Chap002_Text bank(1)_Solution

Chap002_Text bank(1)_Solution - Chapter 02 Asset Classes...

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Chapter 02 - Asset Classes and Financial Instruments Chapter 02 Asset Classes and Financial Instruments Multiple Choice Questions 1. Which of the following is not a characteristic of a money market instrument? A. liquidity B. marketability C. long maturity D. liquidity premium E. C and D Money market instruments are short-term instruments with high liquidity and marketability; they do not have long maturities nor pay liquidity premiums. Difficulty: Easy 3. Treasury Inflation-Protected Securities (TIPS) A. pay a fixed interest rate for life. B. pay a variable interest rate that is indexed to inflation. C. provide a constant stream of income in real (inflation-adjusted) dollars. D. have their principal adjusted in proportion to the Consumer Price Index. E. C and D TIPS provide a constant stream of income in real (inflation-adjusted) dollars because their principal is adjusted in proportion to the Consumer Price Index. Difficulty: Easy 4. Which one of the following is not a money market instrument? A. a Treasury bill B. a negotiable certificate of deposit C. commercial paper D. a Treasury bond E. a Eurodollar account Money market instruments are instruments with maturities of one year or less, which applies to all of the above except Treasury bonds. Difficulty: Easy 2-1
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5. T-bills are financial instruments initially sold by ________ to raise funds. A. commercial banks B. the U.S. government C. state and local governments D. agencies of the federal government E. B and D Only the U.S. government sells T-bills in the primary market. Difficulty: Easy 6. The bid price of a T-bill in the secondary market is A. the price at which the dealer in T-bills is willing to sell the bill. B. the price at which the dealer in T-bills is willing to buy the bill. C. greater than the asked price of the T-bill. D. the price at which the investor can buy the T-bill. E. never quoted in the financial press. T-bills are sold in the secondary market via dealers; the bid price quoted in the financial press is the price at which the dealer is willing to buy the bill. Difficulty: Easy 10. Which of the following is not a component of the money market is A. repurchase agreements B. Eurodollars C. real estate investment trusts D. money market mutual funds E. commercial paper
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Real estate investment trusts are not short-term investments. Difficulty: Easy 11. Commercial paper is a short-term security issued by ________ to raise funds. A. the Federal Reserve Bank B. commercial banks C. large, well-known companies D. the New York Stock Exchange E. state and local governments Commercial paper is short-term unsecured financing issued directly by large, presumably safe corporations. Difficulty: Easy
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Chap002_Text bank(1)_Solution - Chapter 02 Asset Classes...

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