The main function, collectively, of the Federal National Mortgage Association (Fannie Mae), the Government National Mortgage Association (Ginnie Mae), and the Federal Home Loan Mortgage Corporation (Freddie Mac) was to do what?

a. To buy and pool government-qualified and government-backed mortgages to sell to investors

b. To buy and pool government-qualified and subprime mortgages to sell to investors

c. To buy and pool both government-qualified and conventional mortgages to sell to investors

d. To guarantee that all pooled mortgages were backed by the US government

Which of the following is true of issuers with a lower bond rating?

a. There will typically be repayment guarantees.

b. The bonds will have a lower interest rate.

c. They will offer purchase incentives.

d. The bonds will have a higher interest rate.

Which of these best describes how bond-rating agencies affect the interest rate that bonds must provide to attract borrowers?

a. Bond rating agencies historically provide initial and ongoing evaluation of bonds to alert borrowers to their risk level.

b. Bond rating agencies today provide significant warning for any changes in risk related to bond-issuing companies.

c. Bond rating agencies in the past provided an initial evaluation of bonds; today, evaluations are daily and more reliable.

d. Bond rating agencies historically provide initial evaluation only of bonds; subsequent changes in performance must be noted by borrowers.

WordTechGuru issues bonds with a call provision, which allows them the option to pay off all or part of their bonds before the maturity date. Assuming WordTechGuru is like most companies whose bonds have a call provision, which of these statements best describes the WordTechGuru's call provision?

a. The call provision will be adjusted as to dates and prices at any time after issue, but before the maturity date.

b. The call provision will likely have a single stated buyback price, regardless of the date it is called.

c. The call provision will likely list call dates, but without prices specified until closer to those dates.

d. The call provision will list call dates and prices.

Which of the following best describes the difference between a "financial" bond covenant and a "nonfinancial" bond covenant?

a. A financial covenant ensures that management does not take on too much debt; nonfinancial covenants ensure that assets are insured, among other possible requirements.

b. A financial covenant requires management to provide financial information to bondholders; a nonfinancial covenant requires management to provide a detailed description of the operations of the company on a yearly basis.

c. A financial covenant requires that the assets of a company have adequate levels of insurance; a nonfinancial covenant requires management to provide a detailed description of the operations of the company on a yearly basis.

d. A financial covenant ensures that management does not spend beyond yearly budgeted amounts; a nonfinancial covenant ensures that management does not take on too much debt.

WordTechGuru Corporation issues bonds with a bond covenant that specifies a stated debt-to-equity ratio range that management must maintain and further requires management to provide financial information to bondholders, including the buying and selling of major assets. Which of these statements is most likely true of the bonds they are issuing?

a. The bonds will likely have a call provision.

b. The bonds will likely be very long term.

c. The bonds will be considered less risky and thus have a lower interest rate.

d. The bonds will be considered more risky and thus have a higher interest rate.

When bonds are issued by Ginnie Mae, Fannie Mae, and Freddie Mac, for what purpose are the proceeds typically used?

a. Mortgages are purchased, pooled together, and then sold in small groups of three to five mortgages to wealthy investors.

b. Mortgages are purchased, pooled together in large groupings, and then the pooled groupings are sold in pieces.

c. Mortgages are purchased and resold, with the risk being evenly divided between the government agency and the purchaser.

d. Mortgages are purchased and resold individually to investors.

Ryan is planning to enter a noncompetitive bid for a large amount of T-bills next Monday. In order to do so, what will Ryan need to include in his bid?

a. Both the amount of Treasury bills he wishes to buy and when he will be ready to buy them

b. Only the price he is willing to pay for Treasury bills

c. Both the amount of Treasury bills he wishes to buy and the price he is willing to pay

d. Only the amount of Treasury bills he wishes to buy

In 1998, the government lowered the minimum denomination of T-bills so that individuals can now purchase T-bills along with institutional investors. What is the current lowest denomination of T-bills?

a. $500

b. $5,000

c. $1,000

d. $10,000

Money market instruments have a low level of default risk for which of these reasons?

a. They are short-term IOUs.

b. They are issued by only the biggest and safest borrowers.

c. Only governments can issue them.

d. There is a well-organized secondary market for the instruments.