LOS f: Describe methods used by institutional investors in the bond market to finance the purchase of a security (i.e., margin buying and repurchase agreements).
Q1. Which of the following statements regarding financing bond purchases is TRUE?
A) The rate the investor pays on the loan in a margin transaction is known as the call money rate.
B) In margin transactions, the broker borrows from the bank at the call money rate plus a spread.
C) Purchasing securities on margin allows investors to leverage assets and make larger purchases.
Q2. Which of the following statements regarding financing bond purchases with margin accounts is FALSE?
A) In the U.S., margin accounts are regulated by the Federal Reserve.
B) Individuals are more likely than institutions to use margin accounts to finance bond purchases.
C) The required margin percentage changes daily.
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