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Multiple Choice Quiz
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1
Commercial paper is short-term debt issued by _______________.
A)large, well-known companies
B)small but financially sound companies
C)financial institutions
D)commercial banks
2
Preferred stock dividends are _______________.
A)not tax-deductible expenses for the firm paying the dividend
B)100% excluded from taxable income by the recipient of the dividend
C)usually not cumulative
D)all of the above
3
Callable bonds give the issuing company the option to _______________.
A)default on the bonds
B)cancel the company's obligation to pay bond interest
C)convert the bonds to common stock
D)repurchase the bonds
4
The rate of return for a market value-weighted index equals the rate of return that would be earned by an investor holding a portfolio comprised of all firms in the index:
A)with one share of each stock
B)in proportion to their profitability
C)in proportion to their price
D)none of the above
5
A trader who takes a long position in a soybean futures contract has _______________ to ______________ a specified quantity of soybeans on the delivery date, at an agreed upon price.
A)an obligation; buy
B)an obligation; sell
C)the right; sell
D)the right; buy
6
The Dow Jones Industrial Average is:_______________.
A)a market value-weighted index
B)generally considered the best indicator of stock market performance
C)a price-weighted average
D)a more broadly based index than the S&P500
7
The price which the owner of a put option receives from selling the stock named in the option contract is called the _______________.
A)put price
B)expiration price
C)exercise price
D)selling price
8
In the event of a company's bankruptcy, _______________.
A)the firm's bondholders are individually liable for the firm's obligations
B)shareholders' maximum loss is their original investment plus legal costs
C)bondholders have a claim to what remains from the liquidation of the firm's assets after paying shareholders' claims
D)common shareholders are last in line to receive their claims on the firm's assets
9
A bond that has no collateral is called a _______________.
A)debenture
B)subordinated debenture
C)callable bond
D)convertible bond
10
Which of the following is characteristic of both common stock and preferred stock ownership?
A)voting rights
B)equity investment
C)residual claimant
D)all of the above
11
Money market securities are characterized by _______________.
A)long maturity, high liquidity and low risk
B)short maturity, low liquidity and low risk
C)short maturity, high liquidity and high risk
D)short maturity, high liquidity and low risk
12
Which of the following bonds has a lower after-tax yield to maturity for investors in a 25% tax bracket: a municipal bond with a yield of 6% or a corporate bond with a yield of 7.5%?
A)Corporate bond
B)Municipal bond
C)They should have the same after-tax yield
D)Cannot be determined
13
Investors purchase Treasury bills at a _______________ and receive the _______________ at maturity.
A)discount; face value
B)premium; face value plus interest
C)discount; face value plus interest
D)premium; face value
14
Fixed-income capital market securities issued by the U.S. Government include:
A)Federal funds
B)Treasury bills
C)Treasury notes
D)General obligation municipal bonds
15
Issuers of mortgage-backed securities _______________.
A)include the Government National Mortgage Association
B)originate loans and then sell loans to the U.S. Government
C)receive interest payments on mortgages as their compensation for originating loans
D)all of the above





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