MGT411 Solved MCQ2 from Quiz #2

MGT411 Solved MCQ2 from Quiz #2

Chapter 1-22

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Question # 1

The____________ are an assessment of the creditworthiness of the corporate issuer. 
Select correct option: 

Bond yield

Bond price 

Bond risk
Bond ratings 

Bond price 

Question # 2
Which of the following statement is true for the given sentence, "that tax affects the bond return"? 
Select correct option: 

Because only interest income they receive from bond is taxable 
Because principal amount and interest income they receive from bond is taxable
Because bond holders are taxpayers
Because all bond is sold with a condition that tax will be deducted from its return

The second important factor that affects the return on a bond is taxes

Bondholders must pay income tax on the interest income they receive from privately issued

Question # 3
The relationship between the price and the interest rate for a zero coupon bond is best described as: 
Select correct option: 

Volatile
Stable
Non-existent  
Inverse 

Question # 4

When stock prices reflect fundamental values: 
Select correct option: 

All investors will experience capital gains
All companies will have an easier task of obtaining financing for investment projects
The allocation of resources will be more efficient 
The overall level of the stock market should move higher continuously

Question # 5
Coupon bonds make the annual payments which are called as ___________. 
Select correct option: 

Annual payments
Fixed payments
Coupon payments
Maturity payment

  

Question # 6

If information in a financial market is asymmetric, this means: 
Select correct option: 

Borrowers and lenders have perfect information
Borrowers would have more information than lenders 
Borrowers and lenders have the same information
Lenders lack any information

Question # 7
If YTM equals the coupon rate the price of the bond is __________. 
Select correct option: 

Greater than its face value
Lower than its face value
Equals to its face value
Insufficient information

Question # 8

The Financial Systems makes it easier to trade because it: 
Select correct option: 

Facilitate Payments 
Channels Funds from Savers to Borrowers 
Enables Risk Sharing 
All of the given options

 Question # 9 of
Debt instruments is categorized on the basis of which one of the following? 
Select correct option: 

Loan maturity period 
Interest rates
Mode of payment of interest
Amount of the debt taken

Question # 10
The return on holding a bond till its maturity is called: 
Select correct option: 

Coupon rate
Yield to maturity
Current yield
Internal rate of return 

Question # 11
Which of the following are used to monitor and stabilize the economy? 
Select correct option: 

Stock exchanges
Commercial Banks
Central Banks 

Financial institutions

Question # 12

Previously financial markets are located in which of the following? 
Select correct option: 

Coffee houses or Taverns .
Stock exchanges
Bazaar
Coffee houses and Stock exchanges
Financial Markets

To buy and sell financial instruments quickly and cheaply

Evolved from coffeehouses to trading places (Stock exchanges) to electronic networks

Transactions are much more cheaper now

Markets offer a broader array of financial instruments than were available even 50 years ago

Question # 13

Requiring a large deductible on the part of an insured is one way insurers treat the problem of: 
Select correct option: 

Free-riding

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Moral hazard
Adverse selection
The Lemons market

Question # 14
Which one of the following is the procedure of finding out the Present Value (PV)? 
Select correct option: 

Discounting
Compounding
Time value of money
Bond pricing

Question # 15

_____________ are organized to eliminate the need of costly information gathering. 
Select correct option: 

Central bank
Commercial banks
Stock exchanges 
Insurance companies

  

Question # 16
With direct finance we mean which of the following? 
Select correct option: 

Individuals (or firms) borrow directly from the savers
Individuals (or firms) borrow directly from banks.
Individuals deposit savings directly in banks. 
Firms deposit savings directly in banks. 

Question # 17

Yield curves show which of the followings? 
Select correct option: 

The relationship between bond interest rates (yields) and bond prices
The relationship between liquidity and bond interest rates (yields)
The relationship between risk and bond interest rates (yields)
The relationship between time to maturity and bond interest rates (yields) 

Question # 18
In a financial market where information is symmetric: 
Select correct option: 

The same information would be known by both parties in a transaction 
One party to a transaction knows information the other party does not
The ability to obtain information is available to only one party
All of the given options

Question # 19
Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. 
Select correct option: 

Investors prefer long-term bonds
Investors prefer short-term bonds 
Investors are indifferent between short-term and long-term bonds
Investors prefer intermediate-term bonds

  

Question # 20
Spreading involves: 
Select correct option: 

Finding assets whose returns are perfectly negatively correlated
Building a portfolio of assets whose returns move together
Investing in bonds and avoiding stocks during bad times
Adding assets to a portfolio that move independently 

Question # 1 of 20 ( Start time: 05:44:09 PM )  Total Marks: 1 

___________ is the strategy of reducing overall risk by making two investments with opposing risks. 

Select correct option: 

Spreading the risk

Standard deviation

Hedging the risk

Variance

Question # 2 of 20 ( Start time: 05:44:45 PM )  Total Marks: 1 

The lowest rating for an investment grade bond assigned by Moody's is: 

Select correct option: 

BBB

ABB

Baa

Aaa

Which one of the following is the narrowest definition of money? 

