Test Bank For Fundamentals of Investments 8th Edition by Bradford Jordan

Chapter 3   Overview of Security Types

1) Which one of the following is the best definition of a money market instrument?

1. A) corporate debt that matures in 90 days or less
2. B) bank savings account
3. C) investment issued by a financial institution that matures in 30 days or less
4. D) investment issued by a financial institution that matures in one year or less
5. E) debt issued by the government or a corporation that matures in one year or less

Answer:  E

Explanation:  See Section 3.2

Difficulty: 1 Easy

Section:  3.2 Interest-Bearing Assets

Topic:  Money market securities

Learning Objective:  03-01 Various types of interest-bearing assets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

2) A fixed-income security is defined as:

1. A) a debt obligation that pays a fixed rate of return for a one-year period of time.
2. B) common or preferred stock that pays a fixed annual dividend.
3. C) a long-term debt obligation that pays scheduled fixed payments.
4. D) long-term debt issued solely by a federal or state government.
5. E) any security originally issued as either debt or equity that pays a fixed, pre-set payment.

Answer:  C

Explanation:  See Section 3.2

Difficulty: 1 Easy

Section:  3.2 Interest-Bearing Assets

Topic:  Fixed-income securities

Learning Objective:  03-01 Various types of interest-bearing assets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

3) The annual interest payment divided by the current price of a bond is called the:

1. A) coupon rate.
2. B) current yield.
3. C) yield-to-maturity.
4. D) yield-to-market.
5. E) market yield.

Answer:  B

Explanation:  See Section 3.2

Difficulty: 1 Easy

Section:  3.2 Interest-Bearing Assets

Topic:  Bond yields and returns

Learning Objective:  03-01 Various types of interest-bearing assets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

4) A security originally sold by a business or government to raise money is called a(n):

1. A) derivative.
2. B) primary asset.
3. C) primary debt.
4. D) futures contract.
5. E) option contract.

Answer:  B

Explanation:  See Section 3.4

Difficulty: 1 Easy

Section:  3.4 Derivatives

Topic:  Primary and secondary markets

Learning Objective:  03-03 Futures contracts.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation