Finance Quiz 2022-2023

When commercial banks need capital for a few days, they will usually:

• Issue bonds and buy them back later.

• Borrow from the interbank money market.

• Issue NCDs.

• Issue stocks and buy them back later.

Assume Stock A and Stock B are two alternative investment opportunities. Under ceteris paribus conditions, an increase in the operational risk of Company A will result in Stock A's price _____ and Stock B's price ______.

• Increase, decrease, increase.

• Decrease, decrease, decrease.

• Increase, increase, increase.

• Decrease, increase, increase.

Futures contracts rarely result in the delivery of underlying assets because:

• Clearinghouses impose a penalty fee for delivery.

• Buyers or sellers cannot meet payment obligations under the contract.

• Contract holders usually close positions before delivery dates.

• Sellers of contracts frequently default.

The yield of government bonds is higher than that of municipal bonds because:

• The default risk and liquidity risk of government bonds are higher than municipal bonds.

• The default risk and liquidity risk of government bonds are lower than municipal bonds.

• The credit rating of government bonds is higher than municipal bonds.

• Tax policy effects.

The term structure of interest rates reflects:

• The structure explaining changes in interest rates over time.

• The relationship between the maturities of different bonds.

• The relationship between interest rates of bonds with different maturities.

• The relationship between interest rates of bonds with the same maturity.

______ is the marketplace providing liquidity for previously issued securities.

• Primary market.

• Equity market.

• Secondary market.

• Both primary and secondary markets.

Positions that provide unlimited profits for investors are:

• Buying call options.

• Buying put options.

• Selling call options.

• Selling put options.

A discount bond is sold for $21,000, with a face value of $30,000 and a maturity of 5 years. What is the yield to maturity?

• 10%.

• 20%.

• 33.3%.

• 7.4%.

When inflation occurs, the central bank will:

• Lower the reserve requirement ratio and increase the discount rate.

• Increase the reserve requirement ratio and lower the discount rate.

• Lower both the reserve requirement ratio and the discount rate.

• Increase both the reserve requirement ratio and the discount rate.

A coupon bond pays $10 annually, has a face value of $200, and a maturity of 5 years. If the yield to maturity is 4.2%, what is the current price of the bond?

• $286.

• $207.

• $197.

• $170.