FINA 3311 TEST 1 QUESTIONS AND CORRECT DETAILED
ANSWERS (VERIFIED ANSWERS) ALREADY GRADED A+
You are considering an investment in a U.S. Treasury bond but you are
not sure what rate of interest it should pay. Assume that the real
risk−free
rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity
risk premium is 2.5%; and, the default risk premium for AAA rated
corporate bonds is 3.5%. What rate of interest should the U.S. Treasury
bond pay? Ans✓✓✓5%
(Rate of Interest + Inflation + maturity risk premium)
What is the term for a graphical representation of the relationship
between interest rates and the maturities of debt securities?
Ans✓✓✓yield curve
The investment banker performs what three basic functions? Ans✓✓✓
underwriting, distributing, and advising
The New York Stock Exchange (NYSE) is Ans✓✓✓a hybrid market,
allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated,
electronic trading.
, John calls his stockbroker and instructs him to purchase 100 shares of
Microsoft Corporation common stock. This transaction occurs in the
Ans✓✓✓secondary market.
A "Dutch auction" was used by Google to raise money in 2004. A Dutch
auction involves Ans✓✓✓allowing investors to submit bids saying how
many shares they'd like to buy and at what price.
Three ways that savings can be transferred through the financial markets
include all of the following EXCEPT Ans✓✓✓indirect transfer using
the venture capital firm.
Which of the following securities will likely have the highest liquidity
premium? Ans✓✓✓Aaa−rated
corporate bond maturing in 2019 not actively traded
Which of the following is an example of both a capital market and a
primary market transaction? Ans✓✓✓Ford Motor Company sells a new
issue of common stock to raise funds through a public offering.
Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond? Ans✓✓✓default−risk
premium
ANSWERS (VERIFIED ANSWERS) ALREADY GRADED A+
You are considering an investment in a U.S. Treasury bond but you are
not sure what rate of interest it should pay. Assume that the real
risk−free
rate of interest is 1.0%; inflation is expected to be 1.5%; the maturity
risk premium is 2.5%; and, the default risk premium for AAA rated
corporate bonds is 3.5%. What rate of interest should the U.S. Treasury
bond pay? Ans✓✓✓5%
(Rate of Interest + Inflation + maturity risk premium)
What is the term for a graphical representation of the relationship
between interest rates and the maturities of debt securities?
Ans✓✓✓yield curve
The investment banker performs what three basic functions? Ans✓✓✓
underwriting, distributing, and advising
The New York Stock Exchange (NYSE) is Ans✓✓✓a hybrid market,
allowing for
face−to−face
trading on the floor of the stock exchange in addition to automated,
electronic trading.
, John calls his stockbroker and instructs him to purchase 100 shares of
Microsoft Corporation common stock. This transaction occurs in the
Ans✓✓✓secondary market.
A "Dutch auction" was used by Google to raise money in 2004. A Dutch
auction involves Ans✓✓✓allowing investors to submit bids saying how
many shares they'd like to buy and at what price.
Three ways that savings can be transferred through the financial markets
include all of the following EXCEPT Ans✓✓✓indirect transfer using
the venture capital firm.
Which of the following securities will likely have the highest liquidity
premium? Ans✓✓✓Aaa−rated
corporate bond maturing in 2019 not actively traded
Which of the following is an example of both a capital market and a
primary market transaction? Ans✓✓✓Ford Motor Company sells a new
issue of common stock to raise funds through a public offering.
Which of the following premiums is NOT factored into the price of a
long−term
Treasury bond? Ans✓✓✓default−risk
premium
