Question 1

The Canadian government sells what type of bonds?

Accepted Answer

The Canadian government sells government bonds as a way to raise funds for public spending and to manage its debt. Government bonds are considered a low-risk investment since they are issued by a government with a stable economy and political system.

Question 2

What feature gives the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock?

Accepted Answer

The feature that gives the bondholder or preferred stockholder the right to exchange the bond or preferred stock for a fixed number of shares of common stock is known as convertible securities. This allows the investor to convert their fixed income security into an equity security, potentially benefiting from any further appreciation in the value of the common stock.

Question 3

An owner of which form of stock would receive dividend payments first?

Accepted Answer

Dividend payments on preferred stocks are usually paid out before common stocks. This is because preferred stocks have a fixed dividend rate and have priority over common stocks in terms of receiving dividend payments.

Question 4

_____are creditors of a corporation or government body.

Accepted Answer

Bondholders are creditors of a corporation or government body. Commercial paper holders, CD holders, and Treasury bills holders are also considered creditors, but they are not the best choice as they are usually short-term debt instruments while bonds are generally considered long-term debt instruments.

Question 5

Two factors determine the price of a bond: ____ and ____.

Accepted Answer

The two factors that determine the price of a bond are the level of risk associated with the bond and the prevailing interest rate in the market. When the risk of default on the bond increases, the price of the bond decreases. When interest rates rise, the price of the bond decreases because investors can earn a higher rate of return elsewhere. Conversely, when risk decreases or interest rates decrease, the price of the bond increases. The price of other bonds or the company selling the bond may serve as additional factors that impact the price of a specific bond, but they are not the primary determinants.

Question 6

These securities are backed by a pool of mortgage loans purchased from lenders,such as chartered banks.

Accepted Answer

Mortgage-backed corporate bonds are securities backed by a pool of mortgage loans purchased from lenders, such as chartered banks.

Question 7

Corporate bonds are a diverse group and often vary based on the ____ that backs it.

Accepted Answer

Corporate bonds can be secured or unsecured, and the security can be in the form of collateral, such as assets or property, that the company pledges to the bondholders in case of default. Therefore, the backing of the bond can vary based on the collateral.

Question 8

Other things being equal,the higher the interest rate,the _____ the price of a bond.

Accepted Answer

The answer of Other things being equal,the higher the interest...

Question 9

A _____ is a time deposit at a financial institution,such as a commercial bank,savings bank,or credit union.

Accepted Answer

A CD, or certificate of deposit, is a time deposit where a customer agrees to leave a set amount of money with a financial institution for a specified amount of time in exchange for a higher interest rate than a traditional savings account. Commercial paper, Treasury bills, and bonds are all types of debt securities issued by corporations or the government.

Question 10

What provision allows the issuer to redeem the bond before its maturity at a specified price?

Accepted Answer

A call provision allows the issuer to redeem the bond before its maturity at a specified price. This is also known as a callable bond.

Question 11

The two largest stock markets in the world are the ____ and the ____.

Accepted Answer

The answer of The two largest stock markets in the...

Question 12

When a company needs capital to purchase inventory,expand a plant,make major investments,acquire another firm,or pursue other business goals,it may sell a bond or stock issue to the investing public.This is done which market?

Accepted Answer

The primary market is where companies sell new securities (such as bonds or stocks) to the public for the first time in order to raise capital for their business goals. In contrast, the secondary market involves the buying and selling of previously issued securities. The government market refers to the market for government securities, and the super market is not relevant to this context.

Question 13

The ______ is perhaps the most international of all stock markets.

Accepted Answer

The London Stock Exchange is often called the most international of all stock markets because it has a large number of foreign companies listed on it and attracts investors from all over the world.

Question 14

Securities are issued and traded in the____.

Accepted Answer

Securities are issued and traded in the financial market, which includes stock exchanges, bond markets, and other venues where securities are bought and sold. The securities market is a subset of the overall financial market. The government market refers specifically to the market for government-issued securities, such as Treasury bonds. The super market has no relevance to the trading of securities.

Question 15

Bonds with ratings of BBB and above are classified as ____.

Accepted Answer

Bonds with ratings of BBB and above are classified as investment-grade bonds.

Question 16

_____ is a form of short-term financing sold by corporations,such as Salton Brands,that mature from 1 to 270 days after the date of issue.

Accepted Answer

Commercial paper is a common form of short-term financing used by corporations to raise funds quickly. It is issued for a short duration of 1 to 270 days and is unsecured, which means it is not backed by any collateral. This form of financing is commonly used by corporations to meet their short-term cash needs, including payroll, inventory purchases, and other operational expenses. CDs are Certificates of Deposit, a type of savings account offered by banks, while treasury bills are short-term securities issued by the government, and bonds are a type of long-term debt instrument.

Question 17

The ____ is a collection of financial markets in which previously issued securities are traded among investors.

Accepted Answer

The secondary market is where previously issued securities, such as stocks and bonds, are traded among investors. The primary market, on the other hand, is where newly issued securities are sold for the first time to investors. The government market typically refers to the market for Treasury securities issued by the US government. The super market is not relevant to financial markets.

Question 18

The basic form of corporate ownership is ____.

Accepted Answer

Common stock is the most basic form of corporate ownership. It represents ownership in a company and provides shareholders with voting rights and the potential to receive dividends. Preferred stock and convertible securities are more complex forms of ownership that may have different features such as guaranteed dividends or the ability to be converted into common stock. "Standard stock" is not a commonly used term in finance.

Question 19

Mortgage-backed corporate bonds consist of pools of _____,loans purchased from lenders such as chartered banks

Accepted Answer

The answer of Mortgage-backed corporate bonds consist of pools of...

Question 20

Tom just bought a bond from United Pet Group.This bond is only backed by the financial reputation of the company.What type of bond did Tom buy?

Accepted Answer

A debenture is a type of unsecured bond, meaning it is not backed by any collateral but only by the creditworthiness and reputation of the issuer.

Quiz 16: The Financial System