Select an appropriate statement from A)-D). 1) Which of the following long-term bonds should have the highest interest rate? A) U.S. corporate bonds with BB rating B) U.S. corporate bonds with A rating C) U.S. corporate bonds with AA rating D) U.S. Treasury bonds 2) A corporation suffering big losses might be more likely to suspend interest payments on its bonds, thereby A) raising the default risk and causing the demand for its bonds to rise at a given price. B) raising the default risk and causing the demand for its bonds to fall at a given price. C) lowering the default risk and causing the demand for its bonds to rise at a given price. D) lowering the default risk and causing the demand for its bonds to fall at a given price 3) Which is the main revenue source for rating agencies? A) rating fee B) differences between selling and buying prices of bonds C) interest on bonds D) advertisement fee 4) The spread between interest rates on low-quality corporate bonds and U.S. government bonds during the Great Financial Crisis triggered by the failure of Lehman Brothers. A) was reversed B) narrowed significantly C) widened significantly D) did not change 5) When the yield curve is inverted, the yield curve is A) upward-sloping. B) downward-sloping. C) flat. D) bowl shaped. 6) According to the "pure expectation theory of the term structure, A) the interest rate on long-term bonds will exceed the average of expected future short- term interest rates. B) there is no correlation between interest rates on bonds of different maturities. C) buyers of bonds always prefer short-term to long-term bonds. D) none of the above. 7) According to the "liquidity premium theory" of the term structure, a downward- sloping yield curve indicates that short-term interest rates are expected to A) rise moderately in the future. B) rise sharply in the future. C) remain unchanged in the future. D) decline sharply in the future. 8) One-year Treasury bill rates over the next five years are expected to be 4%, 5%, 6%, 7%, and 8%. The liquidity premium on five-year T-bond is 0.5%. What is the interest rate on five-year Treasury bond? A) 5.5% B) 6.0% C) 6.5% D) 8.5% 9) A share of common stock in a firm represents an ownership interest in that firm and allows stockholders to A) vote. B) receive dividends. C) receive interest payments. D) A and B of the above. 10) Which of the following is classified into a securities business in the primary market? A) trading of stocks on New York Stock Exchange. B) collect deposits and extend commercial loans. C) initial public offering. D) None of the above. 11) Common shareholders are entitled to A) elect the board of directors. B) approve any change in corporate charter. C) receive coupons regularly. D) A) and B) of the above. 12) Which institution underwrites stocks and bonds in the primary market? A) securities brokers B) rating agencies C) life insurance companies D) investment banks
