Quiz1d - Name: _ ID number: _ FIN 406 QUIZ. 1 October 3,...

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Name: _____________________ ID number: _________________ FIN 406 QUIZ. 1 October 3, 2002 Instructions: Circle the best answer for each question in the exam. There are 45 questions and each question is worth 1 point. The exam is a closed book and closed notes exam. 1
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1. Why are derivatives potentially dangerous? a. They involve leverage b. They are used to hedge c. They are a tool for risk management d. There are more than 1200 different derivatives on the market 2. Financial assets ___________ means by which individuals hold claims on real assets. Financial assets ________ directly to the productive capacity of the economy. a. are; contribute b. are; do not contribute c. are not; contribute d. are not; do not contribute 3. Asset allocation refers to the _______________. a. allocation of the investment portfolio across broad asset classes b. analysis of the value of securities c. choice of specific assets within each asset class d. none of the above 4. _____________ portfolio management calls for holding diversified portfolios without spending effort or resources attempting to improve investment performance through security analysis. a. active b. idiotic c. passive d. none of the above 5. The most important feature of municipal bonds is their ____________. a. safety b. liquidity c. tax-exempt status d. convertibility 6. ____________ is not a characteristic of a money market instrument. a. liquidity b. marketability c. low risk d. long maturity 7. Financial intermediaries exist because small investors cannot efficiently _____________. a. diversify their portfolios b. gather information c. monitor their portfolios d. all of the above 2
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8. When computing the bond equivalent yield in a leap year, you would use ________ days. a. 260 b. 360 c. 365 d. 366 9. The bid price of a treasury bill is ______________. a. the price at which the dealer in treasury bills is willing to sell the bill b. the price at which the dealer in treasury bills is willing to buy the bill c. greater than the ask price of the treasury bill expressed in dollar terms d. the price at which the investor can buy the treasury bill 10. In a futures contract, the long position is taken by the person who ____________. a. commits to delivering the commodity b. commits to purchasing the commodity c. plays between second base and third base d. uses his margin 11. A __________ gives its holder the right to buy an asset for a specified exercise price on or before a specified expiration date. a. call option b. futures contract c. put option d. none of the above 12. A treasury bill has a face value of $10,000 and is selling for $9,800. If the treasury bill matures in 80 days, its bank discount yield is ___________. a.
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Quiz1d - Name: _ ID number: _ FIN 406 QUIZ. 1 October 3,...

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