1. . Which of the following is not an advantage of owning debt securities?

a. high claim on cash flows of a firm

b. highest return of corporate securities
c. high claim on assets of in liquidation
d. none of the above
e. Answer: b
f. Difficulty Level: Medium
g. Subject Heading: Characteristics of Bonds
2. . Which of the following is considered to be the most risky?
a. U.S. government bonds
b. mortgage bonds
c. corporate bonds
d. common stocks
e. Answer: d
f. Difficulty Level: Medium
g. Subject Heading: Types of bonds
3. . A speculative (junk) bond issue as rated under Standard & Poors would be
rated ______ or below:
a. AAb. BB+
c. CCC
d. CC
e. Answer: b
f. Difficulty Level: Easy
g. Subject Heading: Bond Characteristics
4.Newly created securities are sold in the:
a. primary market
b. secondary market
c. third market
d. fourth market
e. Answer: a
f. Difficulty Level: Easy
g. Subject Heading: Issuing Securities
5. . The price for which the owner is willing to sell the security is called the:
a. bid price
b. spread
c. ask price
d. limit price
e. Answer: c
f. Difficulty Level: Easy
g. Subject Heading: Securities Trading

6. . ___________________ are comprised of direct costs, the spread, and

underpricing.
a. Commission costs
b. Flotation costs
c. Brokerage commissions
d. none of the above
e. Answer: b
f. Difficulty Level: Easy
g. Subject Heading: Issuing Securities