Question 1

Collateralized debt obligations (CBO)are backed by one of the following:
A) Pools of mortgages
B) Low Investment-grade corporate bonds
C) Pools of commercial or personal loans

Accepted Answer

B

Question 2

An order which is activated only when the price of the stock reaches or passes through a predetermined limit is called the:
A) stop order.
B) day order.
C) limit order.
D) market order.

Accepted Answer

A stop order is activated when the stock price reaches or passes through a predetermined limit.

Question 3

In a book market,orders are ranked by price and time.That is,one the bid (buy)side of the book,a high priced limit order has priority over a lower priced order.On the offer (ask)side of the book,a low priced limit order has priority.

Accepted Answer

This is correct. In a book market, orders (both bids and offers) are ranked by price and time. On the bid side of the book, a high-priced limit order has priority over a lower-priced order, because the buyer is willing to pay more. On the offer side of the book, a low-priced limit order has priority because the seller is willing to accept less. This creates a market where the most competitive prices are revealed and executed first.

Question 4

Dow Jones Industrial Average Index (DJIA)is consisted of a price-weighted average of 30 large "blue chip" stocks.

Accepted Answer

The DJIA is indeed a price-weighted index composed of 30 large, well-established companies.

Question 5

Julia earns $60,000 each year for two consecutive years.She has an option to invest in treasury funds to earn a 5% interest today,and consume the entire amount in the second year.Alternatively,she can choose to borrow money at 5% against the second period's income.Assume that the optimum decision for her is to invest money at 5%.Determine the maximum amount she could consume in period 2.
A) $60,000
B) $0
C) $123,000
D) $117,143

Accepted Answer

If Julia invests her first year's income of $60,000 at a 5% interest rate, she will have $60,000 * 1.05 = $63,000 from this investment in the second year. Adding this to her second year's income of $60,000 gives her a total of $123,000 to consume in the second year.

Question 6

Which of the following security's value is contingent on the performance of an underlying security?
A) Treasury Bill
B) Option
C) Corporate Bond
D) Equity

Accepted Answer

Options are securities whose value is dependent on the performance of an underlying security or asset. The buyer of an option has the right, but not the obligation, to buy or sell the underlying security at a specific price on or before a specific date. Therefore, the value of an option is contingent on the performance of the underlying security.

Question 7

List and discuss the characteristics of various types of financial securities.

Accepted Answer

The answer of List and discuss the characteristics of various...

Question 8

List and discuss the characteristics of various types of financial markets.

Accepted Answer

The answer of List and discuss the characteristics of various...

Question 9

In case of government bonds,non-competitive bidders have price uncertainty and competitive bidders face volume uncertainty.

Accepted Answer

Non-competitive bidders in government bond auctions agree to receive the yield determined by the competitive bidding process and thus have price uncertainty. Competitive bidders bid to buy a specific amount of the bonds and face volume uncertainty since they don't know how many bids they will compete against.

Question 10

Given a typical set of indifference curves and a budget constraint for a 1-period (2-date)consumption model,where will the optimum consumption pair (for date 1 and date 2)be found on the graph and why is it optimal?

Accepted Answer

The answer of Given a typical set of indifference curves...

Question 11

Stocks are traded only in the listing exchange.For example,the fact that IBM is listed in NYSE implies that it can only be traded in NYSE

Accepted Answer

Stocks can be traded on multiple exchanges, not just the listing exchange. IBM may also be traded on other exchanges such as NASDAQ or foreign exchanges.

Question 12

List the factors that affect risk.

Accepted Answer

The answer of List the factors that affect risk....

Quiz 1: Introduction

Collateralized debt obligations (CBO) are backed by one of the following:

An order which is activated only when the price of the stock reaches or passes through a predetermined limit is called the: