1、2-1Chapter TwoFinancial Markets and InstitutionsThis chapter contains 49 multiple-choice questions, 20 short problems and 10 longer problems.Multiple Choice1. A market that has no one specific location is termed a(n) _ market.(a) over-the-counter(b) geographic location(c) intermediary(d) conceptualA
2、nswer: (a)2. _ problems arise because parties to contracts often cannot easily monitor or control one another.(a) Payment(b) Counter(c) Incentive(d) ExchangeAnswer: (c)3. Incentive problems take a variety of forms and include:(a) moral hazard(b) adverse selection(c) principal-agent(d) all of the abo
3、veAnswer: (d)4. The _ problem exists when having insurance against some risk causes the insured party to take greater risk or to take less care in preventing the event that gives rise to the loss.(a) moral hazard(b) adverse selection(c) principal-agent (d) all of the aboveAnswer: (a)2-25. Life annui
4、ties are examples of _ problems.(a) moral hazard(b) adverse selection(c) principal-agent (d) all of the aboveAnswer: (b)6. _ means giving the lender the right to seize specific business assets in the event of default.(a) Increasing moral hazard(b) Increasing adverse selection(c) Collateralization of
5、 loans(d) All of the aboveAnswer: (c)7. _ instruments are also called fixed-income instruments.(a) Debt(b) Equity(c) Derivative(d) All of the aboveAnswer: (a)8. The market for short-term debt (less than one year) is called the _ market, and the market for long-term debt and equity securities is call
6、ed the _ market.(a) capital; money(b) money; capital(c) fixed-income; money(d) derivative; equityAnswer: (b)2-39. _ securities are financial instruments that derive their value from the prices of one or more other assets.(a) Debt (b) Equity (c) Derivative (d) Fixed-income Answer: (c)10. A call optio
7、n gives its holder the right to _ some asset at a specified price on or before some specified expiration date.(a) sell(b) buy(c) loan(d) borrowAnswer: (b)11. A put option gives its holder the right to _ some asset at a specified price on or before some specified expiration date.(a) sell(b) buy(c) lo
8、an(d) borrowAnswer: (a)12. _ contracts oblige one party to the contract to buy, and the other party to sell, some asset at a specified price on some specified date.(a) Options(b) Uncertainty(c) Money market(d) ForwardAnswer: (d)2-413. The _ curve depicts the relation between interest rates on fixed-
9、income instruments issued by the U.S. Treasury and the maturity of the instrument.(a) long-term (b) short-term (c) yield (d) exchange rateAnswer: (c)14. If the short-term rates are higher than the long-term rates, then the yield curve is _.(a) upward sloping(b) downward sloping(c) horizontal(d) vert
10、icalAnswer: (b)Questions 15 and 16 are intended to be calculated as a pair.15. Suppose you are a French investor, who wants a safe investment in terms of francs. You are investing for one year and the interest rate on a one-year French government bond is 5% and at the same time it is 9% on a U.S. go
11、vernment bond. The exchange rate is currently 6.15 French francs to the dollar. Suppose you invest $1,000 in a U.S. bond. Also suppose that a year from now the French franc/dollar exchange rate is 6.50 French francs to the dollar. What will be the realized French franc rate of return on the U.S. bon
12、d?(a) 5.69%(b) 9.00%(c) 15.2%(d) 7.00%Answer: (c)16. In question 15, what would the exchange rate at years end have to be in order for the French investor to earn exactly 4% per year on the investment in U.S. bonds?(a) 6.20 FF/$(b) 5.87 FF/$(c) 6.40 FF/$(d) 5.42 FF/$Answer: (b)2-5Use the following y
13、ield data to answer questions 17 and 18.2/29/98Treasury 1-10 yr 5.58%10+ yr 5.72Corporate 1-10 yr High Qlty 5.98Med Qlty 6.17Corporate 10+ yr High Qlty 6.26Med Qlty 6.5717. Calculate the yield spread for Treasury bonds with maturity 1-10 year and corporate bonds of high quality of the same maturity.
