Question 1

A bond has a par value of $1,000 and a market value of $833.40. The conversion price is $45.45. What is the conversion ratio?

Accepted Answer

A) 21 
B) 22 
C) 23 
D) 24 
E) 25 
A) 21 
B) 22 
C) 23 
D) 24 
E) 25 B

Question 2

A STRIPS matures in 5 years, has a face value of $20,000, and has a yield to maturity of 2.4%. What is the price?

Accepted Answer

A) $16,854.59 
B) $17,366.53 
C) $17,751.08 
D) $17,763.57 
E) $18,203.09 
A) $16,854.59 
B) $17,366.53 
C) $17,751.08 
D) $17,763.57 
E) $18,203.09 C

Question 3

Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds?

Accepted Answer

A) redemption fund 
B) sinking fund 
C) liquidation account 
D) serial account 
E) callable account 
A) redemption fund 
B) sinking fund 
C) liquidation account 
D) serial account 
E) callable account B

Question 4

The Federal Reserve is offering Treasury bills with a par value of $25 billion for sale. They have received $7 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
$$\begin{array} { c c c c } 
\text { Bidder } & \text { Price Bid } & \text { Qty } & \text { Bid } \
\mathbf { A } & \$ 9,700 & \$ 5 & \text { billion } \
\text { B } & \$ 9,650 & \$ 9 & \text { billion } \
\mathbf { C } & \$ 9,600 & \$ 4 & \text { billion } \
\text { D } & \$ 9,550 & \$ 9 & \text { billion }
\end{array}$$
What price will Bidder A pay per bond, assuming that bid is accepted?

Accepted Answer

A) $9,600 
B) $9,650 
C) $9,675 
D) $9,700 
E) $9,750 
A) $9,600 
B) $9,650 
C) $9,675 
D) $9,700 
E) $9,750

Question 5

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,020, and 3 years until the first call date. What is the call price if the yield to call is 5.5%?

Accepted Answer

A) $1,000 
B) $1,020 
C) $1,040 
D) $1,060 
E) $1,080 
A) $1,000 
B) $1,020 
C) $1,040 
D) $1,060 
E) $1,080

Question 6

A bond has a face value of $1,000 and a call price of $1,035. The bond is callable in 3 years and pays a 4.5%, semiannual coupon. What is the current price if the yield to call is 5%?

Accepted Answer

A) $1,000 
B) $1,016.14 
C) $1045.39 
D) $1060.92 
E) $1,101.39 
A) $1,000 
B) $1,016.14 
C) $1045.39 
D) $1060.92 
E) $1,101.39

Question 7

Which one of the following identifies a new bond issue as being a private placement?

Accepted Answer

A) The proceeds of the issue are used for a single project. 
B) The issue is marketed through a sole brokerage house. 
C) The issue is sold only to individuals rather than to institutional investors. 
D) The issue is not made available to the public. 
E) The issue names a private individual as the bond trustee. 
A) The proceeds of the issue are used for a single project. 
B) The issue is marketed through a sole brokerage house. 
C) The issue is sold only to individuals rather than to institutional investors. 
D) The issue is not made available to the public. 
E) The issue names a private individual as the bond trustee.

Question 8

A Treasury bond has a 3.4% coupon, a current price of $1,011.88, and 9 years to maturity. What is the yield to maturity?

Accepted Answer

A) 3.25% 
B) 3.93% 
C) 4.03% 
D) 4.90% 
E) 5.92% 
A) 3.25% 
B) 3.93% 
C) 4.03% 
D) 4.90% 
E) 5.92%

Question 9

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

Accepted Answer

A) interest rate risk 
B) default risk 
C) market risk 
D) conversion risk 
E) earnings risk 
A) interest rate risk 
B) default risk 
C) market risk 
D) conversion risk 
E) earnings risk

Question 10

A bond that is currently selling for $939.39 has a conversion price of $31.25. If the par value is $1,000, what is the conversion ratio?

