  c. Audit manager’s tenure with one client should be limited to five years.
  d. Firms in the same industry should review each other’s accounting records.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:31 PM
108. Which is not associated with the Sarbanes-Oxley Act of 2002?
  a. Auditors cannot provide clients with bookkeeping services.
  b. Auditors do not report to CEOS and CFOs.
  c. Senior managers for auditing firms cannot supervise the audit of a given client for more than five years.
  d. The accounting industry maintains self-regulation.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:32 PM
109. Which of the following are not affected by the Sarbanes-Oxley Act of 2002?
  a. Board of directors
  b. Floor brokers
  c. Securities analysts
  d. CFOs
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:34 PM
110. Which is not affected by the Sarbanes-Oxley Act of 2002?
  a. The auditing function of the firm.
  b. The structure of the employee pension plan for non-executives.
  c. Executive compensation packages.
  d. The ability of the CEO to borrow money from the firm.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:35 PM
111. The SOX now requires _____ to certify that they believe in their own financial reports.
  a. consultants
  b. brokerage firms
  c. shareholders
  d. analysts
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 1:36 PM
112. Which of the following is a part of corporate responsibility provisions of the Sarbanes-Oxley Act?
  a. Brokerage firms analysts must certify that they believe their own reports.
  b. CEOs and CFOs must certify the correctness of financial statements.
  c. Auditing firms may no longer provide management consulting services.
  d. Creation of the Public Company Accounting Oversight Board.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:42 PM
113. Banks pay interest on deposits and lend that money to borrowers at higher rates. This rate difference is called:
  a. a default.
  b. a premium.
  c. a spread.
  d. a quote.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:44 PM
114. Which of the following is true of collateralized debt obligations (CDOs)?
  a. They are pools of assets that have zero default risk.
  b. They give investors rights to shares of streams of money from pools of mortgages.
  c. They offer very low returns and they are safe.
  d. Their values are easily established.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:45 PM
115. Predatory lending describes:
  a. a staggering increase in monthly payments leading to default.
  b. monthly payments that are lower than monthly interest charges.
  c. commission-driven brokers selling loans to people they know can’t afford them.
  d. loans extended to borrowers without proof of incomes.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:46 PM
116. In a(n) _____ loan, early payments are lower than the monthly interest charge.
  a. zero-down loan
  b. adjustable-rate mortgage
  c. negative amortization
  d. Alt-A loan
ANSWER:  c
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:47 PM
117. Which of the following is not true of CDOs?
  a. They are purchased by banks and worldwide.
  b. They are traded in primary and secondary markets.
  c. Their ratings from rating agencies are usually low.
  d. Their valuation is usually uncertain.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:48 PM
118. To create CDOs, a bank sells most of its loans to _____ that specializes in issuing securities and bundles the loans into a pool.
  a. an investment bank
  b. a federal bank
  c. the government
  d. borrowers
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:49 PM
119. In loans negative amortization means:
  a. commission driven brokers sell loans to people who cannot afford them.
  b. loans are granted to borrowers without proof of income.
  c. early payments are lower than monthly interest charges.
  d. interest is charged at rates that move with the market.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:51 PM
120. Which of the following is true of the credit default swaps (CDSs)?
  a. The CDS buyer has to own the debt security.
  b. The CDS seller is not government regulated.
  c. The CDS seller is required to carry cash reserves to cover losses.
  d. The CDS contracts are not traded in secondary market.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:51 PM
121. Consumer savings equals:
  a. industrial savings.
  b. industrial investment.
  c. financial rewards.
  d. financial risk.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:52 PM
122. Financial markets connect:
  a. production’s need for savings with consumption’s available money.
  b. consumption’s need for money with production’s available savings.
  c. production’s need for money with consumption’s available spending.
  d. production’s need for money with consumption’s available savings.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:54 PM
123. A project’s duration should match the term of the financing that it supports. This is called:
  a. project matching.
  b. maturity matching.
  c. market matching.
  d. None of these are correct.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:55 PM
124. Capital markets deal in:
  a. short- term stock.
  b. short-term debt securities.
  c. municipal bonds.
  d. long -term debt and stock.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:56 PM
125. Money markets deal in:
  a. long-term equities.
  b. short-term equities.
  c. long-term debt.
  d. short-term debt.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:57 PM
126. After the initial sale of a security, subsequent sales between investors are carried out in the:
  a. stock market.
  b. financial market.
  c. secondary market.
  d. primary market.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:58 PM
127. A financial intermediary sells shares in itself and invests the:
  a. funds collectively on behalf of its investors.
  b. shares with a fund manager.
  c. funds exclusively on behalf of its shareholders.
  d. shares with a broker.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 3:59 PM
128. Financial intermediaries are:
  a. pension funds.
  b. bond markets.
  c. credit unions.
  d. stock markets.