Select correct option: 

C

M1

M2

M3

Question # 4 of 20 ( Start time: 05:46:15 PM )  Total Marks: 1 

The price of a coupon bond can best be described as: 

Select correct option: 

The present value of the face value

The future value of the coupon payments and the face value

The present value of the coupon payments

Both The present value of the face value and of the coupon payments

Question # 5 of 20 ( Start time: 05:46:53 PM )  Total Marks: 1 

We need __________ to carry out day to day transactions. 

Select correct option: 

Money

Bonds

Stocks

Loans

Question # 6 of 20 ( Start time: 05:47:16 PM )  Total Marks: 1 

The process of financial intermediation: 

Select correct option: 

Creates a net cost to an economy but is unavoidable

Is used primarily in underdeveloped countries

Is always used when a borrower needs to obtain funds

Increases the economy's ability to produce

Question # 7 of 20 ( Start time: 05:47:51 PM )  Total Marks: 1 

Considering the Liquidity Premium Theory, if investors expect short term interest rates to decrease: 

Select correct option: 

The yield curve must have a positive slope

The yield curve must be inverted

The yield curve could be flat

The slope of the yield curve should actually increase

Question # 8 of 20 ( Start time: 05:48:41 PM )  Total Marks: 1 

Which one of the following is true for the relationship between the yield of taxable and tax exempt bond? 

Select correct option: 

Higher the tax rate wider the gap between the yield of taxable and tax exempt bond

Taxable bond yield is always greater than tax exempt bond

Higher the tax rate shorter the gap between yield of taxable and tax exempt bond

Lower the tax rate wider the gap between yield of taxable and tax exempt bond

Question # 9 of 20 ( Start time: 05:49:13 PM )  Total Marks: 1 

Which of the following expresses 6.5%? 

Select correct option: 

0.0065 

6.50 

0.650 

0.0650

Question # 10 of 20 ( Start time: 05:50:19 PM )  Total Marks: 1 

What will be the result of the difference of real and nominal interest rate? 

Select correct option: 

The cost of borrowing

The effect of inflation

The price of bonds

The return of bonds

Question # 11 of 20 ( Start time: 05:50:40 PM )  Total Marks: 1 

Other things remaining equal, the liquidity premium theory is based upon the idea that ____________. 

Select correct option: 

Investors prefer long-term bonds

Investors prefer short-term bonds

Investors are indifferent between short-term and long-term bonds

Investors prefer intermediate-term bonds

Question # 12 of 20 ( Start time: 05:51:25 PM )  Total Marks: 1 

The Segmented Markets Theory of term structure suggests that: 

Select correct option: 

Investors have strong preferences for bonds of a particular maturity

Investors have no preference for short-term bonds over long-term bonds, or vice versa

Interest rates on long-term bonds strongly influence the demand for short-term bonds

Bonds of different maturities are perfect substitutes for each other

Question # 13 of 20 ( Start time: 05:52:23 PM )  Total Marks: 1 

Often a bank will require a loan officer to make personal visits on customers with loans outstanding. This is encouraged because: 

Select correct option: 

The bank worries about competitors trying to steal their customers 

The bank wants to make sure the business is still there

The bank likely has excess funds available and hopes to make another loan to the business

This is an effective monitoring technique and should reduce moral hazard

Question # 14 of 20 ( Start time: 05:53:10 PM )  Total Marks: 1 

If the tax rate is higher than gap between yield on taxable and tax exempt bond? 

Select correct option: 

Shorter

Wider

No gap

Any thing can be possible

Question # 15 of 20 ( Start time: 05:53:46 PM )  Total Marks: 1 

Investors will hold higher compensation for the __________ investment. 

Select correct option: 

More risky 

Less risky 

Fixed return

Less dividend

Question # 16 of 20 ( Start time: 05:54:14 PM )  Total Marks: 1 

Which of the following are used to monitor and stabilize the economy? 

Select correct option: 

Stock exchanges

Commercial Banks

Central Banks

Financial institutions

Question # 17 of 20 ( Start time: 05:54:38 PM )  Total Marks: 1 

The theory of efficient market states that prices of financial instruments reflect: 

Select correct option: 

All available information

Some of the information

No information 

Imperfect information 

Question # 18 of 20 ( Start time: 05:55:37 PM )  Total Marks: 1 

With direct finance we mean which of the following? 

Select correct option: 

Individuals (or firms) borrow directly from the savers

Individuals (or firms) borrow directly from banks.

Individuals deposit savings directly in banks. 

Firms deposit savings directly in banks. 

Question # 19 of 20 ( Start time: 05:56:08 PM )  Total Marks: 1 

Which of the following best describes the relationship between Bond prices and yields? 

Select correct option: 

Move together inversely

Bond yields do not change since the coupon is fixed

Move together directly

Are independent of each other

Question # 20 of 20 ( Start time: 05:56:35 PM )  Total Marks: 1 

The fact that common stockholders are residual claimants means: 

Select correct option: 

The stockholders receive their dividends before any other residuals are paid

The stockholders receive the remains after everyone else is paid

The stockholders are paid any past due dividends before other claims are paid

The common stockholders are responsible for all corporate debts

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