FINA 3315 Final ACTUAL Exam Questions
and CORRECT Answers
As bonds approach their maturity dates - CORRECT ANSWER - prices will approach
their par values
T/F
Interest rates and bond prices are positively related. - CORRECT ANSWER - False
T/F
Municipal bonds are most attractive to residents of states with high income tax rates -
CORRECT ANSWER - True
Municipal bonds can be either general obligation bonds or revenue bonds. Of these two types of
municipal bonds, only general obligation bonds - CORRECT ANSWER - are backed by
the full faith and credit of the issuer.
Eurodollar bonds are - CORRECT ANSWER - purchased and redeemed in dollars but
issued by entities outside the U.S.
T/F
Securitization is the process of creating marketable securities from various types of loans. -
CORRECT ANSWER - True
A bond's sinking fund provisions specifies - CORRECT ANSWER - how the issuer will
pay off the bond over time.
What is a good reason to invest in convertible bonds? - CORRECT ANSWER - They offer
predictable income and a chance to profit from an increase in the stock price.
,Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - CORRECT ANSWER - Investment grade bonds
A bond quoted at a price of 101.2 - CORRECT ANSWER - has a coupon rate that exceeds
the market rate.
T/F
Municipal bonds usually have higher yields than bonds issued by the U.S. Government -
CORRECT ANSWER - False
T/F
A normal yield curve is flat or upward sloping. - CORRECT ANSWER - True
A bond is most likely to be called - CORRECT ANSWER - when investors must reinvest
at lower rates.
A coupon-bearing bond purchased when issued at par value was held until maturity during which
time interest rates fell. The ex-post realized return of the bond investment most likely was: -
CORRECT ANSWER - below the YTM at the time of issue.
What tend to raise interest rates? - CORRECT ANSWER - * an increase in the expected
rate of inflation
* an increase in investing activities by businesses
* Federal Reserve actions taken to lower expected rates of inflation
An inverted yield curve - CORRECT ANSWER - sometimes results from actions by the
Federal Reserve to control inflation.
T/F
,Yield curves for corporate and government securities have similar shapes, but the corporate rates
are usually below the government rates. - CORRECT ANSWER - False
The expectations hypothesis states that investors - CORRECT ANSWER - require higher
long-term interest rates today if they expect higher inflation rates in the future.
The current yield on a bond is most similar to - CORRECT ANSWER - the dividend yield
on a stock
T/F
Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
CORRECT ANSWER - True
T/F
Most exchange-traded funds (ETFs) are actively managed funds. - CORRECT ANSWER -
False
An annual fee charged to cover the marketing costs of a mutual fund is called a: - CORRECT
ANSWER - 12b-1 Fee
Mutual funds often report returns as the growth of $10,000 over a period of time. These returns
assume that - CORRECT ANSWER - all dividends and capital gains are reinvested.
Investors in hedge funds have the legal status of - CORRECT ANSWER - Limited
partners
Value funds seek stocks... - CORRECT ANSWER - * with potential for growth
* with low P/E ratios
, A convenient way for small investors to enjoy the benefits of a broadly diversified portfolio is by
purchasing: - CORRECT ANSWER - mutual fund shares
A fund that is designed to match the performance of a measure such as the S&P 500 or the
Russell 2000 is called a(n) - CORRECT ANSWER - index fund
Target date funds... - CORRECT ANSWER - invest in more conservative assets as the
target date approaches
Socially responsible funds are distinguished from other mutual funds because they... -
CORRECT ANSWER - invest only in companies that meet specified moral, ethical, or
environmental standards
T/F
Like ordinary stocks, exchange-traded funds (ETFs) can be sold short. - CORRECT
ANSWER - True
Purchasers of stock options - CORRECT ANSWER - have the right to buy or sell a certain
number of underlying shares
LEAPS are a special type of option - CORRECT ANSWER - that may have an expiration
date as long as three years
If the Canadian dollar became stronger relative to the U.S. dollar, the price of - CORRECT
ANSWER - a call option on the Canadian dollar will increase
A long straddle.. - CORRECT ANSWER - is a strategy that produces profits when the
price of the underlying security moves significantly in either direction
Writers on option contracts - CORRECT ANSWER - earn a profit when the option expires
without being exercised
and CORRECT Answers
As bonds approach their maturity dates - CORRECT ANSWER - prices will approach
their par values
T/F
Interest rates and bond prices are positively related. - CORRECT ANSWER - False
T/F
Municipal bonds are most attractive to residents of states with high income tax rates -
CORRECT ANSWER - True
Municipal bonds can be either general obligation bonds or revenue bonds. Of these two types of
municipal bonds, only general obligation bonds - CORRECT ANSWER - are backed by
the full faith and credit of the issuer.
