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Chapter 6

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Money Markets

1. Securities with maturities of one year or less are classified as

A) capital market instruments.

B) money market instruments.

C) preferred stock.

D) none of the above

ANSWER: B

2. Which of the following is not a money market security?

A) Treasury bill

B) negotiable certificate of deposit

C) common stock

D) federal funds

ANSWER: C

3. ________ are sold at an auction at a discount from par value.

A) Treasury bills

B) Repurchase agreements

C) Banker’s acceptances

D) Commercial paper

ANSWER: A

4. 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?

A) 13.43 percent

B) 2.78 percent

C) 10.55 percent

D) 2.80 percent

E) none of the above

ANSWER: D

5. If an investor buys a T-bill with a 90-day maturity and $50,000 par value for $48,500 and holds it to maturity, what is the annualized yield?

A) about 13.4 percent

B) about 12.5 percent

C) about 11.3 percent

D) about 11.6 percent

E) about 10.7 percent

ANSWER: B

6. An investor buys a T-bill with 180 days to maturity and $250,000 par value for $242,000.  He plans to sell it after 60 days, and forecasts a selling price of $247,000 at that time.  What is the annualized yield based on this expectation?

A) about 10.1 percent

B) about 12.6 percent

C) about 11.4 percent

D) about 13.5 percent

E) about 14.3 percent

ANSWER: B

7. 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 $________.

A) 10,000

B) 9,524

C) 9,756

D) none of the above

ANSWER: C

8. A newly issued T-bill with a $10,000 par value sells for $9,750,...