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Unformatted text preview: Econ 423, Summer 2009
Homework #5, Due 7—13-09 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The security with the longest maturity is a Treasmy I)
A) acceptance. B) bond. C) bi]l. D) note.
2) When inflation rose in the late 1970s, 2) A) banks solidiﬁed their advantage over money markets by offering higher deposit rates. B) brokerage houses introduced highly popular money market mutual funds, which drew
significant amounts of money out of bank deposits. C) consumers moved money out of money market mutual funds because their returns did not
keep pace with inflation. D) consumers were unable to take advantage of higher rates in money markets because of the
requirement of large transaction sizes. E) Both (c) and (d) are true. 3) Suppose that you purchase a 182—day Treasury bill for $9,850 that is worth $10,000 when it 3)
matures. The security's annualized yield if held to maturity is about
A) 2%. B) 6%. C} 3%. D) 1.5%. 4) To sell an old bond when interest rates have the holder will have to the price 4)
of the bond until the yield to the buyer is the same as the market rate.
A) fallen; lower B) risen; raise C) risen; lower D) risen; inflate 5) (I) Most corporate bonds have a face value of $1000, pay interest semi—annually, and can be 5)
redeemed anytime the issuer wishes. (II) Registered bonds have now been largely replaced by
bearer bonds, which do not have coupons. A) (I) is false, (II) true. B) (I) is true, (11) false.
C) Both are true. D) Both are false. 6) Call provisions will be exercised when interest rates and bond values . 6)
A) rise; fall B) rise; rise. C) fall; rise D) fall; fall 7) The nearer a bond‘s price is to its par value and the longer the maturity of the bond the more 7) closely approximates A) yield to maturity; coupon rate. B) current yield; coupon rate.
C) yield to maturity; current yield. D) current yield; yield to maturity. 8) The current yield on a $6,000, 10 percent coupon bond selling for $5,000 is 8}
A) 5%. B) 15%. C) 12%. D) 10%. 9) STRIPS (Separate Trading of Registered Interest and Principal Securities) are also called 9)
A) covenant securities. B) leveraged securities.
C) zero-coupon securities. D) interest—based securities. Note: All questions are to be completed on your own, without any assistance from others. 10) Preferred stockholders hold a claim on assets that has priority over the claims of 10)
A) bondholders, but after that of common stockholders.
B) both common stockholders and bondholders.
C) common stockholders, but after that of bondholders.
D) neither common stockholders nor bondholders. 11) The riskiest capital market security is 11)
A) corporate bonds. B) preferred stock.
C) common stock. D) Treasury bonds. 12) Securities not listed on one of the exchanges trade in the over— the—counter market. In this exchange, 12)
dealers "make a market" by A) selling stocks from inventory when investors want to buy. B) buying stocks for inventory when investors want to sell.
C) doing both of the above.
D) doing neither of the above. Textbook Problems. Write your answer in the space provided or on a separate sheet of paper. 13) (Mishkin and Eakins, p. 235, Question #2) 1s a Treasury bond issued 29 years ago with six months remaining
before it matures a money market instrument? Why or why not? 14) (Mishkin and Eakins, p. 235, Question #15) Why are banker's acceptances so popular for international
transactions? Explain. 15) Mishkin and Eakins, p.235, Quantitative Problem #2.
16) Mishkin and Eakins, p. 235, Quantitative Problem #5.
17) Mishkin and Ea kins, p. 235, Quantitative Problem #6.
18) Mishkin and Eakins, p. 235, Quantitative Problem #7.
19) Mishkin and Eakins, p. 257, Question #8. 20) Mishkin and Eakins, p. 257, Question #9. 21) Mishkin and Eakins, p. 257, Quantitative Problem #3.
22) Mishkin and Eakins, p. 257, Quantitative Problem #7.
23) Mishkin and Eakins, p. 257, Quantitative Problem #8.
24) Mishkin and Eakins, p. 257, Quantitative Problem #11. 25) Mishkin and Eakins, p. 257, Quantitative Problem #15. Page 2 of 2 ...
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- Summer '08