ANSWER:  a
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:00 PM
129. Floor brokers:
  a. trade on the floor of the stock exchange.
  b. specialize and make markets in designated securities.
  c. take orders for buyers and sellers, and execute transactions.
  d. Floor brokers do all of these things.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:01 PM
130. Privately-held firms:
  a. cannot sell securities to the general public.
  b. can sell securities with restriction.
  c. can sell securities without restriction.
  d. None of these are correct.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:03 PM
131. An unapproved prospectus is called:
  a. a red letter.
  b. a saltwater investment.
  c. a red herring.
  d. an unapproved offering.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:04 PM
132. The market for initial public offerings (IPOs) is very:
  a. safe and risk free.
  b. safe, but risky.
  c. volatile and risky.
  d. lucrative.
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:06 PM
133. Stock price manipulation by executives results in massive investor _____.
  a. fraud
  b. losses
  c. ethical violations
  d. All of these are correct.
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:08 PM
134. A(n) _____ is a situation that tempts people to act in immoral and unethical ways.
  a. agency problem
  b. arbitrage
  c. moral hazard
  d. oversight
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:09 PM
135. A moral hazard is a situation that tempts people to act in immoral or unethical ways. Which of the following is true of a moral hazard?
  a. It leads auditors to ensure compliance with accounting standards.
  b. It can lead to the suppression of unfavorable information by management.
  c. The confidence of auditing in the company is unaffected by such activities.
  d. The unethical activities are limited to middle-level executives.
ANSWER:  b
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:10 PM
136. What is the real rate of interest on a $40,000 loan if $48,000 repays the loan after one year, given a rate of inflation of 10%?
  a. 18.6 %
  b. 24.0%
  c. 12.0%
  d. 10.0%
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  FINA.LASH.17.05.05
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:27 PM
137. Our industrialized economy consists of the following three sectors: consumption, savings and production.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:55 PM
138. The consumption and production sectors, have in fact been unable to establish a flow of savings dollars into the hands of producers, so there is a continual shortage of funds for business projects.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:56 PM
139. Financial markets provide a “conduit” for money, and act as intermediaries between the consumption and production sectors.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:57 PM
140. Funds raised by borrowing are said to be “debt financed,” whereas funds raised through the sale of stock are said to be “invested-capital financed.”
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:58 PM
141. Stocks, and bonds are long-term investment vehicles. They are similar in that both have stipulated terms that designate the maturity of the investment.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 4:59 PM
142. Money markets deal in short-term government and corporate debt, while capital markets deal in long-term corporate and government debt and corporate equity.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:01 PM
143. An initial debt or equity offering is made in the primary market. Subsequent trading of debt takes place in either primary or secondary markets; while subsequent trading in equity is done in secondary markets.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:02 PM
144. Financial intermediation refers to a process in which a financial institution buys stocks and bonds on behalf of investors who then have a claim on that institution rather than ownership of the securities themselves.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:03 PM
145. Because investment banks pass newly issue securities through to investors, the process is considered a direct transfer of funds from investors to companies.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:04 PM
146. Mutual funds, pension funds, banks, investment banking firms, and insurance companies are institutional investors.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:05 PM
147. The money market is comprised of debt instruments that mature with-in one year.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:06 PM
148. Firms and governments raise money by issuing securities in the secondary market.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:07 PM
149. Financial markets include money markets and capital markets.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:08 PM
150. Through financial intermediaries, individuals invest directly in firms’ stocks and bonds.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:09 PM
151. Money market securities have maturities ranging from one month to two years.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:10 PM
152. The Securities and Exchange Commission (SEC) supervises the trading of securities, approves new issues, and ensures that individuals do not take advantage of information available only to them and not to the public.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:11 PM
153. In a modern economy, consumer savings can be transferred to business investment by means of financial instruments.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:12 PM
154. Money market securities are generally more liquid than capital market securities.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:13 PM
155. The primary market is the resale market for securities.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:14 PM
156. The issuing corporation or government entity is usually involved in a primary market transaction.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:16 PM
157. The primary market is the market for original, first-time issues of securities.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:17 PM
158. The secondary market is the resale market for securities.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:18 PM
159. The issuing corporation or government entity is usually involved in a secondary market transaction.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:19 PM
160. The following is an accurate schematic representation of a stock market transaction:
Seller—Local Broker—Specialist—Local Broker—Buyer
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:20 PM
161. The Securities and Exchange Commission was established to give the investor the support of a state regulatory agency that enforces both reporting and disclosure requirements of companies whose stocks are publicly traded.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:21 PM
162. Insider trading is the exploitation for profit of information available to executives that is not available to the general public.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Ethics
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:23 PM
163. A privately held, or closely held, company is one in which the stock is held by a few investors and cannot be sold to other people without permission of the other shareholders.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:24 PM
164. Typically, until the market has responded favorably to an IPO, mutual funds and other institutional investors wait on the sidelines before buying the stock.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:25 PM
165. If the Wall Street Journal showed the following information for a stock in the last two days, the Net Change column on the second day would read +1.00.
