Question 1

Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer?

Accepted Answer

A) protective covenant 
B) risk analysis 
C) credit rating 
D) serial report 
E) in-the-money status 
A) protective covenant 
B) risk analysis 
C) credit rating 
D) serial report 
E) in-the-money status

Question 2

Which one of the following is an unsecured bond issued by a corporation?

Accepted Answer

A) indenture 
B) general obligation bond 
C) plain vanilla bond 
D) debenture 
E) trust bond 
A) indenture 
B) general obligation bond 
C) plain vanilla bond 
D) debenture 
E) trust bond

Question 3

Which one of the following is another name for a junk bond?

Accepted Answer

A) high-yield bond 
B) convertible bond 
C) private placement bond 
D) subordinated bond 
E) called bond 
A) high-yield bond 
B) convertible bond 
C) private placement bond 
D) subordinated bond 
E) called bond

Question 4

A $5,000 face value municipal bond matures in 8 years and has a market value of $5,230. The coupon rate is 3.9% with interest paid semiannually. What is the yield to maturity?

Accepted Answer

A) 2.92% 
B) 3.10% 
C) 3.24% 
D) 3.42% 
E) 4.38% 
A) 2.92% 
B) 3.10% 
C) 3.24% 
D) 3.42% 
E) 4.38%

Question 5

Which one of the following terms is the price below which a convertible bond cannot fall, which is equal to the value of a comparable nonconvertible bond?

Accepted Answer

A) out-of-the money value 
B) in-the-money value 
C) discounted value 
D) external value 
E) intrinsic value 
A) out-of-the money value 
B) in-the-money value 
C) discounted value 
D) external value 
E) intrinsic value

Question 6

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund. What is this investment strategy called?

Accepted Answer

A) cash flow matching 
B) cash diversification 
C) cash stabilization 
D) in-out investing 
E) plain vanilla matching 
A) cash flow matching 
B) cash diversification 
C) cash stabilization 
D) in-out investing 
E) plain vanilla matching

Question 7

Which one of the following descriptors is used to identify a bond that pays a single payment at maturity?

Accepted Answer

A) zero coupon 
B) imputed value 
C) solo 
D) STRIP 
E) term 
A) zero coupon 
B) imputed value 
C) solo 
D) STRIP 
E) term

Question 8

Which of the following features would you expect a plain vanilla bond to have?
I. semiannual coupon payments
II. $1,000 face value
III. stated maturity date
IV. multiple bonds within one issue

Accepted Answer

A) I and II only 
B) II and III only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV 
A) I and II only 
B) II and III only 
C) II, III, and IV only 
D) I, II, and III only 
E) I, II, III, and IV

Question 9

A Treasury bond has a dollar price of $1,015.63. What would you expect the bond quote to be?

Accepted Answer

A) .101563 
B) 1.01563 
C) 10.1563 
D) 101.563 
E) 1015.63 
A) .101563 
B) 1.01563 
C) 10.1563 
D) 101.563 
E) 1015.63

Question 10

Bonds with relatively high coupons, due to their speculative credit ratings, are called which one of the following?

Accepted Answer

A) investment-grade bonds 
B) high-yield bonds 
C) prudent risk bonds 
D) floating-rate bonds 
E) covenant bonds 
A) investment-grade bonds 
B) high-yield bonds 
C) prudent risk bonds 
D) floating-rate bonds 
E) covenant bonds

Question 11

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

Accepted Answer

A) Callable bonds are issued at the call price. 
B) Callable bonds can be called at any time. 
C) Callable bonds are generally called at the market price at the time of the call. 
D) Callable bonds are more likely to be called if market interest rates decline. 
E) Callable bonds are generally priced higher than comparable noncallable bonds. 
A) Callable bonds are issued at the call price. 
B) Callable bonds can be called at any time. 
C) Callable bonds are generally called at the market price at the time of the call. 
D) Callable bonds are more likely to be called if market interest rates decline. 
E) Callable bonds are generally priced higher than comparable noncallable bonds.

Question 12

A bond that is currently selling for $925.44 has a conversion price of $25.00. If the par value is $1,000, what is the conversion ratio?

Accepted Answer

A) 35 
B) 37 
C) 40 
D) 42 
E) 44 
A) 35 
B) 37 
C) 40 
D) 42 
E) 44

Question 13

You own a bond that has a face value of $1,000 and a conversion ratio of 25. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should ________ your bond because the conversion value is ________.

Accepted Answer

A) convert; less than the call price by $30.00 
B) convert; greater than the call price by $10.00 
C) convert; greater than the call price by $5.00 
D) not convert; less than the call price by $10.00 
E) not convert; greater than the call price by $30.00 
A) convert; less than the call price by $30.00 
B) convert; greater than the call price by $10.00 
C) convert; greater than the call price by $5.00 
D) not convert; less than the call price by $10.00 
E) not convert; greater than the call price by $30.00

Question 14

Which one of the following is the Treasury program that allows interest and principal payments from Treasury notes or bonds to be sold separately?

