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1. Which of the following statements about the OTC market istrue?

A. An OTC market is an organized exchange where there is acentral trading location.

B.

OTC security transactions are made on the floor of an exchangeby traders.

C.

Securities that are not listed on an organized exchange arebought and sold on the OTC market.

D.

Securities that are listed on an organized exchange are boughtand sold in the OTC market.

2. Which of the following theories states that security pricesreflect all information, whether public or private?

A. Weak-form efficiency.

B.

Semistrong-form efficiency.

C.

Nominal-form efficiency.

D.

Strong-form efficiency.

3. Which of the following is a primary investment vehicle forthe funds in which life insurance companies must invest?

A.Both equity securities and long-term corporate bonds.

B.

CDs.

C.

Equity securities.

D.

Long-term corporate bonds.

4. Large firms are most likely to use money markets for thefollowing reason:

A. To make long term investments.

B.

To buy commercial paper at lower interest rates than it couldsell through a bank.

C.

To finance long term investments.

D.

To adjust their liquidity position.

5. Which of the following is true of the New York StockExchange?

A. It is an organized exchange.

B.

It has no central trading location.

C.

It is an over-the-counter exchange.

D.

It can be used by all U.S citizens.

6. Which of the following is true of an efficient market?

A. Market prices of securities of companies in the same industryare all same.

B.

Market prices adjust quickly to new information as it becomesavailable.

C. All information contained in past prices of a security isreflected in its current price but that there is both public andprivate information that is not.

D.

Securities have no systematic risk.

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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Related questions

Answer True or False to each of the next five (5) statements.

1. Treasury Bills are issued through competitive bidding process at discount from par.

2. In the capital market both short term and long term securities are traded, whereas only short term securities are traded in the money market.

3. Free cash flow represents the amount of money available to the firm, after it has met all operating needs and paid for investments in net fixed assets.

4. Three ratios of liquidity are net working capital, current ratio and acid - test ratio

5. The income statement represents changes within a time period, while the balance sheet reflects levels as at a particular period.

Choose the letter a, b, c, or d that carries the appropriate response:

6. _______________ Serve as intermediaries channelling the savings of individuals, businesses, and governments into loans and investments.

(a) Financial markets

(b) Financial institutions

(c) Securities Exchanges

(d) OTC markets

7. Of the following group of ratios, which would show the combined effect of liquidity, asset management and debt on the overall operating results?

(a) Liquidity ratios

(b) Debt ratios

(c) Coverage ratios

(d) Profitability ratios

8. XYZ Company Ltd. has EBIT of $1,500,00 million and a 15% tax rate. It had $270,000 in depreciation expenses with a $250,000 increase in working capital. It had another $170,000 in capital expenditures. What is its free cash flow?

(a) $1,125,000

(b) $ 2,850,000

(c) $ 1,950,000

(d) $ 1,500,000

9. Fast Cash Limited charges 1 percent (%) per week on their loans. Assume there are exactly 52 weeks in a year. What is the effective annual rate?

(a) 55.36%

(b) 67.77%

(c) 69.98%

(d) 57.35%

10. _________________ is an annuity that provides its holder with payment dollars at the beginning of each year.

(a) An annuity due

(b) A warrant

(c) A perpetuity

(d) An ordinary annuity

11. All of the following statements about bonds are true, except one. Choose the false statement.

(a) If the value of a bond, Bo, is less than its par value, the bond is selling at a discount.

(b) Bonds with short maturities will have less interest rate risk than bonds with longer maturities and equal features.

(c) As market interest rate increase bond prices increase.

(d) The discount rate of a bond is synonymous with the bond's required return.

12. The present value of a bond's _____________________________ determines the value of the bond.

(a) Dividend

(b) Coupon payment and maturity value

(c) Coupon payment

(d) Maturity value

13. If the returns on one asset move in the same direction as the returns on another asset then the asset are:

(a) Positively correlated

(b) not correlated

(c) negatively correlated

(d) perfectly positively correlated.

14. Another term for non-diversifiable risk is:

(a) Systematic risk

(b) non- systematic risk

(c) firm specific risk

(d) both b and c

15. All of the following statements about stock valuation are true, except one. Choose the false statement.

(a) It is easier to value stock than it is to find the value of bonds.

(b) The value of a share of stock depends on the cash flows investors can expect to by owning that stock

(c) The dividend valuation model assets that dividends continue being paid forever.

(d) The present value of a stock's dividend determines the value of the stock.

Maria Juarez is a professional tennis player, and your firm manages her money. She has asked you to give her information about what determines the level of various interest rate. Your boss has prepared some questions for you to consider.

a) What are the four most fundamental factors that affect the cost of money, or the general level of interest rate, in the economy?

b) What is the real risk-free rate of interst (r*)and the nominal risk-free rate (r RF)? How are these two rates measured?

c) Define the term inflation premium(IP), default risk premium (DRP), liquidity premium (LP),and the maturity risk premium(MRP). Which of premium is included in determining the interst rate on (1)Short term U.S Treasury securities, (2)Long term U.S Treasury securities, (3)short term corporate securities, (4) long term coporate securities? Explain how the premiums would vary over time and among the different securities listed.

d) What is the term structure of interest rate? What is the yield curve?

e)Suppose most investors expect the inflation rate to be 5% next year, 6% the following year, and 8% thereafter. The real risk free rate is 3%. The maturity risk primium is zero for bonds that mature in 1 year or less and 0.1% for 2 years bonds; then the MRP increases by 0.1% per year thereafter for 20 years, after which it is stable. What is the interest on 1-,10-, and 20-year treasury bonds? Draw a yield curve with these data. What factor can explain why this constructed yield curve is upward-sloping?

f) At any give time, how would the yield curve facing a AAA rated company compare with the yield curve for U.S Treasury securities? At any given time, How would the yield curve facing a BB rated company compare with the yield curve for U.S treasury securities? Draw a graph to illustrat your answer.

g) What is the pure expectations theory? What does the pure expectation theory imply about the term structure of interest rate?

Which of the following statements is CORRECT?

Select one:

a. If a stock’s risk increases but its expected rate of growth in earnings and dividends remain constant, then the new equilibrium price of the stock will almost certainly increase.

b. If the stock market is efficient, then the actual realized returns on all stocks will equal their expected rates of return.

c. An implication of the semistrong-form of the efficient markets hypothesis is that you cannot, over the long run, benefit from trading on information reported in The Wall Street Journal.

d. If the market is strong-form efficient, all stocks will be equally risky.

e. Because of increased globalization, all of the world’s stock markets are equally efficient.

The cost of preferred stock is

Select one:

a. lower than the cost of long-term debt.

b. higher than the cost of common stock.

c. higher than the cost of long-term debt and lower than the cost of common stock.

d. lower than the cost of convertible long-term debt and higher than the cost of common stock.

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