Eurodollar bonds are - CORRECT ANSWER - purchased and redeemed in dollars but
issued by entities outside the U.S.
T/F
Securitization is the process of creating marketable securities from various types of loans. -
CORRECT ANSWER - True
A bond's sinking fund provisions specifies - CORRECT ANSWER - how the issuer will
pay off the bond over time.
What is a good reason to invest in convertible bonds? - CORRECT ANSWER - They offer
predictable income and a chance to profit from an increase in the stock price.
,Bonds with one of the top four ratings (Aaa through Baa, or AAA through BBB) are designated
as - CORRECT ANSWER - Investment grade bonds
A bond quoted at a price of 101.2 - CORRECT ANSWER - has a coupon rate that exceeds
the market rate.
T/F
Municipal bonds usually have higher yields than bonds issued by the U.S. Government -
CORRECT ANSWER - False
T/F
A normal yield curve is flat or upward sloping. - CORRECT ANSWER - True
A bond is most likely to be called - CORRECT ANSWER - when investors must reinvest
at lower rates.
A coupon-bearing bond purchased when issued at par value was held until maturity during which
time interest rates fell. The ex-post realized return of the bond investment most likely was: -
CORRECT ANSWER - below the YTM at the time of issue.
What tend to raise interest rates? - CORRECT ANSWER - * an increase in the expected
rate of inflation
* an increase in investing activities by businesses
* Federal Reserve actions taken to lower expected rates of inflation
An inverted yield curve - CORRECT ANSWER - sometimes results from actions by the
Federal Reserve to control inflation.
T/F
,Yield curves for corporate and government securities have similar shapes, but the corporate rates
are usually below the government rates. - CORRECT ANSWER - False
The expectations hypothesis states that investors - CORRECT ANSWER - require higher
long-term interest rates today if they expect higher inflation rates in the future.
The current yield on a bond is most similar to - CORRECT ANSWER - the dividend yield
on a stock
T/F
Changes in the inflation rate have a direct and pronounced effect on market interest rates. -
CORRECT ANSWER - True
T/F
Most exchange-traded funds (ETFs) are actively managed funds. - CORRECT ANSWER -
False
An annual fee charged to cover the marketing costs of a mutual fund is called a: - CORRECT
ANSWER - 12b-1 Fee
Mutual funds often report returns as the growth of $10,000 over a period of time. These returns
assume that - CORRECT ANSWER - all dividends and capital gains are reinvested.
Investors in hedge funds have the legal status of - CORRECT ANSWER - Limited
partners
Value funds seek stocks... - CORRECT ANSWER - * with potential for growth
* with low P/E ratios
, A convenient way for small investors to enjoy the benefits of a broadly diversified portfolio is by
purchasing: - CORRECT ANSWER - mutual fund shares
A fund that is designed to match the performance of a measure such as the S&P 500 or the
Russell 2000 is called a(n) - CORRECT ANSWER - index fund
Target date funds... - CORRECT ANSWER - invest in more conservative assets as the
target date approaches
Socially responsible funds are distinguished from other mutual funds because they... -
CORRECT ANSWER - invest only in companies that meet specified moral, ethical, or
environmental standards
T/F
Like ordinary stocks, exchange-traded funds (ETFs) can be sold short. - CORRECT
ANSWER - True
Purchasers of stock options - CORRECT ANSWER - have the right to buy or sell a certain
number of underlying shares
LEAPS are a special type of option - CORRECT ANSWER - that may have an expiration
date as long as three years
If the Canadian dollar became stronger relative to the U.S. dollar, the price of - CORRECT
ANSWER - a call option on the Canadian dollar will increase
A long straddle.. - CORRECT ANSWER - is a strategy that produces profits when the
price of the underlying security moves significantly in either direction
Writers on option contracts - CORRECT ANSWER - earn a profit when the option expires
without being exercised