Today’s high 53.12
Prior day’s high 52.75
Today’s close 53.00
Prior day’s low 52.00
Prior day’s close 52.12
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:31 PM
166. SOX prohibits public accounting firms from providing tax services to their clients.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:33 PM
167. Tranches refer to slices of CDO cash flows categorized based on risk.  Higher-risk tranches are sold at higher prices, which reduces their return.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:34 PM
168. A mass investor withdrawal is called a run and can result in the immediate failure of an institution.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  FCorporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:35 PM
169. CDOs can be valued easily and are priced on the basis of their annualized yields.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:36 PM
170. One of the major goals of the Dodd-Frank Act is to break up certain existing financial companies that are too large.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.03 – Corporate Governance
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Corporate Governance
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:37 PM
171. The SEC was established to prevent only those investor losses arising from fraud or misrepresentation.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:38 PM
172. Among the advantages of going public is ownership dilution and increased liquidity for shareholders.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:40 PM
173. A firm that goes public generally explains to potential investors how it intends to use the proceeds from the stock issue.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:41 PM
174. The Securities and Exchange Commission is the governmental body responsible for enforcing the rules and regulations governing the trading in securities.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:42 PM
175. When a firm decides to go public, its first stock issue is an initial public offering.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:43 PM
176. Among the disadvantages of going public is ownership dilution and the expense of offering stock.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:44 PM
177. It is important to understand that money like any other commodity is subject to the forces of supply and demand. However, instead of being bought and sold, money is borrowed and lent. The supply curve of money originates from the desire to borrow and the demand curve from the willingness to lend.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:45 PM
178. The interest rate is the price of money.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:47 PM
179. The real risk-free rate of interest is determined by the Federal Reserve.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:48 PM
180. Economists believe that people’s time preference for consumption is what dictates their level of savings and the supply of loanable funds.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:49 PM
181. The three components of an interest rate are the base rate (the pure rate plus an inflation adjustment), the risk premium, and the premium the consumer must get to defer consumption.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:50 PM
182. Bond price changes brought about by interest rate changes are smaller for bonds of long maturity than for bonds of short maturity.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:52 PM
183. Liquidity risk refers to the chance that an investor will incur a loss because it’s hard to sell the bond of a company that isn’t well known.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:53 PM
184. Not to be confused with the probability that the borrower will be unable to meet the obligations of principal and interest payments, default risk is the possibility of the borrower violating one of the many covenants within the bond agreement.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:55 PM
185. Federal government bonds have no risk premium because they carry no risk of any kind.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:57 PM
186. The “base” interest rate is made up of the pure rate, an inflation adjustment, and a liquidity risk premium.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:58 PM
187. The liquidity preference theory says that the yield curve should be upward sloping because lenders generally prefer long-term loans.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 5:59 PM
188. The interest rates that are observed in the economy differ from the nominal risk-free rate due to risk premiums.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:00 PM
189. The default risk on U.S. Government debt instruments increases with the maturity of the instrument.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:02 PM
190. The “normal” yield curve has a positive slope.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:03 PM
191. The expectations theory says that the yield curve can slope upward or downward.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:04 PM
192. Treasury (federal government) securities are default and maturity risk free.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:05 PM
193. Real interest rates have no inflation adjustments.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:06 PM
194. Interest rates generally vary with the term of the debt. The relationship is known as the maturity structure of interest rates.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:07 PM
195. Market segmentation theory states that loan terms define independent segments of the debt market which set separate rates.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:08 PM
196. The initial sale of a security is a primary market transaction. Subsequent sales between investors are in the secondary market.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:10 PM
197.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:11 PM
198. The yield curve, as the term structure of interest rates is said to be normal when it is upward sloping. However, it is sometimes “inverted” and slopes downward. What arguments are made to explain why the yield curve is not simply a flat line?
