Sec & Inv Chapter 3 Study Guide

In general, securities with ____ characteristics will offer ____ yields.

• unfavorable; lower

• unfavorable; lower

• favorable; lower

• favorable; higher

​Some types of debt securities offer a higher yield than others.

• True

• False

Investors will always prefer the purchase of risk-free Treasury securities, since other securities have a higher level of risk.

• True

• False

Credit (default) risk is likely to be highest for:

• short-term Treasury securities

• AAA corporate securities

• BBB corporate securities

• long-term Treasury securities

​Credit ratings are most commonly used to indicate which financial institutions have available funds that they can lend to borrowers.

• True

• False

​The higher a bond rating, the lower the perceived credit risk.

• True

• False

If a security can easily be converted to cash without a loss in value, it

• has a high after-tax yield.

• is liquid.

• is illiquid.

• has high credit risk.

​The term structure of interest rates defines the relationship between

• the risk and maturity of the investment

• the risk and return of the investment

• ​the maturity and yield of the investment

• ​the default risk ratings and maturity of the investment

​The graphic comparison of maturities and annualized yields is known as the yield curve.

• True

• False

​Yield curves are always upward sloping.

• True

• False