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Duration of The Portfolio of Assets Equal the Duration of The Liability MCQs

Question Description

I’m working on a finance practice test / quiz and need guidance to help me understand better.

1. Primary liabilities (Sources of funds) of depository institutions are ______.

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I. Deposits

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II. Premium from policies

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III. Shares

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IV. Commercial paper

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Group of answer choices

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I

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I and II

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II, III, and IV

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III and IV

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Any bonds rated ______ are considered sub-investment grade debt. Some ______ purchase financial guarantees to lower the debt risk.

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Group of answer choices

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below BBB; debt issuers

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below A; debt holders

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above BB; debt issuers

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BB or below it; debt holders

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Suppose the rate on a corporate bond is 7% and the rate on a municipal bond is 5.5%. If your marginal tax rate is 25%, the equivalent tax-free municipal interest rate is _____ and you should choose ______.

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Group of answer choices

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4.125%; the corporate bond

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5.25%; the corporate bond

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4.125%; the municipal bond

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5.25%; the municipal bond

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The term structure of interest rates is the relationship among interest rates on bonds with _____ maturities and _____ default risk.

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Group of answer choices

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different; similar

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similar; similar

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different; different

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similar; different

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In 1995, JPMorgan created the credit default swap (CDS). CDS provides ______.

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Group of answer choices

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insurance against default in the principle and interest payments of a credit instrument.

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bond investors with a method to swap interest payments for principle payments during a “credit event”.

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the government with a guarantee that certain bond issues will not run into credit problems.

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an alternative method for bond issuers to pay principle and interest payments via a swap.

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James is confident that a certain stock can be sold off for $118 if it is held on to for 2 years. He has a required rate of return of 17%. He is also confident that the company will pay a $9 dividend in the first year and a $14 dividend in the second year. Then, the price of the stock today should be _____.

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Group of answer choices

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$104.1

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$89.7

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$119.2

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$99.6

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______ theory proposes that bonds of different maturities are not substitutes for one another; _____ theory cannot explain the empirical fact that interest rates on bonds of different maturities tend to move together.

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Group of answer choices

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Separable markets; liquidity premium

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Market segmentation; market segmentation

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Liquidity premium; market segmentation

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Expectations; expectations

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______ are regulators of the U.S. financial system.

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I. National Credit Union Administration

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II. Securities and Exchange Commission

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III. Securities and Futures Commission

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IV. Federal Deposit Insurance Corporation

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Group of answer choices

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I, II, and IV

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All of the above

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I and IV

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I and II

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Which of the following statements would be FALSE?

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I. “Short selling” refers to the practice of buying a stock and holding it for only a short time before selling it.

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II. Loss aversion means the unhappiness a person feels when he or she suffers a monetary loss exceeds the happiness the same person experiences from receiving a monetary gain of the same amount.

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III. The efficient market hypothesis does not have to imply that financial markets are efficient.

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IV. Technical analysis is a popular technique used to predict stock prices by studying past stock price data and searching for patterns such as trends and regular cycles.

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Group of answer choices

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II and IV

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I

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None of the above

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III

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The liquidity premium theory’s key assumption is that ______.

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Group of answer choices

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bonds of different default risks are substitutes, but are not perfect substitutes

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bonds of different maturities are perfect substitutes

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bonds of different maturities are substitutes, but are not perfect substitutes

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bonds of different default risks are not substitutes

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