Money Markets

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Question 1
Free
Multiple Choice

Securities with maturities of one year or less are classified as

Choose correct answer/s
A

capital market instruments.

B

money market instruments.

C

preferred stock.

D

none of the above

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Question 2
Free
Multiple Choice

Which of the following is not a money market security?

Choose correct answer/s
A

Treasury bill

B

negotiable certificate of deposit

C

common stock

D

federal funds

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Question 3
Free
Multiple Choice

____ is/are sold at an auction at a discount from par value.

Choose correct answer/s
A

Treasury bills

B

Repurchase agreements

C

Banker's acceptances

D

Commercial paper

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Question 4
Free
Multiple Choice

Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualizedyield from this transaction?

Choose correct answer/s
A

13.43 percent

B

2.78 percent

C

10.55 percent

D

2.80 percent

E

none of the above

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Question 5
Free
Multiple Choice

Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $ ____ .

Choose correct answer/s
A

10,000

B

9,524

C

9,756

D

none of the above

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Question 6
Multiple Choice

A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount?

Choose correct answer/s
A
10.26 percent
B
0.26 percent
C
$2,500
D
10.00 percent
E
11.00 percent
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Question 7
Multiple Choice

Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.

Choose correct answer/s
A
competitive
B
noncompetitive
C
very small
D
none of the above
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Question 8
Multiple Choice

At any given time, the yield on commercial paper is ____ the yield on a T-bill with the same maturity.

Choose correct answer/s
A
slightly less than
B
slightly higher than
C
equal to
D
A and B both occur with about equal frequency
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Question 9
Multiple Choice

T-bills and commercial paper are sold

Choose correct answer/s
A
with a stated coupon rate.
B
at a discount from par value.
C
at a premium about par value.
D
A and C
E
none of the above
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Question 10
Multiple Choice

Commercial paper has a maximum maturity of ____ days.

Choose correct answer/s
A
45
B
270
C
360
D
none of the above
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Question 11
Multiple Choice

An investor buys commercial paper with a 60-day maturity for $985,000. Par value is $1,000,000, and the investor holds it to maturity. What is the annualized yield?

Choose correct answer/s
A
8.62 percent
B
8.78 percent
C
8.90 percent
D
9.14 percent
E
9.00 percent
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Question 12
Multiple Choice

A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing?

Choose correct answer/s
A
12.12 percent
B
11.11 percent
C
13.00 percent
D
14.08 percent
E
15.25 percent
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Question 13
Multiple Choice

Which of the following is not a money market instrument?

Choose correct answer/s
A
banker's acceptance
B
commercial paper
C
negotiable CDs
D
repurchase agreements
E
All of the above are money market instruments.
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Question 14
Multiple Choice

A repurchase agreement calls for an investor to buy securities for $4,925,000 and sell them back in 60 days for $5,000,000. What is the yield?

Choose correct answer/s
A
9.43 percent
B
9.28 percent
C
9.14 percent
D
9.00 percent
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Question 15
Multiple Choice

The federal funds market allows depository institutions to borrow

Choose correct answer/s
A
short-term funds from each other.
B
short-term funds from the Treasury.
C
long-term funds from each other.
D
long-term funds from the Federal Reserve.
E
B and D
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Question 16
Multiple Choice

When a bank guarantees a future payment to a firm, the financial instrument used is called

Choose correct answer/s
A
a repurchase agreement.
B
a negotiable CD.
C
a banker's acceptance.
D
commercial paper.
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Question 17
Multiple Choice

Which of the following is true of money market instruments?

Choose correct answer/s
A
Their yields are highly correlated over time.
B
They typically sell for par value when they are initially issued (especially T-bills and commercial paper).
C
Treasury bills have the highest yield.
D
They all make periodic coupon (interest) payments.
E
A and B
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Question 18
Multiple Choice

An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives $1,000,000. She also receives interest of $30,000. The investor's annualized yieldon this investment is

Choose correct answer/s
A
2.0 percent.
B
5.10 percent.
C
5.00 percent.
D
2.04 percent.
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Question 19
Multiple Choice

An investor initially purchased securities at a price of $9,923,418, with an agreement to sell them back at a price of $10,000,000 at the end of a 90-day period. The repo rate is ____ percent.

Choose correct answer/s
A
3.1
B
0.77
C
1
D
none of the above
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Question 20
Multiple Choice

The rate at which depository institutions effectively lend or borrow funds from each other is the ____ .

Choose correct answer/s
A
federal funds rate
B
discount rate
C
prime rate
D
repo rate
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