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 theorys 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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