ch10 - Financial Markets and Institutions, 6e...

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Unformatted text preview: Financial Markets and Institutions, 6e (Mishkin/Eakins) Chapter 10 1 The Bond Market 10.1 Multi ple Choi ce 1) Compared to money market securities, capital market securities have A) more liquidity. B) longer maturities. C) lower yields. D) less risk. Answer: B Question Status: Previous Edition 2) (I) Securities that have an original maturity greater than one year are traded in capital markets. (II) The best known capital market securities are stocks and bonds. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C Question Status: Previous Edition 3) (I) Securities that have an original maturity greater than one year are traded in money markets. (II) The best known money market securities are stocks and bonds. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: D Question Status: Previous Edition 4) (I) Firms and individuals use the capital markets for long- term investments. (II) The capital markets provide an alternative to investment in assets such as real estate and gold. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C Question Status: Previous Edition 5) The primary reason that individuals and firms choose to borrow long- term is to reduce the risk that interest rates will _________ before they pay off their debt. A) rise B) fall C) become more volatile D) become more stable Answer: A Question Status: Previous Edition 6) A firm that chooses to finance a new plant by issuing money market securities A) must incur the cost of issuing new securities to roll over its debt. B) runs the risk of having to pay higher interest rates when it rolls over its debt. C) incurs both the cost of reissuing securities and the risk of having to pay higher interest rates on the new debt. D) is more likely to profit if interest rates rise while the plant is being constructed. Answer: C Question Status: Previous Edition 7) The primary reason that individuals and firms choose to borrow long- term is to A) reduce the risk that interest rates will fall before they pay off their debt. B) reduce the risk that interest rates will rise before they pay off their debt. C) reduce monthly interest payments, as interest rates tend to be higher on short- term than long- term debt instruments. D) reduce total interest payments over the life of the debt. Answer: B Question Status: Previous Edition 8) A firm will borrow long- term A) if the extra...
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ch10 - Financial Markets and Institutions, 6e...

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