Financial Markets and Institutions – Exam 2, 2026 – Study Material
and Practice Questions
When two securities have the same expected cash flows, the value of the ___________ security
will be higher then the value of the _____________ security. - ANS✔✔ low-risk; high-risk
Morgan Robbins, a private investor, would like to purchase a bond that has a par value of
$1,000, pays $80 at the end of each year in coupon payments, and has 10 years remaining until
maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6
percent, how much will Mr. Robbins pay for the bond? - ANS✔✔ $1,147.20
If bond portfolio managers expect interest rates to increase in the future, they would likely
______ their holdings of bonds now, which could cause the prices of bonds to ______ as a result
of their actions. - ANS✔✔ decrease; decrease
Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645.
One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized
yield from this transaction? - ANS✔✔ 2.80 percent
A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What
is the discount? - ANS✔✔ 10.00 percent
At any given time, the yield on commercial paper is ______ the yield on a T-bill with the same
maturity. - ANS✔✔ slightly higher than
Which of the following is not a money market instrument? - ANS✔✔ All of the above are money
market instruments.
Which money market transaction is most likely to represent a loan from one commercial bank
to another? - ANS✔✔ federal funds
, Municipal general obligation bonds are ______. Municipal revenue bonds are ______. - ANS✔✔
supported by the municipal government's ability to tax; supported by revenue generated from
the project
Jim Carrey, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate
and a 9 percent yield to maturity. Mr. Carrey will hold the bonds until maturity. Thus, he will
earn a return of __________ percent. - ANS✔✔ 9
If interest rates suddenly ____________, those existing bonds that have a call feature are
__________ likely to be called. - ANS✔✔ decline; more
A 12 percent coupon rate bond makes semi-annual interest rate payments. Par value is $1,000.
The bond matures in 10 years. The required rate of return is 10 percent. Use any of the
following information to find the current price.
PVIFAi=12 percent,n=10=5.6502
PVIFi=12 percent,n=10=.3220
PVIFAi=10 percent,n=20=8.5136
PVIFAi=5 percent,n=20=12.4622
PVIFi=5 percent,n=20=.3769
PVIFi=6 percent,n=10=.5584 - ANS✔✔ $1,125
If the coupon rate ______ the required rate of return, the price of a bond _____ par value. -
ANS✔✔ equals; equals
The price of short-term bonds are commonly ______ those of long-term bonds - ANS✔✔ less
volatile than
and Practice Questions
When two securities have the same expected cash flows, the value of the ___________ security
will be higher then the value of the _____________ security. - ANS✔✔ low-risk; high-risk
Morgan Robbins, a private investor, would like to purchase a bond that has a par value of
$1,000, pays $80 at the end of each year in coupon payments, and has 10 years remaining until
maturity. If the prevailing annualized yield on other bonds with similar characteristics is 6
percent, how much will Mr. Robbins pay for the bond? - ANS✔✔ $1,147.20
If bond portfolio managers expect interest rates to increase in the future, they would likely
______ their holdings of bonds now, which could cause the prices of bonds to ______ as a result
of their actions. - ANS✔✔ decrease; decrease
Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645.
One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized
yield from this transaction? - ANS✔✔ 2.80 percent
A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What
is the discount? - ANS✔✔ 10.00 percent
At any given time, the yield on commercial paper is ______ the yield on a T-bill with the same
maturity. - ANS✔✔ slightly higher than
Which of the following is not a money market instrument? - ANS✔✔ All of the above are money
market instruments.
Which money market transaction is most likely to represent a loan from one commercial bank
to another? - ANS✔✔ federal funds
, Municipal general obligation bonds are ______. Municipal revenue bonds are ______. - ANS✔✔
supported by the municipal government's ability to tax; supported by revenue generated from
the project
Jim Carrey, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate
and a 9 percent yield to maturity. Mr. Carrey will hold the bonds until maturity. Thus, he will
earn a return of __________ percent. - ANS✔✔ 9
If interest rates suddenly ____________, those existing bonds that have a call feature are
__________ likely to be called. - ANS✔✔ decline; more
A 12 percent coupon rate bond makes semi-annual interest rate payments. Par value is $1,000.
The bond matures in 10 years. The required rate of return is 10 percent. Use any of the
following information to find the current price.
PVIFAi=12 percent,n=10=5.6502
PVIFi=12 percent,n=10=.3220
PVIFAi=10 percent,n=20=8.5136
PVIFAi=5 percent,n=20=12.4622
PVIFi=5 percent,n=20=.3769
PVIFi=6 percent,n=10=.5584 - ANS✔✔ $1,125
If the coupon rate ______ the required rate of return, the price of a bond _____ par value. -
ANS✔✔ equals; equals
The price of short-term bonds are commonly ______ those of long-term bonds - ANS✔✔ less
volatile than