Accepted Answer

A) 30 
B) 31 
C) 32 
D) 33 
E) 34 
A) 30 
B) 31 
C) 32 
D) 33 
E) 34

Question 11

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

Accepted Answer

A) private activity bond 
B) private revenue bond 
C) private corporate bond 
D) private agency bond 
E) private income bond 
A) private activity bond 
B) private revenue bond 
C) private corporate bond 
D) private agency bond 
E) private income bond

Question 12

What is a bond referred to as if it can be converted into shares of stock of a firm other than the bond issuer?

Accepted Answer

A) swap bond 
B) alternate bond 
C) exchangeable bond 
D) convertible bond 
E) callable bond 
A) swap bond 
B) alternate bond 
C) exchangeable bond 
D) convertible bond 
E) callable bond

Question 13

Which one of the following statements related to convertible bonds is correct?

Accepted Answer

A) Bondholders forego higher coupon rates in exchange for the conversion option. 
B) Convertible bonds are generally issued such that the conversion value is equal to the par value. 
C) The conversion price is equal to the bond's market value divided by the conversion ratio. 
D) The conversion value is equal to the bond's market price multiplied by the conversion ratio. 
E) Bonds should be converted as soon as the conversion value exceeds the face value. 
A) Bondholders forego higher coupon rates in exchange for the conversion option. 
B) Convertible bonds are generally issued such that the conversion value is equal to the par value. 
C) The conversion price is equal to the bond's market value divided by the conversion ratio. 
D) The conversion value is equal to the bond's market price multiplied by the conversion ratio. 
E) Bonds should be converted as soon as the conversion value exceeds the face value.

Question 14

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

Accepted Answer

A) general obligation bonds 
B) local taxation bonds 
C) fully funded bonds 
D) revenue bonds 
E) private activity bonds 
A) general obligation bonds 
B) local taxation bonds 
C) fully funded bonds 
D) revenue bonds 
E) private activity bonds

Question 15

A STRIPS has a $15,000 par value and a market value of $10,330. The time to maturity is 7 years. What is the yield to maturity?

Accepted Answer

A) 3.87% 
B) 4.00% 
C) 4.94% 
D) 5.20% 
E) 5.40% 
A) 3.87% 
B) 4.00% 
C) 4.94% 
D) 5.20% 
E) 5.40%

Question 16

You have a marginal tax rate of 35% and an average tax rate of 29%. Municipal bonds in your area are yielding 4.20%. What is your equivalent taxable yield?

Accepted Answer

A) 5.16% 
B) 5.93% 
C) 5.13% 
D) 6.25% 
E) 6.46% 
A) 5.16% 
B) 5.93% 
C) 5.13% 
D) 6.25% 
E) 6.46%

Question 17

Which one of the following is a municipal bond that is secured by both the revenues from a project and also by the taxing authority of the municipality?

Accepted Answer

A) mixed bond 
B) general obligation bond 
C) hybrid bond 
D) dual bond 
E) multiple bond 
A) mixed bond 
B) general obligation bond 
C) hybrid bond 
D) dual bond 
E) multiple bond

Question 18

A bond is currently priced at $1,055.40 and has a par value of $1,000. If the conversion ratio is 24, what is the conversion price?

Accepted Answer

A) $35.71 
B) $37.04 
C) $38.46 
D) $40.00 
E) $41.67 
A) $35.71 
B) $37.04 
C) $38.46 
D) $40.00 
E) $41.67

Question 19

A corporate bond is yielding 7.31% and a municipal bond is yielding 4.75%. What is the critical marginal tax rate?

Accepted Answer

A) 28% 
B) 30% 
C) 33% 
D) 35% 
E) 38% 
A) 28% 
B) 30% 
C) 33% 
D) 35% 
E) 38%

Question 20

The Federal Reserve is offering Treasury bills with a par value of $10 billion for sale. They have received $3 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
$$\begin{array} { c c c c } 
\text { Bidder } & \text { Price Bid } & \text { Qty } & \text { Bid } \
\mathbf { A } & \$ 9,925 & \$ 2 & \text { billion } \
\text { B } & \$ 9,500 & \$ 5 & \text { billion } \
\mathbf { C } & \$ 9,875 & \$ 4 & \text { billion } \
\text { D } & \$ 9,750 & \$ 9 & \text { billion }
\end{array}$$
How much money will the Federal Reserve raise from this offering?