ANSWER:  The expectations theory says that the curve will slope up or down depending on people’s expectation of future rates. If rates are expected to rise, a longer term loan will encompass more time in which rates are higher, so the rate on the entire loan must be higher than a short-term loan that will be outstanding only when lower rates are in effect.
The liquidity preference theory says that investors prefer shorter term loans because they are safer. Hence, investors have to be induced to lend longer with higher rates. This theory argues that the yield curve will slope upward.
The market segmentation theory says that each term represents a separate debt market that sets an interest rate independent of all the others. Therefore, the curve may slope up or down depending on the supply and demand for money in the various term segments.
Maturity risk also plays a role. Maturity risk arises because long-term bond prices are more sensitive to interest rate swings. Hence, longer-term bonds are more risky than shorter-term bonds. The maturity risk premium may add up to two percent to long-term yields.
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Essay
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:12 PM
199. Savings represent money people earn but don’t spend currently. They generally invest that money by putting it in bank accounts or using it to buy stocks and bonds. Hence, savings equals investment, a fundamental economic principle of an advanced economy. Critique this statement.
ANSWER:  Savings does equal investment, but not the way stated above. The principle actually says that consumer savings equals business investment. But business investment refers to businesses buying new equipment or entering into projects that will enhance their performance. Companies raise money to do those things by selling securities in financial markets. Consumers buy those securities with their savings. Hence, consumer savings is channeled through financial markets to fund business investment making savings equal to investment.
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Essay
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:14 PM
200. Stocks and bonds are traded in separate markets, and interest rates are set in bond (debt) markets. Why then does there seem to be an inverse relationship between the movements of stock prices and interest rates (they move in opposite directions)?
ANSWER:  Although stock and bond markets are separate, they compete for the funds of the same investors. When interest rates rise, debt investments become more attractive and people tend to sell stocks and use the money to buy bonds. This generally drives stock prices down. Another rationale focuses on returns. If interest rates (the return on debt) rise, the stock market must also offer higher returns to keep investors from migrating to bonds. Since the increase in interest rates doesn’t change the expected cash flows that come from owing stock, the only way for the stock to offer a higher return is for its price to fall; i.e., the same cash flows imply a higher return if the share is purchased by a new investor at a lower price. Hence, an increase in interest rates drives a fall in stock prices.
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Essay
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.04 – Interest
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  Interest
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:16 PM
201. You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, what is the nominal interest rate that the finance company is charging? If inflation is 2.5%, what is the expected real rate of interest?
ANSWER:  Nominal interest rate: 12%
Real rate of interest: 9.5%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Essay
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:17 PM
202. You just borrowed $15,000 from a finance company to start a business. If you are required to repay $16,800 interest and principal in one year, and inflation is 4.0%, what is the expected real rate of interest?
ANSWER:  Real rate of interest: 8%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Essay
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  5/26/2015 8:58 AM
203. You have been assigned to estimate the interest rates that your company may have to pay when borrowing money in the near future. The following information is available.
kPR = 2%
MR = 0.1% for a 1 year loan increasing by 0.1% for each additional year
LR = 0.05% for a 1 year loan increasing by 0.05% for each additional year
DR = 0 for a 1 year loan, 0.2% for a 2-year loan, increasing 0.1% for each additional year
Expected Inflation Rates
           Year 1 = 7%
           Year 2 = 5%
           Year 3 and thereafter = 3%
a. Calculate the inflation adjustment (INFL) for a 5-year loan.
b. Calculate the appropriate interest rate for a 5-year loan.
ANSWER:  a. INFL = (7% + 5% + 3% + 3% + 3%)/5 = 4.2%
b.
k = kPR + INFL + DR + LR + MR
= 2% + 4.2% + (0.2% +(3 × 0.1%)) + (0.05% × 5) + (0.1% × 5)
= 2% + 4.2% + 0.5% + 0.25% + 0.5%
= 7.45%
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Subjective Short Answer
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Reflective Thinking
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:23 PM
204. Murphy Bin Ltd. granted stock options to its executive employees. Each executive received options on 10,000 shares of stock 2 years ago at an exercise price of $12 per share. The options can be exercised today at the current market price of $34.14.   How much will an executive’s income be this year if his salary is $1,050,000 and he exercises all of his options today?
