FINANCE 301 EXAM 3 QUESTIONS &
ELABORATED CORRECT ANSWERS
ALL PASSED
What are typical Treasury bill maturities? - Correct Answer ✔✔ 4, 8, 13, 17, 26 weeks,
and 1 year
T-bills that have maturities of less than 4 weeks? - Correct Answer ✔✔ Cash
management bills
Virtually free of credit (default) risk and common investors in these securities are
households, firms, and financial institutions. - Correct Answer ✔✔ Treasury bills
Suppose Rosa requires a 3 percent annualized return on a one-year treasury bill with a
$10,000 par value. The price that Rosa is willing to pay is: - Correct Answer ✔✔
$9,708.74
What are the typical maturities of commercial paper? - Correct Answer ✔✔ 1-270 days
with the most common being 20-45 days
What securities are typically used to finance a firms investment in inventory and
accounts receivable? - Correct Answer ✔✔ Commerical paper
Suppose Lucia purchases a 25-day commercial paper with a par value of $1,000,000
for a price of $996,000. If Lucia holds the commercial paper until maturity, and you
assume a 360 day year, then the annualized yield is: - Correct Answer ✔✔ 5.78%
What are the typical maturities of negotiable certificate of deposits? - Correct Answer
✔✔ 2 weeks and 1 year
Their denominations are typically multiples of 1,000,000 and their activity in the second
market is moderate? - Correct Answer ✔✔ Negotiable certificates of deposit
Suppose Raphael purchased an NCD a year ago on the secondary market for $99,300
and redeems it today upon maturity for $100,000 plus $4,300 in interest. The
annualized yield on this NCD is: - Correct Answer ✔✔ 5.04%
What are the typical maturities for repurchase agreements? - Correct Answer ✔✔ 1-15
days, 1 month, 3 months, or 6 months
Their denominations are typically $10 million or more? - Correct Answer ✔✔
Repurchase agreements
, Suppose Becky initially purchased securities at a price of $19,620,000 while agreeing to
sell them back to the original owner at a price of $20,000,000 at the end of a 6-month
period. Assuming a 360 day year, the yield (or repo rate) on this repurchase agreement
is: - Correct Answer ✔✔ 3.87%
What are the typical federal fund loan denominations? - Correct Answer ✔✔ $5 million
or more
Commercial banks are the most active participants in this market? - Correct Answer ✔✔
Federal funds market
Typical bankers acceptance maturity lengths? - Correct Answer ✔✔ 30-270 days
They are commonly used for international trade transactions and their return is typically
higher than the return on a T-bill. - Correct Answer ✔✔ Bankers acceptances
Issue commercial paper? - Correct Answer ✔✔ Finance companies, commercial banks
and savings institutions
Borrow or lend funds in the federal funds market? - Correct Answer ✔✔ Commercial
banks and savings institutions
Use proceeds from shares sold to invest in T-bills? - Correct Answer ✔✔ Money market
mutual funds
Invest in money market securities to maintain liquidity in their investment portfolios? -
Correct Answer ✔✔ Insurance companies and pension funds
Money market instruments are securities with what maturities? - Correct Answer ✔✔
One year or less
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? - Correct Answer ✔✔ About 12.5%
What did the LIBOR scandal of 2012 involve? - Correct Answer ✔✔ Banks falsely
reporting the interest rates they offered in the interbank market
Buser Corp. purchases certain securities for $4,921,349, with an agreement to sell them
back at a price of $4,950,000 at the end of a 30-day period. The repo rate is ____
percent. - Correct Answer ✔✔ 6.99
____ is a short-term debt instrument issued only by well-known, creditworthy firms and
is normally issued to provide liquidity or finance a firm's investment in inventory and
accounts receivable. - Correct Answer ✔✔ Commercial paper
ELABORATED CORRECT ANSWERS
ALL PASSED
What are typical Treasury bill maturities? - Correct Answer ✔✔ 4, 8, 13, 17, 26 weeks,
and 1 year
T-bills that have maturities of less than 4 weeks? - Correct Answer ✔✔ Cash
management bills
Virtually free of credit (default) risk and common investors in these securities are
households, firms, and financial institutions. - Correct Answer ✔✔ Treasury bills
Suppose Rosa requires a 3 percent annualized return on a one-year treasury bill with a
$10,000 par value. The price that Rosa is willing to pay is: - Correct Answer ✔✔
$9,708.74
What are the typical maturities of commercial paper? - Correct Answer ✔✔ 1-270 days
with the most common being 20-45 days
What securities are typically used to finance a firms investment in inventory and
accounts receivable? - Correct Answer ✔✔ Commerical paper
Suppose Lucia purchases a 25-day commercial paper with a par value of $1,000,000
for a price of $996,000. If Lucia holds the commercial paper until maturity, and you
assume a 360 day year, then the annualized yield is: - Correct Answer ✔✔ 5.78%
What are the typical maturities of negotiable certificate of deposits? - Correct Answer
✔✔ 2 weeks and 1 year
Their denominations are typically multiples of 1,000,000 and their activity in the second
market is moderate? - Correct Answer ✔✔ Negotiable certificates of deposit
Suppose Raphael purchased an NCD a year ago on the secondary market for $99,300
and redeems it today upon maturity for $100,000 plus $4,300 in interest. The
annualized yield on this NCD is: - Correct Answer ✔✔ 5.04%
What are the typical maturities for repurchase agreements? - Correct Answer ✔✔ 1-15
days, 1 month, 3 months, or 6 months
Their denominations are typically $10 million or more? - Correct Answer ✔✔
Repurchase agreements
, Suppose Becky initially purchased securities at a price of $19,620,000 while agreeing to
sell them back to the original owner at a price of $20,000,000 at the end of a 6-month
period. Assuming a 360 day year, the yield (or repo rate) on this repurchase agreement
is: - Correct Answer ✔✔ 3.87%
What are the typical federal fund loan denominations? - Correct Answer ✔✔ $5 million
or more
Commercial banks are the most active participants in this market? - Correct Answer ✔✔
Federal funds market
Typical bankers acceptance maturity lengths? - Correct Answer ✔✔ 30-270 days
They are commonly used for international trade transactions and their return is typically
higher than the return on a T-bill. - Correct Answer ✔✔ Bankers acceptances
Issue commercial paper? - Correct Answer ✔✔ Finance companies, commercial banks
and savings institutions
Borrow or lend funds in the federal funds market? - Correct Answer ✔✔ Commercial
banks and savings institutions
Use proceeds from shares sold to invest in T-bills? - Correct Answer ✔✔ Money market
mutual funds
Invest in money market securities to maintain liquidity in their investment portfolios? -
Correct Answer ✔✔ Insurance companies and pension funds
Money market instruments are securities with what maturities? - Correct Answer ✔✔
One year or less
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? - Correct Answer ✔✔ About 12.5%
What did the LIBOR scandal of 2012 involve? - Correct Answer ✔✔ Banks falsely
reporting the interest rates they offered in the interbank market
Buser Corp. purchases certain securities for $4,921,349, with an agreement to sell them
back at a price of $4,950,000 at the end of a 30-day period. The repo rate is ____
percent. - Correct Answer ✔✔ 6.99
____ is a short-term debt instrument issued only by well-known, creditworthy firms and
is normally issued to provide liquidity or finance a firm's investment in inventory and
accounts receivable. - Correct Answer ✔✔ Commercial paper
