12) Federally-sponsored agency debt

A) is legally insured by the U.S. Treasury. B) would probably be backed by the U.S. Treasury in the event of a near-default. C) has a small positive yield spread relative to U.S. Treasuries. D) would probably be backed by the U.S. Treasury in the event of a near-default and has a small positive yield spread relative to U.S. Treasuries. E) is legally insured by the U.S. Treasury and has a small positive yield spread relative to U.S. Treasuries.

13) Which of the following are characteristics of preferred stock? 1.I) It pays its holder a fixed amount of income each year at the discretion of its managers. 2.II) It gives its holder voting power in the firm. 3.III) Its dividends are usually cumulative. 4.IV) Failure to pay dividends may result in bankruptcy proceedings.

A) I, III, and IV B) I, II, and III C) I and III D) I, II, and IV E) I, II, III, and IV

14) An investor purchases one municipal and one corporate bond that pay rates of return of 7.2% and 9.1%, respectively. If the investor is in the 12% marginal tax bracket, his or her after-tax rates of return on the municipal and corporate bonds would be ________ and ______, respectively.

A) 7.2%; 9.1% B) 7.2%; 8.008% C) 6.12%; 7.735% D) 8.471%; 9.1%

15) A corporate bond is listed in the Wall Street Journal and shows an ask price of 98.62. If the corporate bonds have a par value of $1,000, what dollar amount should a buyer expect to pay?

A) $98.62 B) $986.20 C) $1,000.00 D) $1,081.25 E) $1,140.40

16) Which of the following statements regarding the specialist are true?

A) Specialists maintain a book listing outstanding, unexecuted limit orders. B) Specialists earn income from commissions and spreads in stock prices. C) Specialists stand ready to trade at quoted bid and ask prices. D) Specialists cannot trade in their own accounts. E) Specialists maintain a book listing outstanding, unexecuted limit orders, earn income from commissions and spreads in stock prices, and stand ready to trade at quoted bid and ask prices.

17) Which one of the following statements regarding orders is false?

A) A market order is simply an order to buy or sell a stock immediately at the prevailing market price. B) A limit-sell order is where investors specify prices at which they are willing to sell a security. C) If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. D) A market order is an order to buy or sell a stock on a specific exchange (market).

18) Assume you purchased 200 shares of KO common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker?

A) $6,000 B) $4,000 C) $7,700 D) $7,000 E) $6,300

19) Assume you sell short 100 shares of common stock at $45 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $40 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

A) 20.03% B) 25.67% C) 22.22% D) 77.46%

20) Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

A) 40% B) 33% C) 35% D) 25%