Unit 2

Question 1

What are 4 features of T-Bills?

Answer 1

1. T-bills are always issued and traded at a discount
2. They are the only Treasury security issued without a stated interest rate
3. They are highly liquid
4. 13-week (also referred to as 90-day) T-bills are used as the benchmark “risk free” investment

Question 2

What is a Eurodollar bond?

Answer 2

A US dollar-denominated eurobond

Question 3

What is a eurobond?

Answer 3

Any long-term debt instrument issued and sold outside the country of the currency in which it is denominated.

Question 4

What are the 3 types of companies listed in the Investment Company Act of 1940?

Answer 4

• Face-amount certificate companies
• Unit Investment Trusts (UITs)
• Management Investment Companies (mutual funds)

Question 5

What are the features of Unit Investment Trusts (UITs)?

Answer 5

• Not active managed
• No Board of Directors
• Shares must be redeemed by the trust
• Defined as investment companies under the Investment Company Act of 1940

Question 6

What are leading indicators?

Answer 6

• Money supply
• Building permits (housing starts)
• Average weekly initial claims for unemployment
• Average weekly hours, manufacturing
• Manufacturer’s new orders for consumer goods
• Manufacturer’s new orders for non defense capital goods
• Index of supplier deliveries
• Interest rate spread between 10-year T-bond and fed funds rate
• Stock prices
• Index of consumer expectations

Question 7

What are coincident or current indicators?

Answer 7

• nonagricultural employment
• Personal income
• Industrial production
• Manufacturing and trade sales

Question 8

What are lagging indicators?

Answer 8

• Average duration of unemployment
• Ratio of consumer installment credit to personal income
• Ratio of manufacturing and trade inventories to sales
• Average prime rate
• Change in CPI for services
• Total amount of commercial and industrial loans outstanding
• Change in the index of labor cost per unit of manufacturing

Question 9

What is the formula for working capital?

Answer 9

Current assets - current liabilities

Question 10

What is the formula for the current ratio?

Answer 10

Current assets / current liabilities

Question 11

What is the formula for the quick asset ratio (Acid Test Ratio)?

Answer 11

(current assets - inventory) / current liabilities

Question 12

What is the formula for book value per share?

Answer 12

(Tangible assets - liabilities - par value of preferred) / (# shares common stock)

Question 13

What is the Prime rate?

Answer 13

The rate that banks charge their stronger borrowers

Question 14

What is the Federal Funds rate?

Answer 14

The rate at which banks borrow from each other

Question 15

What is the Call Loan rate?

Answer 15

The rate rate that broker-dealers pay on stock market collateral pledged for margin accounts

Question 16

What is the Discount Rate?

Answer 16

The rate at which a bank borrows from the Federal Reserve

Question 17

When registering a security under the Uniform Securities Act, name 3 things the registrant must indicate:

Answer 17

1. All the other states in which the security is to be registered
2. The amount of securities to be offered in the state
3. Any adverse rulings by a court, regulatory authority, or SEC with respect to the offering

Question 18

The Investment Advisers Act of 1940 requires that investment advisers make certain disclosures to their customers through the delivery of the adviser’s brochure. However, there are 2 instances where the Act grants an exemption. These are if the client is:

Answer 18

1. an investment company

2. a person receiving impersonal advice for which the annual fee is less than $500