FIN 384 Test Exam 2 - CHAPTER 8 TRUE 1 Capital market...

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CHAPTER 8 TRUE 1. Capital market securities are used to finance real capital investments 3. Money market securities are all debt securities, while capital market securities are either debt or equity securities. 5. Life insurance companies are more likely to invest in corporate capital market securities than commercial banks. . Capital market interest rates tend to be higher than money market rates for any issuer. 6. Investors may invest in capital market securities either directly or indirectly. 9. Financial institutions and households own about the same amount of financial assets. 10. In the U.S. there are more mortgages outstanding than corporate bonds. 12. A U.S. Treasury STRIP is a zero-coupon bond. 13. Most State and Local government bonds are sold to finance education. 14. A serial bond issue matures over a period of years. 15. Households are the major investor in municipal bonds 17. A state turnpike authority is more likely to issue revenue bonds than general obligation bonds. 19. The money market provides liquidity for deficit units; the capital market finances economic growth. 20. The primary market for junk bonds expanded for higher risk firms as the secondary market for junk bonds developed. 21. Capital market borrowing by businesses is generally repaid from the cash flow generated by the assets financed. 24. Revenue bonds are generally considered more risky than general obligation bonds. CHAPTER 9 TRUE 1. Mortgage insurance was an important factor in the development of secondary mortgage markets. 2. Commercial banks are the largest institutional investor of mortgages. 3. Mortgage borrowers expecting interest rates to fall significantly are likely to find ARM mortgages at rates very close to FRM mortgage rates. 4. FNMA is a privately owned corporation with a line of credit from the U.S. Treasury. 5. The cash flow to investors by CMO securities can be predicted with certainty. 6. Mortgage originators may retain the servicing right and fees even though the mortgage has been sold to a governmental agency. 7. A lender with a fixed-rate mortgage bears the risk of future inflation. 9. Most mortgage loans are amortized over the maturity of the loan with interest computed on the declining principal. 10. In a conventional mortgage agreement the borrower owns the mortgaged home; the lender takes a lien against the home. 14. Mortgage pool securities have encouraged individuals, insurance companies, and pension funds to provide indirect mortgage financing. 15. Home equity credit lines are a form of second mortgage financing. 16. Pass-through mortgage securities have standard denominations but uncertain cash flow. CHAPTER 10 TRUE 1. The Dow Jones Industrial Average is a price-weighted index. 7. The New York Stock Exchange is an example of a secondary market. 8.
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This note was uploaded on 09/27/2011 for the course FINANCE 384 taught by Professor Chang during the Spring '11 term at Missouri State University-Springfield.

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FIN 384 Test Exam 2 - CHAPTER 8 TRUE 1 Capital market...

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