14、 (a) 11.56%(b) 0.68%(c) 0.59%(d) 0.40%Answer: (d)18. Calculate the yield spread for Treasury bonds with maturity 10+ years and corporate bonds of medium quality of the same maturity. (a) 12.29%(b) 0.85%(c) 0.54%(d) 0.45%Answer: (b)19. You invest in a stock that costs $45.50 per share. It pays a cash
15、 dividend during the year of $1.20 and you expect its price to be $49 at years end. What is your expected rate of return if you sell the stock for $49 at the end of the year?(a) 2.64%(b) 7.69%(c) 10.33%(d) 5.05%Answer: (c)2-620. You invest in a stock that costs $45.50 per share. It pays a cash divid
16、end during the year of $1.20 and you expect its price to be $49 at years end. What is your expected rate of return if you do not sell the stock at the end of the year?(a) 2.64%(b) 7.69%(c) 10.33%(d) 5.05%Answer: (c)21. You invest in a stock that costs $45.50 per share. It pays a cash dividend during
17、 the year of $1.20 and you expect its price to be $49 at years end. What is your realized rate of return if the stocks price is actually $42 at years end?(a) 5.05%(b) 18.02%(c) 10.33%(d) 5.05%Answer: (a)22. The _ the standard deviation, the _ the volatility of the rate of return.(a) higher, lower(b)
18、 lower, higher(c) higher, higher(d) none of the aboveAnswer: (c)23. _ is an investment strategy that seeks to match the returns of a specified stock market index.(a) Indexing(b) Benchmarking(c) Replicating(d) DiversifyingAnswer: (a)2-724. Suppose the risk-free nominal interest rate on a one-year U.S
19、. Treasury bill is 7% per year and the expected rate of inflation is 3% per year. What is the expected real rate of return on the T-bill?(a) 4%(b) 3.88%(c) 1.34%(d) 3.74%Answer: (b)25. Suppose the risk-free nominal interest rate on a one-year U.S. Treasury bill is 6% per year and the expected rate o
20、f inflation is 4% per year. What is the expected real rate of return on the T-bill?(a) 2%(b) 5%(c) 1.92%(d) 1.89%Answer: (c)26. Suppose that the real rate of interest on a TIPS is 4.5% per year and the expected rate of inflation in the U.S. is 5% per year. What is the expected nominal rate of return
21、 on these bonds?(a) 0.476%(b) 4.75%(c) 9.73%(d) 9.75%Answer: (c)27. Currently you have a bank account containing $6,000, which earns interest at a rate of 4% per year. You also have an unpaid balance on your credit card of $3,000 on which you are paying an interest rate of 18% per year. If the time
22、frame is one year, the arbitrage opportunity you face is:(a) $420(b) $540(c) $120(d) $300Answer: (a)2-828. A _ interest rate is denominated in units of some currency, whereas a _ interest rate is denominated in units of some commodity or “basket” of goods and services.(a) real, nominal(b) real, trea
23、sury(c) nominal, real(d) treasury, realAnswer: (c)29. _ are firms whose primary function is to help businesses, governments, and other entities raise funds to finance their activities by issuing securities.(a) Closed-end funds(b) Investment banks(c) Asset management funds(d) Open-end fundsAnswer: (b
24、)30. Currently, you have $24,000 in a bank account earning an interest rate of 4% per year. At the same time you have an unpaid balance on your credit card of $12,000 on which you are paying an interest rate of 18% per year. If the time frame is one year, the arbitrage opportunity you face is:(a) $2
25、,160(b) $1,200(c) $480(d) $1,680Answer: (d)31. In the United States, the _ establishes the precise disclosure requirements that must be satisfied for a public offering of securities.(a) Financial Accounting Standards Board(b) World Bank(c) Federal Reserve(d) Securities and Exchange CommissionAnswer:
26、 (d)2-932. Investment professionals typically use a(n) _ index as a benchmark for measuring the performance of common stock mutual funds.(a) inflation adjusted(b) firm-size weighted (c) market-weighted (d) book-weighted Answer: (c)33. The Dow Jones Industrial Index has some major defects, which incl
27、ude:(a) It is not broadly diversified enough to accurately reflect the wide spectrum of stocks in the United States.(b) It corresponds to a portfolio strategy that is unsuitable as a performance benchmark.(c) It only includes the 30 largest corporations.(d) (a) and (b)Answer: (d)34. Interest-rate ar
28、bitrage is _ at a lower rate and _ at a higher rate.(a) borrowing, lending(b) borrowing, defaulting(c) defaulting, lending(d) lending, borrowingAnswer: (a)35. _ invest their funds in a new businesses and help the management team get the firm to the point at which it is ready to “go public.”(a) Inves
29、tment banks(b) Venture capitalists(c) Asset management firms(d) Mutual fundsAnswer: (b)2-1036. The case where there is an imbalance in the exchange of information about a business opportunity is known as _.(a) information symmetry(b) information asymmetry(c) information assets(d) (a) and (c)Answer:
30、(b)37. Which of the following represents a defined-contribution pension plan?(a) A pension plan into which the employer and employee make regular contributions.(b) A pension plan whose benefit is determined by a formula that takes into account years of service, wages, and salary.(c) A pension plan w
31、hose benefit formula is 1% of retirement salary for each year of service.(d) All of the aboveAnswer: (a)38. Which of the following are characteristic of a mutual fund?(a) professional management(b) diversification(c) efficient record keeping and administration(d) all of the aboveAnswer: (d)39. Net a
32、sset value is defined as the _.(a) future value of all assets held divided by the number of shares outstanding(b) book value of all securities held divided by the number of shares outstanding(c) market value of all securities held divided by the number of shares outstanding(d) book value of all assets held divided by the number of shares outstandingAnswer: (c)
