Question 1

Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized yield from this transaction?

Accepted Answer

A)  13.43 percent
B)  2.25 percent
C)  10.55 percent
D)  2.80 percent
E)  None of these are correct.F) B) and E)
G) C) and D)

Question 2

A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If she holds the Treasury bill to maturity, her annualized yield is ____ percent.

Accepted Answer

A)  3.96
B)  4.54
C)  1.50
D)  4.09
E)  None of these are correct.F) A) and C)
G) All of the above

Question 3

An investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If the Treasury bill is held to maturity, the annualized yield is ____ percent.

Accepted Answer

A)  6.52
B)  1.54
C)  1.50
D)  6.20
E)  None of these are correct.F) A) and C)
G) B) and D)

Question 4

Commercial paper is

Accepted Answer

A)  always directly placed with investors.
B)  always placed with the help of commercial paper dealers.
C)  placed either directly or with the help of commercial paper dealers.
D)  always placed by bank holding companies.E) A) and D)
F) B) and C)

Question 5

The federal funds market allows depository institutions to borrow

Accepted Answer

A)  short-term funds from each other.
B)  short-term funds from the Treasury.
C)  long-term funds from each other.
D)  long-term funds from the Federal Reserve.
E)  short-term funds from the Treasury AND long-term funds from the Federal Reserve.F) A) and E)
G) B) and E)

Question 6

Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds.

Accepted Answer

A) True 
 B)False

Question 7

When a bank guarantees a future payment to a firm, the financial instrument used is called

Accepted Answer

A)  a repurchase agreement.
B)  a negotiable CD.
C)  a banker's acceptance.
D)  commercial paper.E) A) and D)
F) None of the above

Question 8

Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.

Accepted Answer

A)  competitive
B)  noncompetitive
C)  very small
D)  none of the aboveE) B) and C)
F) A) and D)

Question 9

The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London Interbank Offer Rate (LIBOR).

Accepted Answer

A) True 
 B)False

Question 10

You purchase a six-month (182-day) T-bill with a $10,000 par value for $9,800. The Treasury bill discount is ____ percent.

Accepted Answer

A)  3.96
B)  4.09
C)  6.20
D)  3.56
E)  None of these are correct.F) B) and E)
G) None of the above

Question 11

At a given point in time, the actual price paid for a three-month Treasury bill is

Accepted Answer

A)  usually equal to the par value.
B)  more than the price paid for a six-month Treasury bill.
C)  equal to the price paid for a six-month Treasury bill.
D)  None of these are correct.E) C) and D)
F) All of the above

Question 12

Commercial paper has a maximum maturity of ____ days.

Accepted Answer

A)  45
B)  270
C)  360
D)  None of these are correct.E) A) and D)
F) B) and C)

Question 13

The price that competitive and noncompetitive bidders will pay at a Treasury bill auction is the

Accepted Answer

A)  highest price entered by a competitive bidder.
B)  highest price entered by a noncompetitive bidder.
C)  lowest accepted bid price entered by a competitive bidder.
D)  equally weighted average price paid by all competitive bidders whose bids were accepted.
E)  None of these are correct.F) B) and C)
G) D) and E)

Question 14

An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives $1,000,000. She also receives interest of $30,000. The investor's annualized yield on this investment is

Accepted Answer

A)  2.0 percent.
B)  5.10 percent.
C)  5.00 percent.
D)  2.04 percent.E) A) and B)
F) B) and C)

Question 15

A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount?

Accepted Answer

A)  10.26 percent
B)  0.26 percent
C)  $2,500
D)  10.00 percent
E)  11.00 percentF) B) and C)
G) C) and D)

Question 16

Which of the following is true of money market instruments?

Accepted Answer

A)  Their yields are highly correlated over time.
B)  They typically sell for par value when they are initially issued (especially T-bills and commercial paper) .
C)  Treasury bills have the highest yield.
D)  They all make periodic coupon (interest) payments.
E)  They typically sell for par value when they are initially issued (especially T-bills and commercial paper) AND t reasury bills have the highest yield.F) B) and C)
G) C) and D)

Question 17

A line of credit provided by a commercial bank gives a company the right (but not the obligation)to borrow a specified maximum amount of funds over a specified period of time.

Accepted Answer

A) True 
 B)False

Question 18

Junk commercial paper is commercial paper that is not rated or has a low rating.

Accepted Answer

A) True 
 B)False

Question 19

Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $____.

Accepted Answer

A)  10,000
B)  9,524
C)  9,756
D)  None of these are correct.E) All of the above
F) A) and B)

Question 20

T-bills and commercial paper are sold

Accepted Answer

A)  with a stated coupon rate.
B)  at a discount from par value.
C)  at a premium above par value.
D)  with a stated coupon rate AND at a premium above par value.
E)  None of these are correct.F) B) and C)
G) B) and D)

Exam 6: Money Markets

The interest rate charged for a short-term loan from a bank to a corporation is referred to as the London Interbank Offer Rate (LIBOR).

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An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives $1,000,000. She also receives interest of $30,000. The investor's annualized yield on this investment is

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A line of credit provided by a commercial bank gives a company the right (but not the obligation)to borrow a specified maximum amount of funds over a specified period of time.

Correct AnswerverifiedShow Answer

A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If she holds the Treasury bill to maturity, her annualized yield is ____ percent.

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When a bank guarantees a future payment to a firm, the financial instrument used is called

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The federal funds market allows depository institutions to borrow

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Commercial paper has a maximum maturity of ____ days.

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An investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If the Treasury bill is held to maturity, the annualized yield is ____ percent.

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Money markets are used to facilitate the transfer of short-term funds from individuals, corporations, or governments with excess funds to those with deficient funds.

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You purchase a six-month (182-day) T-bill with a $10,000 par value for $9,800. The Treasury bill discount is ____ percent.

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Junk commercial paper is commercial paper that is not rated or has a low rating.

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Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized yield from this transaction?

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Commercial paper is

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At a given point in time, the actual price paid for a three-month Treasury bill is

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Which of the following is true of money market instruments?

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Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $____.

Correct AnswerverifiedShow Answer

The price that competitive and noncompetitive bidders will pay at a Treasury bill auction is the

Correct AnswerverifiedShow Answer

A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount?

Correct AnswerverifiedShow Answer

Large corporations typically make ____ bids for T-bills so they can purchase larger amounts.

Correct AnswerverifiedShow Answer

T-bills and commercial paper are sold

Correct AnswerverifiedShow Answer

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