section 2 study questions

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mrinout
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196685
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section 2 study questions
Updated:
2013-01-31 03:03:44
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Pass 65
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section 2 study
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  1. All of the following securities would typically be found in a money market mutual fund except:

    A) commercial paper
    B) banker's acceptances
    C) Treasury bonds
    D) T-bills
    C) Treasury bonds  (look for short-term debt securities)
    (this multiple choice question has been scrambled)
  2. Which of the following represents the least exposure tho loss of principal?

    A) highly-rated commercial paper
    B) banker's acceptances
    C) $1,000,000 CD
    D) $3,000,000 T-bill
    D) $3,000,000 T-bill
    (this multiple choice question has been scrambled)
  3. Which of the following bond features would typically allow the issuer to lower the nominal interest rate?

    A) convertible
    B) callable
    C) long term to maturity
    D) lack of a sinking fund
    A. Investors will accept lower rate for chance to make money on the common stock.
  4. Which of the following represents a true statement about convertible bonds?

    A) generally pay higher nominal yields than non-convertible
    B) are considered equity securities
    C) are considered derivatives
    D) may cause dilution of shareholder equity
    D) convertible bonds would pay lower yields an are definitely debt securities.  When the bondholders convert to common stock, the profits of the company are then divided among more shares, which is "dilution."
    (this multiple choice question has been scrambled)
  5. Which of the following debt securities carries the least default risk?

    A) subordinated bond rated AA
    B) mortgage bond rated A-
    C) unsecured bond rated A+
    D) convertible bond rated A-
    A) "AA" is the highest rating presented here.
    (this multiple choice question has been scrambled)
  6. One advantage of owning common stock as compared to corporate bonds is...

    A) seniority
    B) more substantial yields
    C) bonds mature, often early, while owning stocks affords more control over capital gains
    D) priority of dividend payments over interest payments
    C.
  7. If common stock is purchased regular-way on the Ex-Dividend Date

    A) the dividend is distributed to all shareholders pro rata
    B) the buyer is entitled to the dividend
    C) the seller is entitled to the dividend
    D) the broker-dealer holding the securities in street name retains the balance
    C)- on the Ex-Date, it's too late for the buyer.
    (this multiple choice question has been scrambled)
  8. The main advantage of investing in mutual funds is

    A) diversification
    B) tax benefits
    C) marketability
    D) FDIC insurance up to $100,000 per account
    A.
  9. The main difference between open- and closed-end funds has to do with

    A) redeemability
    B) tax benefits
    C) investment options
    D) management styles
    A)- open-end shares are redeemed or sold back to the issuer; closed-end fund shares are traded among investors.
    (this multiple choice question has been scrambled)
  10. A MSFT Jun 50 call is in the money when MSFT trades at which of the following prices?

    A) $49.00
    B) $50.00
    C) $51.00
    D) $49.05
    C. (the price above $50)
  11. How far is MSFT Jan 90 call in the money with MSFT trading at $85?

    A) $5
    B) $90
    C) $87.50
    D) none of the above
    D.
  12. How far are the  IBM Aug 70 calls in the money if IBM is trading at $77?

    A) $7
    B) $0
    C) $77
    D) none of the above
    A) -(market price minus the strike price)
    (this multiple choice question has been scrambled)
  13. A MSFT Jun 65 put @3 has how much intrinsic value with MSFT @65?

    A) $3
    B) $2
    C) $65
    D) $0
    D. (there is no intrinsic value in being able to sell a $65 stock for $65.)
  14. An IBM Mar 75 put @3 has how much time value with IBM @74?

    A) $1
    B) $3
    C) $2
    D) none of the above
    C. ($1 intrinsic value; $2 time value)
  15. Which type of option may be exercised at any point up to expiration?

    A) puts
    B) American style
    C) European style
    D) calls
    B) American style
    (this multiple choice question has been scrambled)
  16. Which of the following explains what occurs when the owner of a put exercises the contract?

    A) the owner delivers shares in exchange for 100 times the strike price
    B) the writer delivers shares in exchange for 100 times the strike price
    C) the owner delivers cash equal to 100 times the strike price
    D) the owner delivers an option to sell 100 shares for the strike price
    A.  A put buyer sells shares at the strike price--100 shares per contract.

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