The Investment Function in Financial-services Management

A short term debt security issued by major corporations is known as ________

• Treasury note

• Commercial paper

• Treasury bill

• Call risk

A(n) ________is a security issued by the federal government which has lessthan one year to maturity when it is issued

• Capital stock

• bond

• Debt securities

• Treasury bill

Interest income and capital gains from a bank's portfolio of investment securities is taxed in the United States as ordinary income.

• True

• False

Which of the following is not one of the Capital Market instruments in which banks invest ?

• U.S Treasury notes

• Corporate notes and bonds

• Commercial paper

• Municipal bonds

A bank replaces 5-year corporate bonds with a yield to maturity of 9.75 percent with 5-year municipal bonds with a yield to maturity of 7 percent. This bank is in the 35 percent tax bracket and these bonds have the same default risk. What is most likely reason this bank changed from the corporate to the municipal bonds?

• Liquidity risk

• Tax exposure

• Interest rate risk

• Credit risk

A bond has six years to maturity and a coupon rate of 7.5 percent. Coupon payments are made annually and bond has a face value of $1000. This bond is selling in the market for $1127. What is the yieald to maturity on this bond ?

• 7.5 percent

• 11.5 percent

• 5 percent

• None of the above

Interest rate risk is the financial institutions face due to changes in market interest rates.

• False

• True

A bank's promise to pay the holder s designates amount of money on a designated future date and is often used in international trade is known as a (or an):

• Promissory guarantee

• Discount security

• Banker's acceptance

• In the money option

Fluctuations in the timing of cash payments flowing from an underlying pool of securitized assets is referred as:

• Income risk

• Prepayment risk

• Liquidity risk

• Capital risk

The investment maturity strategy which calls for the bank to put of their investment assets into very long term securities is call the:

• Front-end-loaded maturity policy

• Back-end-loaded maturity policy

• Ladder or spaced maturity policy

• Rate expectation approach