Accepted Answer

A) EDGAR 
B) TRSTRP 
C) TRIPS 
D) TZEROES 
E) STRIPS 
A) EDGAR 
B) TRSTRP 
C) TRIPS 
D) TZEROES 
E) STRIPS

Question 15

Adjustable-rate bonds are identified by which one of the following characteristics?

Accepted Answer

A) The coupon rate will increase should the credit rating of the bond decline. 
B) Different bonds within the same issue have different coupon rates. 
C) Bondholders can defer coupon payments at their discretion. 
D) The amount of each coupon payment will depend on the free cash flow of the issuer. 
E) The coupon rate changes in response to changes in current market rates. 
A) The coupon rate will increase should the credit rating of the bond decline. 
B) Different bonds within the same issue have different coupon rates. 
C) Bondholders can defer coupon payments at their discretion. 
D) The amount of each coupon payment will depend on the free cash flow of the issuer. 
E) The coupon rate changes in response to changes in current market rates.

Question 16

What is the document called that is distributed to potential bondholders and provides detailed information on the financial position and operations of the bond issuer?

Accepted Answer

A) indenture summary 
B) prospectus 
C) trust statement 
D) 10-K 
E) 10-Q 
A) indenture summary 
B) prospectus 
C) trust statement 
D) 10-K 
E) 10-Q

Question 17

Municipal bonds are yielding 3.6% currently. Alicia has a marginal tax rate of 35% and Yvonne has a marginal tax rate of 24 %. Alicia's equivalent taxable yield is ________% and Yvonne's is ________ %.

Accepted Answer

A) 4.74; 5.54 
B) 4.74; 4.74 
C) 5.54; 4.74 
D) 7.39; 6.15 
E) 7.39; 4.74 
A) 4.74; 5.54 
B) 4.74; 4.74 
C) 5.54; 4.74 
D) 7.39; 6.15 
E) 7.39; 4.74

Question 18

A STRIPS has a yield to maturity of 4.0%, a par value of $20,000, and a time to maturity of 8 years. What is the price?

Accepted Answer

A) $9,930.23 
B) $10,678.16 
C) $13,575.84 
D) $14,568.92 
E) $14,613.80 
A) $9,930.23 
B) $10,678.16 
C) $13,575.84 
D) $14,568.92 
E) $14,613.80

Question 19

A STRIPS has a $10,000 par value and a market value of $8,590. The time to maturity is 7 years. What is the yield to maturity?

Accepted Answer

A) 2.18% 
B) 3.00% 
C) 4.94% 
D) 5.10% 
E) 5.27% 
A) 2.18% 
B) 3.00% 
C) 4.94% 
D) 5.10% 
E) 5.27%

Question 20

A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The stock is selling for $46.14. What is the conversion value?

Accepted Answer

A) $1,009.16 
B) $1,015.08 
C) $1,038.60 
D) $1,049.35 
E) $1,053.50 
A) $1,009.16 
B) $1,015.08 
C) $1,038.60 
D) $1,049.35 
E) $1,053.50

Exam 18: Corporate and Government Bonds

Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer?

Which one of the following is an unsecured bond issued by a corporation?

Which one of the following is another name for a junk bond?

A $5,000 face value municipal bond matures in 8 years and has a market value of $5,230. The coupon rate is 3.9% with interest paid semiannually. What is the yield to maturity?

Which one of the following terms is the price below which a convertible bond cannot fall, which is equal to the value of a comparable nonconvertible bond?

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund. What is this investment strategy called?

Which one of the following descriptors is used to identify a bond that pays a single payment at maturity?

Which of the following features would you expect a plain vanilla bond to have? I. semiannual coupon payments II. $1,000 face value III. stated maturity date IV. multiple bonds within one issue

A Treasury bond has a dollar price of $1,015.63. What would you expect the bond quote to be?

Bonds with relatively high coupons, due to their speculative credit ratings, are called which one of the following?

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

A bond that is currently selling for $925.44 has a conversion price of $25.00. If the par value is $1,000, what is the conversion ratio?

You own a bond that has a face value of $1,000 and a conversion ratio of 25. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should ________ your bond because the conversion value is ________.

Which one of the following is the Treasury program that allows interest and principal payments from Treasury notes or bonds to be sold separately?

Adjustable-rate bonds are identified by which one of the following characteristics?

What is the document called that is distributed to potential bondholders and provides detailed information on the financial position and operations of the bond issuer?

Municipal bonds are yielding 3.6% currently. Alicia has a marginal tax rate of 35% and Yvonne has a marginal tax rate of 24 %. Alicia's equivalent taxable yield is ________% and Yvonne's is ________ %.

A STRIPS has a yield to maturity of 4.0%, a par value of $20,000, and a time to maturity of 8 years. What is the price?

A STRIPS has a $10,000 par value and a market value of $8,590. The time to maturity is 7 years. What is the yield to maturity?

A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The stock is selling for $46.14. What is the conversion value?

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

You own a bond that has a face value of $1,000 and a conversion ratio of 25. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should your bond because the conversion value is .

Municipal bonds are yielding 3.6% currently. Alicia has a marginal tax rate of 35% and Yvonne has a marginal tax rate of 24 %. Alicia's equivalent taxable yield is % and Yvonne's is %.