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M&B: Chpt. 6-8
True/False Questions
| Statement | Answer |
|---|---|
| If interst rates are expected to increase in the future, one would expect to see an upward sloping yield curve | True |
| A decending yield curve forecasts higher short-term rates in the future | False |
| Expected lower rates of inflation will lead to an upward sloping yield curve | False |
| The major reason that municipal bonds have lower yields than corporate bonds is that, as a class, municipal depthas less marketablility than corporate dept | False |
| If interest rates are expected to increase in the future, one would expect to see an upward sloping yield curve | True |
| The major reason that municipal bonds have lower yields than corporate bonds is that, as a class, municipal debt has less marketability than corporate debt. | False |
| A downward sloping yield curve forecasts higher future interest rates. | False |
| A downward sloping yield curve is typically seen just before an economic expansion. | False |
| The less marketable a security, the higher its yield. | True |
| Default risk premiums are usually smaller during periods of high economic growth. | True |
| Bonds rated Baa would have higher yields than Aaa bonds, and higher prices, everything else the same. | False |
| Callable bonds have higher market yields than noncallable bonds. | True |
| The call price of a bond is usually below the bond's par value. | False |
| Expected higher rates of inflation will lead to an upward sloping yield curve. | True |
| The higher the marginal tax rate of an investor, the lower the after-tax return on any security. | False |
| Liquidity premiums cause an observed yield curve to be less upward sloping than that predicted by the expectations theory | False |
| A delay in the coupon payment on a bond would imply an increase in default risk. | True |
| An investor in the 33 percent tax bracket will buy a 6 percent municipal bond rather than a similarly rated 8.5 percent corporate bond. | True |
| A put option sets a "floor" or minimum price of a bond at the exercise price, which is generally at or above par value. | False |
| A convertible bond will generally have a higher market yield relative to similar, nonconvertible bonds. | False |
| Treasury and corporate security yields may be combined when plotting a yield curve. | False |
| Putable bonds offer higher yields than similar non-putable bonds | False |
| A descending yield curve forecasts higher short-term rates in the future. | False |
| The market segmentation theory allows for the possibility of a discontinuous yield curve. | True |
| According to the preferred habitat theory, investors may change their preferred maturity in response to expected yield premiums. | True |
| Many diverse institutions borrow in the money markets, while relatively few invest. | True |
| All money market instruments are short-term debt. | True |
| Treasury bills are sold on a discount basis, with interest paid separately at maturity. | False |
| Commercial banks act as dealers and are major investors in Treasury securities. | True |
| For large corporations, commercial paper is more expensive but is a more assured alternative to bank borrowing. | False |
| Commercial paper is more likely to be placed directly by large finance companies. | True |
| The Federal Funds market is not available for the smaller, regional bank. | False |
| Bankers' acceptances are used primarily for financing international trade. | True |
| Eurodollars are dollar denominated, foreign-owned deposits in U.S. banks. | False |
| The 24-hours-a-day market for U. S. Treasury securities is an example of the globalization of financial markets. | True |
| Consumers most often have only indirect access to the money market through commercial banks. | False |
| The money market is a dealer market, not an exchange, and has no specific location. | True |
| Money market borrowers are small in number compared to money market lenders. | True |
| The money market is a market where liquidity is bought and sold. | True |
| Commercial banks are the major issuer and investor of money market securities. | True |
| Federal Reserve open market operations, reserve requirement changes, and discount rate policy first impact the economy in the money market. | True |
| Dealers bring buyer and seller together; brokers make a market. | False |
| Capital market securities are used to finance real capital investments. | True |
| Capital market securities have better liquidity than capital market securities. | False |
| Money market securities are all debt securities, while capital market securities are either debt or equity securities. | True |
| Capital market interest rates tend to be higher than money market rates for any issuer. | True |
| Life insurance companies are more likely to invest in corporate capital market securities than commercial banks. | True |
| Investors may invest in capital market securities either directly or indirectly. | True |
| Both governments and businesses issue both debt and equity capital market securities. | False |
| Households owe more financially than they own. | False |
| Financial institutions and households own about the same amount of financial assets. | True |
| In the U.S. there are more mortgages outstanding than corporate bonds. | True |
| Yields on U.S. Treasury "ask" prices are higher than yields quoted on "bid" prices. | False |
| A U.S. Treasury STRIP is a zero-coupon bond. | True |
| Most State and Local government bonds are sold to finance education. | True |
| A serial bond issue matures over a period of years. | True |
| Households are the major investor in municipal bonds. | True |
| U.S. Treasury TIPS protect investors primarily from default risk. | False |
| A state turnpike authority is more likely to issue revenue bonds than general obligation bonds. | True |
| Lower marginal tax rates increase the demand for tax-exempt securities. | False |
| The money market provides liquidity for deficit units; the capital market finances economic growth. | True |
| The primary market for junk bonds expanded for higher risk firms as the secondary market for junk bonds developed. | True |
| Capital market borrowing by businesses is generally repaid from the cash flow generated by the assets financed. | True |
| Commercial banks purchase more tax-exempt securities when loan losses increase. | False |
| One of the fastest growing loan areas for commercial banks in the 1980s was financial guarantees. | False |
| Revenue bonds are generally considered more risky than general obligation bonds. | True |
| The after-tax return on a 9 percent tax-exempt municipal bond to a commercial bank in the 34 percent tax bracket is 5.94 percent. | False |
| Much of the added yield provided investors in "agency" issues is attributed to their higher default risk. | False |
| Commercial banks are important indirect guarantors of commercial paper. | True |
| Interest arbitrage keeps the interest rates of the many money market securities equal. | False |
| Lower marginal tax rates increase the demand for tax-exempt securities. | False |
| The money market provides liquidity for deficit units; the capital market finances economic growth. | True |
| Competitive bids in T-bill auctions require the bidder to specify only the quantity desired. | False |
| Non-competitive bidders in the U. S. Treasury security auctions pay the weighted average price of all accepted competitive bids. | True |
| Reverse repos are contracts that require a firm to first sell securities with the agreement to buy them back in a short period at a higher price. | False |
Created by:
callieco