TEST 1 FI 412 University of Alabama
Study online at https://quizlet.com/_hyclx1
1. When yield curves are steeply upward-sloping: long-term interest rates are above short-term
interest rates.
2. An open market sale of securities by the Fed will: decrease liabilities of the Fed and not affect
assets of the banking system
3. If the Federal Reserve wants to expand reserves in the banking system, it
will: purchase government securities
4. According to the expectations theory of the term structure: interest rates on bonds of
different maturities move together over time.
5. A discount loan by the Fed to a bank causes a(n) ________ in reserves in the
banking system and a(n) ________ in the monetary base: increase; increase
6. If the expected path of one-year interest rates over the next four years is 5
percent, 4 percent, 2 percent, and 1 percent, then the pure expectations theory
predicts that today's interest rate on the four-year bond is:
7. According to the expectations theory of the term structure,: when the yield curve is
steeply upward-sloping, short-term interest rates are expected to rise in the future.
B) when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future.
8. Treasury bonds are subject to ________ risk but are free of ________ risk.: inter-
est-rate; default
9. Call provisions will be exercised when interest rates ________ and bond values
________.: fall; rise
10. Callable bonds usually have a higher yield than comparable non-callable
bonds.: true
11. Convertible bonds are attractive to bondholders and sell for a higher price
than comparable nonconvertible bonds.: true
12. Preferred stockholders hold a claim on assets that has priority over the
claims of: common stockholders, but after that of bondholders
13. Suppose the average industry PE ratio for auto parts retailers is 20. What
is the current price of Auto Zone stock if the retailer's earnings per share is
projected to be $1.85?: $37
14. If a 15 year Treasury Bond is "stripped" (into Treasury STRIPS), the number
of securities will be trading after the process is_____? (Assuming semiannual
coupon payment): 31
, TEST 1 FI 412 University of Alabama
Study online at https://quizlet.com/_hyclx1
15. Goldman Sachs repos $10 million par value of a Treasury note to J.P. Morgan
for 30 days. The market value of this Treasury note is $12 million. If J.P. Morgan
takes a 5% haircut, and the repo rate is 3%, how much does Goldman Sachs
need to pay back in 30 days in order to receive the Treasury note? (repo rate is
quoting on a 360 day basis): $11.4285 million
16. The Department of Treasury announced on Thursday that it would auction
$3 billion par value 182-day Treasury Bills. The following bids (both competitive
and non- competitive) were received from the primary dealers. Please state
below which primary dealers will receive the awards, what is the price, and
what is the quantity that each primary dealer receives: 1. Look at largest bid amount
2. Look at bid price associated with that price
3. Any prices above chosen bid price are viable
17. The principal-agent problem: would not arise if the owners of the firm had complete information
about the activities of the managers.
18. If face value and selling price of a bond are the same,: YTM is same as coupon rate
19. A perpetuity pays you $200 each year forever. If the price of this perpetuity
now is $4,000, what is the yield to maturity for this loan?: 5%
20. If price of a bond is below face value, then: YTM is greater than coupon rate
21. In the presence of principal-agent problem, equity contract is superior to
debt contract: False
22. What problem of debt contract is shown when one switches projects based
off a better payoff when project is being financed by debt?: Risk Shifting
23. Formula for calculating price tomorrow: P= C(1/i+1/i(1+i)^n+F/(1+i)^n
24. Sum of weights should equal...: 1
25. Financial markets have the basic function of___________: bringing together people with
funds to lend and people who want to borrow funds. B) generating liquidity
26. Which of the following can be described as involving direct finance?: A corpora-
tion sells its stock to investors through an IPO.
27. Which of the following can be described as involving indirect finance?: A
corporation takes out loans from a bank. A pension fund manager buys stocks from the secondary market.
28. Which of the following statements about the characteristics of debt and
equity are true?: A)They both can be long-term financial instruments.
Study online at https://quizlet.com/_hyclx1
1. When yield curves are steeply upward-sloping: long-term interest rates are above short-term
interest rates.
2. An open market sale of securities by the Fed will: decrease liabilities of the Fed and not affect
assets of the banking system
3. If the Federal Reserve wants to expand reserves in the banking system, it
will: purchase government securities
4. According to the expectations theory of the term structure: interest rates on bonds of
different maturities move together over time.
5. A discount loan by the Fed to a bank causes a(n) ________ in reserves in the
banking system and a(n) ________ in the monetary base: increase; increase
6. If the expected path of one-year interest rates over the next four years is 5
percent, 4 percent, 2 percent, and 1 percent, then the pure expectations theory
predicts that today's interest rate on the four-year bond is:
7. According to the expectations theory of the term structure,: when the yield curve is
steeply upward-sloping, short-term interest rates are expected to rise in the future.
B) when the yield curve is downward-sloping, short-term interest rates are expected to decline in the future.
8. Treasury bonds are subject to ________ risk but are free of ________ risk.: inter-
est-rate; default
9. Call provisions will be exercised when interest rates ________ and bond values
________.: fall; rise
10. Callable bonds usually have a higher yield than comparable non-callable
bonds.: true
11. Convertible bonds are attractive to bondholders and sell for a higher price
than comparable nonconvertible bonds.: true
12. Preferred stockholders hold a claim on assets that has priority over the
claims of: common stockholders, but after that of bondholders
13. Suppose the average industry PE ratio for auto parts retailers is 20. What
is the current price of Auto Zone stock if the retailer's earnings per share is
projected to be $1.85?: $37
14. If a 15 year Treasury Bond is "stripped" (into Treasury STRIPS), the number
of securities will be trading after the process is_____? (Assuming semiannual
coupon payment): 31
, TEST 1 FI 412 University of Alabama
Study online at https://quizlet.com/_hyclx1
15. Goldman Sachs repos $10 million par value of a Treasury note to J.P. Morgan
for 30 days. The market value of this Treasury note is $12 million. If J.P. Morgan
takes a 5% haircut, and the repo rate is 3%, how much does Goldman Sachs
need to pay back in 30 days in order to receive the Treasury note? (repo rate is
quoting on a 360 day basis): $11.4285 million
16. The Department of Treasury announced on Thursday that it would auction
$3 billion par value 182-day Treasury Bills. The following bids (both competitive
and non- competitive) were received from the primary dealers. Please state
below which primary dealers will receive the awards, what is the price, and
what is the quantity that each primary dealer receives: 1. Look at largest bid amount
2. Look at bid price associated with that price
3. Any prices above chosen bid price are viable
17. The principal-agent problem: would not arise if the owners of the firm had complete information
about the activities of the managers.
18. If face value and selling price of a bond are the same,: YTM is same as coupon rate
19. A perpetuity pays you $200 each year forever. If the price of this perpetuity
now is $4,000, what is the yield to maturity for this loan?: 5%
20. If price of a bond is below face value, then: YTM is greater than coupon rate
21. In the presence of principal-agent problem, equity contract is superior to
debt contract: False
22. What problem of debt contract is shown when one switches projects based
off a better payoff when project is being financed by debt?: Risk Shifting
23. Formula for calculating price tomorrow: P= C(1/i+1/i(1+i)^n+F/(1+i)^n
24. Sum of weights should equal...: 1
25. Financial markets have the basic function of___________: bringing together people with
funds to lend and people who want to borrow funds. B) generating liquidity
26. Which of the following can be described as involving direct finance?: A corpora-
tion sells its stock to investors through an IPO.
27. Which of the following can be described as involving indirect finance?: A
corporation takes out loans from a bank. A pension fund manager buys stocks from the secondary market.
28. Which of the following statements about the characteristics of debt and
equity are true?: A)They both can be long-term financial instruments.
