Multiple Choice questions.
Which of the following is NOT a capital market security?
Bond.
Consol.
Common stock.
Commercial paper.
All of the above are securities traded in the capital market.
Preferred stock is like long-term debt in that ___________.
it gives the holder voting power regarding firm’s management
it promises to pay its holder a fixed stream of income each year
in the event of bankruptcy preferred stock has equal status with debt holder
all of the above are true
none of the above is true
The success of common stock investments depends on the success of _________.
derivative securities
fixed income securities
the firm and its real assets
government methods of allocating capital
none of the above
Which of the following statistics cannot be negative?
Covariance.
Correlation.
Variance.
Expected return.
All cannot be negative.
Commercial papers are financial instruments initially sold by
commercial banks
the government
large corporations
investment banks
thrifts
Adverse selection is a problem associated with equity and debt contracts arising from
the lender’s relative lack of information about the borrower’s potential returns and risks of his investment activities
the lender’s inability to legally require sufficient collateral to cover a 100% loss if the borrower defaults
the borrower’s lack of incentive to seek a loan for highly risky investments
the borrower’s lack of good options for obtaining funds
all of the above are adverse selection issues