MULTIPLE CHOICE. 2 marks each. Choose the one alternative that best completes the statement or answers the question.
1) A corporation acquires new funds only when its securities are sold in the ________.
A) secondary market by a commercial bank
B) secondary market by a securities dealer
C) primary market by an investment bank
D) primary market by a stock exchange broker
2) A short-term debt instrument issued by well-known corporations is called ________.
A) corporate bonds
B) municipal bonds
C) commercial paper
D) commercial mortgages
3) An example of economies of scale in the provision of financial services is ________.
A) spreading the cost of borrowed funds over many customers
B) investing in a diversified collection of assets
C) spreading the cost of writing a standardized contract over many borrowers
D) providing depositors with a variety of savings certificates
4) In order to reduce risk and increase the safety of financial institutions, commercial banks and
other depository institutions are prohibited from ________. A) making real estate loans
B) making personal loans
C) owning corporate bonds
D) owning common stock
5) ________ is the narrowest monetary aggregate that the Bank of Canada reports.
6) A ________ pays the owner a fixed coupon payment every year until the maturity date, when the
________ value is repaid.
A) coupon bond; face
B) discount bond; face
C) coupon bond; discount
D) discount bond; discount
7) Which of the following is true for a coupon bond?
A) When the coupon bond is priced at its face value, the yield to maturity equals the coupon
B) The yield is less than the coupon rate when the bond price is below the par value.
C) The yield to maturity is greater than the coupon rate when the bond price is above the par
D) The price of a coupon bond and the yield to maturity are positively related.
8) Which of the following $5,000 face-value securities has the highest yield-to maturity?
A) A 6 percent coupon bond selling for $5,500
B) A 10 percent coupon bond selling for $5,000
C) A 6 percent coupon bond selling for $5,000
D) A 12 percent coupon bond selling for $4,500
9) A discount bond selling for $15,000 with a face value of $20,000 in one year has a yield to
maturity of ________.
A) 25 percent
B) 33.3 percent
C) 20 percent
D) 3 percent
10) What is the return on a 5 percent coupon bond that initially sells for $1,000 and sells for $900
A) 10 percent
B) -5 percent
C) -10 percent
D) 5 percent
11) If the interest rates on all bonds rise from 5 to 6 percent over the course of the year, which bond
would you prefer to have been holding?
A) A bond with one year to maturity
B) A bond with twenty years to maturity
C) A bond with ten years to maturity
D) A bond with five years to maturity
12) Everything else held constant, if the expected return on bonds falls from 8 to 7 percent and the
expected return on corporate bonds falls from 10 to 8 percent, then the expected return of corporate bonds ________ relative to bonds and the demand for corporate bonds ________. A) falls; falls
B) falls; rises
C) rises; rises
D) rises; falls
13) During business cycle expansions when income and wealth are rising, the demand for bonds ...
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