Investments Analysis And Management 3rd Canadian Edition – Test Bank

CHAPTER 2

Investment Alternatives

MULTIPLE CHOICE

1. Which of the following is not a usual characteristic of money market securities?
   a. They are issued by large credit-worthy corporations in large denominations.
   b. They are very liquid instruments that trade without a significant liquidity premium. c. They are of intermediate to long-term maturity.
   d. They include T-bills, commercial paper, and bankers’ acceptances.
   Answer: c Topic: Money Market Securities Level of Difficulty: Moderate Type: Factual
2. The coupon rate is another name for the: a. market interest rate.
   b. current yield.
   c. stated interest rate.

   d. yield to maturity.
   Answer: c Topic: Capital Market Securities: Bonds Level of Difficulty: Easy Type: Factual

3. T-bills are sold:
   a. on an auction basis every two weeks by the Bank of Canada.
   b. in denominations ranging from $1,000 to $1,000,000.
   c. for only 91 days of maturity.
   d. both a. and b.
   Answer: d Topic: Money Market Securities Level of Difficulty: Moderate Type: Factual
4. Which of the following is true concerning corporate bonds?
   a. Mortgage bonds are secured obligations whereas debentures are unsecured.
   b. Bonds have a subordinated debenture which functions as a contract between the bondholder and the issuing company.
   c. Bonds have superior voting rights to common shareholders.
   d. One can buy a bond at any time and receive an immediate interest cheque.
   Answer: a Topic: Capital Market Securities: Bonds Level of Difficulty: Moderate Type: Factual
5. Bonds with a call provision can be:
   a. exchanged for common shares at the option of the bondholder.
   b. redeemed prior to maturity at option of the issuing company.
   c. exchanged for common shares at the option of the issuing company.
   d. redeemed prior to maturity at the option of the bondholder.
   Answer: b Topic: Capital Market Securities: Bonds Level of Difficulty: Moderate Type: Factual
6. Which of the following statements regarding dividend dates is true? a. The ex-dividend date is prior to the date of record.
   b. The date of record is prior to the declaration date.
   c. The ex-dividend date is prior to the declaration date.

Test Bank 1
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Chapter 2

Cleary/Jones Investments: Analysis and Management, Third Canadian Edition

d. The date of record is prior to the ex-dividend date.
Answer: d Topic: Equity Securities: Common Stock Level of Difficulty: Moderate Type: Factual

7. A major difference between a warrant and a call option is that:
   a. warrants have less value.
   b. warrants allow investors to buy bonds; calls allow investors to buy stock.
   c. warrants generally have a longer term.
   d. options have a greater leverage effect.
   Answer: c Topic: Derivative Securities Level of Difficulty: Difficult Type: Factual
8. Dividends on common stock are typically declared and paid: a. monthly.

   b. quarterly.
   c. semi-annually.
   d. yearly.
   Answer: b Topic: Equity Securities: Common Stock Level of Difficulty: Easy Type: Factual