ANSWER:  Salary: $1,050,000
Gain on option: (10,000 × (34.14 – 12) = $221,400
Total income: $1,271,400
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Subjective Short Answer
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Reflective Thinking
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:24 PM
Match the following:
a. The rate of interest exclusive of any risk premiums
b. Short-term investments present less risk than long-term investments
c. The earning power of money
d. A sustained increase in the general level of prices
DIFFICULTY:  Easy
QUESTION TYPE:  Matching
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Analytic – BUSPROG: Analytic skills: Statistics and Management Science
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  5/26/2015 8:58 AM
DATE MODIFIED:  7/8/2015 6:26 PM
205. Pure interest rate
ANSWER:  c
POINTS:  1
206. Inflation
ANSWER:  d
POINTS:  1
207. Maturity risk
ANSWER:  b
POINTS:  1
208. Risk-free rate
ANSWER:  a
POINTS:  1
209. Debt securities issued by the federal government do not compensate investors for liquidity risk.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 1:22 PM
DATE MODIFIED:  8/18/2015 1:22 PM
210. An industrialized economy is comprised of which of the following sectors?
  a. Government
  b. Production
  c. Consumption
  d. All of the above
  e. A and C only
  f. B and C only
ANSWER:  d
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 1:25 PM
DATE MODIFIED:  8/18/2015 1:27 PM
211. When consumers spend money on food and apparel, it is included in the production sector of the economy.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 1:29 PM
DATE MODIFIED:  8/18/2015 1:29 PM
212. Liquidity Risk Premium is a:
  a. premium charged by lenders due to the risk from increases in inflation and interest rates that will cause the price to decline.
  b. premium charged by lenders due to the fact that some securities cannot be easily converted in cash
  c. premium charged by lenders due to the risk that the issuer is unable to pay the interest or face value
  d. premium charged by lenders in anticipation of inflation
ANSWER:  b
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.05 – The Components of an Interest Rate
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Components of an Interest Rate
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 1:31 PM
DATE MODIFIED:  8/25/2015 3:35 PM
213. Consumers invest in securities, which generate returns in the form of interest on bonds and both dividends and price appreciation on stock.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.01 – The Financial System
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Financial System
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:31 PM
DATE MODIFIED:  8/25/2015 3:36 PM
214. There are just two stock exchanges in the United States.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
DATE CREATED:  8/18/2015 3:33 PM
DATE MODIFIED:  8/25/2015 3:37 PM
215. A stock exchange:
  a. is transparent in that participants can see prices and volumes as they happen.
  b. ensures that no one gets preferential treatment.
  c. Makes it easy to trade securities quickly at a price based on supply and demand.
  d. All of the above
  e. Both A and B
  f. Both A and C
ANSWER:  d
POINTS:  1
DIFFICULTY:  Moderate
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:36 PM
DATE MODIFIED:  8/25/2015 3:40 PM
216. Roughly 40% of today’s trading is conducted “off exchange.”
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:42 PM
DATE MODIFIED:  8/18/2015 3:42 PM
217. Dark pools are broker-dealer organizations that help traders buy and sell securities.
  a. True
  b. False
ANSWER:  True
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:45 PM
DATE MODIFIED:  8/18/2015 3:45 PM
218. Dark pools act like exchanges by bringing buyer and sellers together and are heavily regulated similar to a formal exchange.
  a. True
  b. False
ANSWER:  False
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  True / False
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:47 PM
DATE MODIFIED:  8/18/2015 3:47 PM
219. All of the following are true regarding disclosure except for:
  a. SEC regulates the information provided by companies about their operations and executives to ensure full disclosure.
  b. Investors must be provided with full and accurate information about the companies and the people behind the stocks that are for sale.
  c. Companies must offer their securities for sale at a fair and reasonable price.
  d. None of the above
ANSWER:  c
POINTS:  1
DIFFICULTY:  Easy
QUESTION TYPE:  Multiple Choice
HAS VARIABLES:  False
LEARNING OBJECTIVES:  FINA.LASH.17.05.02 – The Stock Market and Stock Exchanges
NATIONAL STANDARDS:  BUSPROG: Technology – Technology
TOPICS:  The Stock Market and Stock Exchanges
KEYWORDS:  Bloom’s: Knowledge
DATE CREATED:  8/18/2015 3:49 PM
DATE MODIFIED:  8/18/2015 3:52 PM

 

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