Question 1>Which of the following is correct about money market instruments?

A. They are very short-term debt instruments that meet the needs of investors who want to invest in liquid assets.

B. An important channel for the U.S. Federal Reserve to conduct its monetary policy

C. They include long-term corporate debt issues.

D. A and B.

Question 2

What is the value of a 5-year 10% coupon bond with face value of $1000 if the yield is 4% per year? Assume that coupon payments are semi-annual. Round off to two digits after the decimal point. (i.e. "x.xx")

Question 3

One of the most common money market instruments are U.S. Treasury bills. Find the price of a $10,000 face value Treasury bill with 81 days to maturity if it is quoted at a discount of 2.54 percent. Round off to two digits after the decimal point. (i.e. "x.xx")

Question 4

Refer to Question 3. What would be your yield to maturity if you bought this Treasury at this price and kept it until maturity? Round off to two digits after the decimal. (i.e. "x.xx") Ex 0.112 or 11.2% should be entered as 11.2

Question 5

Which of these securities is considered risk free?

1. Apple stock
2. Emerging market debt
3. U.S. Treasury bills
4. Commercial paper

Question 6

Which of the following is not a distinguishing feature of municipal bonds?

1. Municipal bonds are issued by state and local governments.
2. Municipal bonds have tax-exempt status.
3. Munis are an example of money market instruments.
4. Investors typically accept a lower yield on these securities.

Question 7

Assume you have a 1-year investment horizon and trying to choose among three bonds. All have the same degree of default risk and mature in 10 years. Which of the following bonds would you choose if you expect the yields to go down to 7 percent one year from now after the coupon payment and want to maximize your 1-year return?

1. A 9% annual coupon bond currently priced to yield 8%
2. A zero-coupon bond currently priced to yield 8%
3. A 6% coupon bond currently priced to yield 8%

Question 8

Which of the following is correct?

1. When bonds are subject to potential default, the stated yield to maturity is the minimum possible yield that can be realized by the bondholder.
2. In the event of default, bondholders always get their promised payments.
3. To compensate bond investors for default risk, bonds must offer default premiums, that is, a yield higher than those offered by default-free government securities.
4. Junk bonds or high-yield bonds have on average lower default risk than investment grade bonds.

Question 9

A bond with a call feature

1. Is attractive because there is less default risk.
2. Is more likely to be called when interest rates are high because the interest savings will be greater.
3. Will usually have a higher yield to maturity than a similar noncallable bond.
4. None of the above.

Question 10

Which security has a higher effective annual rate?

1. A Treasury bill with 89 days left to maturity selling at $97,660 with par value $100,000
2. A coupon bond selling at par and paying 10% coupon quarterly.