Chapter 2 of investment analysis

The money market is a subsector of the

• commodity market

• capital market.

• derivatives market.

• equity market.

• None of the options are correct.

Treasury Inflation-Protected Securities (TIPS)

• pay a fixed interest rate for life.

• pay a variable interest rate that is indexed to inflation but maintain a constant principal.

• provide a constant stream of income in real (inflation-adjusted) dollars.

• have their principal adjusted in proportion to the Consumer Price Index.

• Provide a constant stream of income in real (inflation-adjusted) dollars and have their

  principal adjusted in proportion to the Consumer Price Index.

Which one of the following is “not” a money market instrument?

• Treasury bill

• Negotiable certificate of deposit

• Commercial paper

• Treasury bond

• EuroBond

T-bills are financial instruments initially sold by ________ to raise funds

• commercial banks

• the U.S. government

• state and local governments

• agencies of the federal government

• the U.S. government and agencies of the federal government

Which of the following is “true” regarding a firm's securities?

• Common dividends are paid before preferred dividends.

• Preferred stockholders have voting rights.

• Preferred dividends are usually cumulative.

• Preferred dividends are contractual obligations.

• Common dividends can usually be paid if preferred dividends have been skipped.

The Dow Jones Industrial Average (DJIA) is computed by

• adding the prices of 30 large "blue-chip" stocks and dividing by 30

• calculating the total market value of the 30 firms in the index and dividing by 30.

• adding the prices of the 30 stocks in the index and dividing by a divisor.

• adding the prices of the 500 stocks in the index and dividing by a divisor.

• adding the prices of the 30 stocks in the index and dividing by the value of these stocks

  as of some base date period.

Consider the following three stocks as shown in the picture attached.
The price-weighted index constructed with the three stocks is:

• 30

• 40

• 50

• 60

• 70

An investor purchases one municipal and one corporate bond that pay rates of return

of 8% and 10%, respectively. If the investor is in the 20% marginal tax bracket, his or

her after-tax rates of return on the municipal and corporate bonds

would be ________ and ______, respectively.

• 8%; 10%

• 8%; 8%   

• 6.4%; 8%

• 6.4%; 10%

• 10%; 10%

A call option allows the buyer to

• sell the underlying asset at the exercise price on or before the expiration date.

• buy the underlying asset at the exercise price on or before the expiration date.

• sell the option in the open market prior to expiration.

• sell the underlying asset at the exercise price on or before the expiration date and

  sell the option in the open market prior to expiration.

• buy the underlying asset at the exercise price on or before the expiration date and

  sell the option in the open market prior to expiration.

A U.S. dollar-denominated bond that is sold in Singapore is a(n)

• Eurobond

• Yankee bond

• Samurai bond

• Bulldog bond