Accepted Answer

A) $9.82 billion 
B) $9.84 billion 
C) $9.85 billion 
D) $9.88 billion 
E) $9.90 billion 
A) $9.82 billion 
B) $9.84 billion 
C) $9.85 billion 
D) $9.88 billion 
E) $9.90 billion

A bond has a par value of $1,000 and a market value of $833.40. The conversion price is $45.45. What is the conversion ratio?

A STRIPS matures in 5 years, has a face value of $20,000, and has a yield to maturity of 2.4%. What is the price?

Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds?

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,020, and 3 years until the first call date. What is the call price if the yield to call is 5.5%?

A bond has a face value of $1,000 and a call price of $1,035. The bond is callable in 3 years and pays a 4.5%, semiannual coupon. What is the current price if the yield to call is 5%?

Which one of the following identifies a new bond issue as being a private placement?

A Treasury bond has a 3.4% coupon, a current price of $1,011.88, and 9 years to maturity. What is the yield to maturity?

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

A bond that is currently selling for $939.39 has a conversion price of $31.25. If the par value is $1,000, what is the conversion ratio?

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

What is a bond referred to as if it can be converted into shares of stock of a firm other than the bond issuer?

Which one of the following statements related to convertible bonds is correct?

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

A STRIPS has a $15,000 par value and a market value of $10,330. The time to maturity is 7 years. What is the yield to maturity?

You have a marginal tax rate of 35% and an average tax rate of 29%. Municipal bonds in your area are yielding 4.20%. What is your equivalent taxable yield?

Which one of the following is a municipal bond that is secured by both the revenues from a project and also by the taxing authority of the municipality?

A bond is currently priced at $1,055.40 and has a par value of $1,000. If the conversion ratio is 24, what is the conversion price?

A corporate bond is yielding 7.31% and a municipal bond is yielding 4.75%. What is the critical marginal tax rate?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

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Exam 18: Corporate and Government Bonds

A bond has a par value of $1,000 and a market value of $833.40. The conversion price is $45.45. What is the conversion ratio?

A STRIPS matures in 5 years, has a face value of $20,000, and has a yield to maturity of 2.4%. What is the price?

Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds?

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,020, and 3 years until the first call date. What is the call price if the yield to call is 5.5%?

A bond has a face value of $1,000 and a call price of $1,035. The bond is callable in 3 years and pays a 4.5%, semiannual coupon. What is the current price if the yield to call is 5%?

Which one of the following identifies a new bond issue as being a private placement?

A Treasury bond has a 3.4% coupon, a current price of $1,011.88, and 9 years to maturity. What is the yield to maturity?

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

A bond that is currently selling for $939.39 has a conversion price of $31.25. If the par value is $1,000, what is the conversion ratio?

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

What is a bond referred to as if it can be converted into shares of stock of a firm other than the bond issuer?

Which one of the following statements related to convertible bonds is correct?

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

A STRIPS has a $15,000 par value and a market value of $10,330. The time to maturity is 7 years. What is the yield to maturity?

You have a marginal tax rate of 35% and an average tax rate of 29%. Municipal bonds in your area are yielding 4.20%. What is your equivalent taxable yield?

Which one of the following is a municipal bond that is secured by both the revenues from a project and also by the taxing authority of the municipality?

A bond is currently priced at $1,055.40 and has a par value of $1,000. If the conversion ratio is 24, what is the conversion price?

A corporate bond is yielding 7.31% and a municipal bond is yielding 4.75%. What is the critical marginal tax rate?

A Brief History of Risk and Return

The Investment Process

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters