What is the difference between an investment grade bond and a junk bond?
> Suppose an investor purchases 125-day commercial paper with a par value of $1,000,000 for a price of $995,235. Calculate the discount yield, bond equivalent yield, and the equivalent annual return on the commercial paper.
> Describe the three forms of stock market efficiency.
> Are stock market indexes consistently accurate predictors of economic activity?
> Who are the major holders of corporate stock?
> What is the difference between a price-weighted stock market index and a value-weighted stock market index?
> What are the major U.S. stock market indexes?
> What are flash trading, naked access, and dark pool trading? What are the benefits and drawbacks of these activities?
> What are limit up–limit down rules?
> What are circuit breakers in the context of stock market trading and volatility?
> Why are stock markets the most watched and reported of the financial security markets?
> What is a subprime mortgage? What instrumental role did these mortgages play in the recent financial crisis?
> Compute the present values of the following first assuming that payments are made on the last day of the period and then assuming payments are made on the first day of the period: Present Value Present Value (Payment made on (Payment made on first d
> What is a jumbo mortgage?
> What are “points” on a mortgage? What factors does a mortgage borrower need to consider when deciding whether or not to take points on a mortgage?
> What are the benefits and drawbacks to a mortgage borrower when refinancing a mortgage?
> Explain the difference between a fixed-rate mortgage and an adjustable-rate mortgage. Include a discussion of mortgage borrowers’ versus mortgage lenders’ preferences for each.
> Explain the difference between a federally insured mortgage and a conventional mortgage.
> What is the purpose of putting a lien against a piece of property?
> Who are the major participants in the mortgage markets?
> What are the four major categories of mortgages and what percentage of the overall market does each entail?
> What is a mortgage-backed bond? Why do financial institutions issue MBBs”?
> Describe a collateralized mortgage obligation. How is a CMO created?
> Compute the future values of the following first assuming that payments are made on the last day of the period and then assuming payments are made on the first day of the period: Future Value Future Value (Payment made on Interest last day of period
> How has the U.S. government’s sponsorship of FNMA and FHLMC affected their operations? Describe the problems these two GSEs have experienced over the last 15 years.
> What is the Federal National Mortgage Association? How does this organization play a role in secondary mortgage markets?
> What is the Government National Mortgage Association? How does this organization play a role in secondary mortgage markets?
> What is a pass-through security?
> How did mortgage-backed securities contribute to the recent financial crisis?
> What is a mortgage sale? How does a mortgage sale differ from the securitization of a mortgage?
> How did the U.S. secondary mortgage markets evolve?
> What is an option ARM? What are the different options available with this type of mortgage?
> Why are mortgage markets studied as a separate capital market?
> What is a bond indenture?
> You are considering the purchase of a stock that is currently selling at $64 per share. You expect the stock to pay $4.50 in dividends next year. a. If dividends are expected to grow at a constant rate of 3 percent per year, what is your expected rate of
> How does a firm commitment underwriting differ from a best-efforts underwriting?
> Why would a municipal bond issuer want to purchase third party insurance on the bond payments?
> What is the difference between general obligation bonds and revenue bonds?
> Describe the process through which T-notes and T-bonds are issued in the primary markets.
> What are the advantages and disadvantages of investing in TIPS bonds?
> What is a STRIPS? Who would invest in a STRIPS?
> How did sovereign bonds perform during the 2000s?
> What are sovereign bonds?
> What is the difference between a Eurobond and a foreign bond?
> Describe the major bond market participants.
> A stock you are evaluating is expected to experience supernormal growth in dividends of 8 percent over the next six years. Following this period, dividends are expected to grow at a constant rate of 3 percent. The stock paid a dividend of $5.50 last year
> How do bond ratings and interest rate spreads on bonds differ? Which measure is considered by many investors to be a more comprehensive measure of risk? Why?
> What are the differences among T-bills, T-notes, and T-bonds?
> Discuss the issues surrounding credit rating firms during the financial crisis.
> What happens to the fair present value of a bond when the required rate of return on the bond increases?
> Explain the meaning of a sinking fund provision on a bond issue.
> What is a callable bond? Is a call provision more or less attractive to a bond holder than a non callable bond?
> What is a convertible bond? Is a convertible bond more or less attractive to a bond holder than a nonconvertible bond?
> What is the difference between term bonds and serial bonds?
> What is the difference between bearer bonds and registered bonds?
> Calculate the future value in five years of $5,000 received today if your investments pay a. 6 percent compounded annually b. 8 percent compounded annually c. 10 percent compounded annually d. 10 percent compounded semiannually e. 10 percent compounded q
> What are capital markets, and how do bond markets fit into the definition of capital markets?
> Describe the two types of fed funds transactions.
> What are federal funds? How are they recorded on the balance sheets of commercial banks?
> How are T-bills traded in secondary markets?
> What is the difference between a competitive bid and a noncompetitive bid in a T-bill auction?
> Describe the T-bill auction process.
> What is the difference between a single-payment yield and a bond equivalent yield?
> Why can discount yields not generally be compared to yields on other (nondiscount) securities?
> What are Eurodollar CDs and Eurocommercial paper?
> What is the difference between a discount yield and a bond equivalent yield? Which yield is used for Treasury bill quotes?
> You can buy commercial paper of a major U.S. corporation for $498,000. The paper has a face value of $500,000 and is 45 days from maturity. Calculate the discount yield and bond equivalent yield on the commercial paper.
> Describe the issues regarding the validity of the LIBOR rate before and during the financial crisis.
> Who are the major issuers of and investors in money market securities?
> Describe the process by which a banker’s acceptance is created.
> What is the process through which negotiable CDs are issued?
> What factors caused the amount of outstanding commercial paper to increase from 1992 through 2000 and in the mid-2000s? What factors caused the amount of outstanding commercial paper to decrease from 2000 through 2004 and from 2007 through 2013?
> Why do commercial paper issuers almost always obtain a rating of their issues?
> Why do commercial paper issues have an original maturity of 270 days or less?
> Describe the trading process for repurchase agreements.
> What is the difference between a repurchase agreement and a reverse repurchase agreement?
> What is the primary risk of trading in the fed funds markets? How did this risk come into play during the financial crisis of 2008–2009?
> A T-bill that is 225 days from maturity is selling for $98,850. The T-bill has a face value of $100,000. a. Calculate the discount yield, bond equivalent yield, and EAR on the T-bill. b. Calculate the discount yield, bond equivalent yield, and EAR on th
> What are the three characteristics common to money market securities?
> Why did U.S. government agency securities go from nothing to being the largest asset account on the Federal Reserve’s balance sheet in the late 2000s?
> Why did reserve deposits increase to the point that this account represented the largest liability account on the Federal Reserve’s balance sheet in the late 2000s?
> What are the major liabilities of the Federal Reserve System? Describe each.
> What are the primary responsibilities of the Federal Open Market Committee?
> What are the primary responsibilities of the Federal Reserve Board?
> Describe the structure of the Board of Governors of the Federal Reserve System.
> Define the discount rate and the discount window.
> Summarize the monetary policy measures taken by central banks to address the worldwide financial crisis.
> Describe how expansionary activities conducted by the Federal Reserve impact the money supply, credit availability, interest rates, and security prices. Do the same for contractionary activities.
> Marly Bank currently has $650 million in transaction deposits on its balance sheet. The current reserve requirement is 10 percent, but the Federal Reserve is decreasing this requirement to 9 percent. a. Show the balance sheet of the Federal Reserve and M
> Suppose the Federal Reserve instructs the Trading Desk to sell $850 million of securities. Show the result of this transaction on the balance sheets of the Federal Reserve System and commercial banks.
> Which of the monetary tools available to the Federal Reserve is most often used? Why?
> What changes did the Fed implement to its discount window lending policy in the early 2000s? in the late 2000s?
> Why does the Federal Reserve rarely use the discount rate to implement its monetary policy?
> Explain how a decrease in the discount rate affects credit availability and the money supply.
> What are the tools used by the Federal Reserve to implement monetary policy?
> Describe the functions performed by Federal Reserve Banks.
> How is duration related to the price elasticity of a fixed income security? What is the relationship between duration and the price of a fixed-income security?
> Which has the longest duration: a 30-year, 8 percent yield to maturity, 5 percent coupon bond or a 30-year, 10 percent yield to maturity, 5 percent coupon bond?
> How did the boom in the housing market in the early and mid-2000s exacerbate FIs’ transition away from their role as specialists in risk measurement and management?
> What events resulted in banks’ shift from the traditional banking model of originate-and-hold to a model of originate-and-distribute?
> On March 11, 20XX, the existing or current (spot) one-year, two-year, three-year, and four-year zero-coupon Treasury security rates were as follows: 1 R 1 = 4.75%, 1 R 2 = 4.95%, 1 R 3 = 5.25%, 1 R 4 = 5.65% Using the unbiased expectations
