ESSENTIALS OF INVESTMENTS
CHAPTER 2 QUESTIONS WITH
CORRECT ANSWERS 2026-2027
characteristics of Money markets - correct answer-1. cash equivalent instruments
2. short term
3. marketeable
4. liquid
5. low-risk
characteristics of capital markets and examples - correct answer-1. longer-term
2. higher riskVsecurities
examples: long term debt markets, equity, derivative markets
Why are money market instruments usually outVof access to small investors? - correct answer-
because they trade in large denominations
ask price - correct answer-price you would pay for a security if you bought from a securities dealer.
If you want to sell 100 shares at 25 dollars per share, this is the ask price
bid price - correct answer-a slightly lower price that security dealers would pay to buy a T-bill from you.
If you are willing to pay 23 dollars for a particular share, this is the bid price
Bank discount formula - correct answer-(asked price) x (days until maturity/360)= x
1-x= y
, y x 10,000
Types of Money market securities - correct answer-1. Tbills
2. CD's
3. Commercial Paper
4. Banker's acceptances
5. Eurodollars
6. Repos and Reverses
7. Brokers' call
8. Federal Funds
9. Libor
Certificate of Deposits - correct answer-
Time deposit with a bank that cannot be withdrawn upon demand.
The depositor receives interest and principal only at the end of the CD's fixed term.
Highly marketable.
Denominations larger than 100,000 are usually negotiable in that they can be sold to another investor if
the owner has to cash in the CF before the mat.
issured by the FDIC for up to 250,000 in case of bank insolvency
commercial paper - correct answer-short term unsecured debt issued by large corporations.
Issued by these companies instead of borrowing from banks.
CHAPTER 2 QUESTIONS WITH
CORRECT ANSWERS 2026-2027
characteristics of Money markets - correct answer-1. cash equivalent instruments
2. short term
3. marketeable
4. liquid
5. low-risk
characteristics of capital markets and examples - correct answer-1. longer-term
2. higher riskVsecurities
examples: long term debt markets, equity, derivative markets
Why are money market instruments usually outVof access to small investors? - correct answer-
because they trade in large denominations
ask price - correct answer-price you would pay for a security if you bought from a securities dealer.
If you want to sell 100 shares at 25 dollars per share, this is the ask price
bid price - correct answer-a slightly lower price that security dealers would pay to buy a T-bill from you.
If you are willing to pay 23 dollars for a particular share, this is the bid price
Bank discount formula - correct answer-(asked price) x (days until maturity/360)= x
1-x= y
, y x 10,000
Types of Money market securities - correct answer-1. Tbills
2. CD's
3. Commercial Paper
4. Banker's acceptances
5. Eurodollars
6. Repos and Reverses
7. Brokers' call
8. Federal Funds
9. Libor
Certificate of Deposits - correct answer-
Time deposit with a bank that cannot be withdrawn upon demand.
The depositor receives interest and principal only at the end of the CD's fixed term.
Highly marketable.
Denominations larger than 100,000 are usually negotiable in that they can be sold to another investor if
the owner has to cash in the CF before the mat.
issured by the FDIC for up to 250,000 in case of bank insolvency
commercial paper - correct answer-short term unsecured debt issued by large corporations.
Issued by these companies instead of borrowing from banks.
