Debt and Valuation
 1 of 5   ID: FS.MM.D.01A
The money market is one of the four main financial markets in the economy.
a)The money market is a market for securities.
b)Which of the following is not a function performed by the money market?
provision of funds to small businesses providing low-risk investment options for banks liquidity risk management implementing monetary policy
2 of 5   ID: FS.BM.D.01A
Indicate whether the following statements about the risks faced by bond investors are true or false.
a)Reinvestment risk is the risk that an investor will not be able to purchase the same bond again when their current bond matures.
TrueFalse
b)Price risk is the risk that an increase in yields will cause bond prices to fall.
TrueFalse
 3 of 5   ID: FS.S.OST.02A
Select the 3 statements from the list below that together best describe short-term debt securities.
The investor receives coupon payments.
The price is calculated as the discounted value of their maturity payment.
They have a face value and are issued in wholesale amounts.
The term is less than one year (usually 90 days on issue).
The two types of short-term securities are bonds and debentures.
 4 of 5   ID: FMTH.BO.PON.01.L
Calculate the purchase price of the following bonds. Indicate whether the bonds are priced at a discount, at par or at a premium. Give your answers in dollars and cents to the nearest cent.
 
Face Value
Coupon Rate
Years to Maturity
Market Rate
a)
$1,000
r = 12%
6
j2 = 10.25%
b)
$10,000
r = 7.75%
15
j2 = 9.5%
c)
$100
r = 10.75%
24
j2 = 10.75%
Quoted coupon rates and market rates are nominal annual rates compounded semi-annually.
a)Price = $
This bond is priced at: a discount par a premium
b)Price = $
This bond is priced at: a discount par a premium
c)Price = $
This bond is priced at: a discount par a premium
5 of 5
You are a money market dealer wanting to trade in discount securities. Answer the following questions using the…