Question 1

The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents?

Accepted Answer

A) prospectus 
B) prospectus summary 
C) indenture agreement 
D) indenture summary 
E) trust certificate 
A) prospectus 
B) prospectus summary 
C) indenture agreement 
D) indenture summary 
E) trust certificate

Question 2

A bond has 6 years until it can be called, a 7% coupon, and a $1,000 face value. The bond has a market value of $1,031.90 and a yield to call of 7.35%. What is the call premium?

Accepted Answer

A) $45 
B) $55 
C) $65 
D) $75 
E) $85 
A) $45 
B) $55 
C) $65 
D) $75 
E) $85

Question 3

A 4.5%, semiannual coupon bond has a face value of $1,000 and a time to maturity of 4 years. The bonds are convertible into shares of common stock at a conversion price of $42.50. The stock price currently is $40.70. Similar, non-convertible bonds have a yield to maturity of 5.6%. The intrinsic value of this bond is ________ and the conversion value is ________.

Accepted Answer

A) $832.62; $982.80 
B) $961.06; $957.65 
C) $1,014.16; $1,017.50 
D) $1,014.16; $982.80 
E) $1,006.96; $1,017.50 
A) $832.62; $982.80 
B) $961.06; $957.65 
C) $1,014.16; $1,017.50 
D) $1,014.16; $982.80 
E) $1,006.96; $1,017.50

Question 4

Which one of the following generally applies to municipal bonds?

Accepted Answer

A) noncallable 
B) riskless 
C) high credit rating 
D) zero coupon 
E) par value of $1,000 
A) noncallable 
B) riskless 
C) high credit rating 
D) zero coupon 
E) par value of $1,000

Question 5

Which one of the following applies to U.S. Treasury auctions?

Accepted Answer

A) Every bidder has a choice of submitting either a competitive or a noncompetitive bid. 
B) The purchase price paid by all bidders is the highest bid price. 
C) Each bidder with an accepted bid will pay the individual price he or she bid. 
D) All noncompetitive bids are accepted automatically. 
E) Noncompetitive bids are ignored unless there are not enough competitive bids to buy the entire issue. 
A) Every bidder has a choice of submitting either a competitive or a noncompetitive bid. 
B) The purchase price paid by all bidders is the highest bid price. 
C) Each bidder with an accepted bid will pay the individual price he or she bid. 
D) All noncompetitive bids are accepted automatically. 
E) Noncompetitive bids are ignored unless there are not enough competitive bids to buy the entire issue.

Question 6

A Treasury bond has a yield to maturity of 4.4%, a time to maturity of 10 years, and a coupon rate of 5.0%. What is the bond price?

Accepted Answer

A) $940.65 
B) $946.95 
C) $1,054.55 
D) $1,048.12 
E) $1,169.56 
A) $940.65 
B) $946.95 
C) $1,054.55 
D) $1,048.12 
E) $1,169.56

Question 7

Laura has an average tax rate of 15% and a marginal tax rate of 24%. What is her aftertax yield on a corporate bond which has a 4.5% yield?

Accepted Answer

A) 2.34% 
B) 3.24% 
C) 3.42% 
D) 4.23% 
E) 4.32% 
A) 2.34% 
B) 3.24% 
C) 3.42% 
D) 4.23% 
E) 4.32%

Question 8

Jeff owns a taxable bond portfolio, which is yielding 8.76%. His aftertax yield is 6.57%. What is his marginal tax rate?

Accepted Answer

A) 25% 
B) 28% 
C) 31% 
D) 32% 
E) 34% 
A) 25% 
B) 28% 
C) 31% 
D) 32% 
E) 34%

Question 9

Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should ________ because ________.

Accepted Answer

A) accept the call; the call price exceeds the conversion value 
B) accept the call; they have no other choice 
C) convert their bonds; the conversion price exceeds the par value by $37.90 
D) convert their bonds; the conversion price exceeds the call price by $12.90 
E) elect to continue holding their bonds; they want to continue receiving the interest payments 
A) accept the call; the call price exceeds the conversion value 
B) accept the call; they have no other choice 
C) convert their bonds; the conversion price exceeds the par value by $37.90 
D) convert their bonds; the conversion price exceeds the call price by $12.90 
E) elect to continue holding their bonds; they want to continue receiving the interest payments

Question 10

Which one of the following accurately describes bond refunding?

Accepted Answer

A) replacing maturing bonds with a new bond issue 
B) calling existing bonds and refinancing those bonds with new debt 
C) paying off bonds early with excess cash generated by the firm 
D) replacing maturing bonds with an equity issue 
E) paying bonds off early to satisfy disgruntled bondholders 
A) replacing maturing bonds with a new bond issue 
B) calling existing bonds and refinancing those bonds with new debt 
C) paying off bonds early with excess cash generated by the firm 
D) replacing maturing bonds with an equity issue 
E) paying bonds off early to satisfy disgruntled bondholders

Question 11

Which of the following are common characteristics associated with corporate bonds?
I. specified cash flows
II. equity ownership
III. call feature
IV. set maturity date

Accepted Answer

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

Question 12

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

Accepted Answer

A) Convertible bonds have a maximum value equal to the bond's intrinsic value. 
B) Convertible bonds have limited downside risk with unlimited upside potential. 
C) A convertible bond is in the money when its call price is greater than its conversion value. 
D) Convertible bonds must be converted prior to or on the maturity date. 
E) Convertible bonds must be converted once they are called. 
A) Convertible bonds have a maximum value equal to the bond's intrinsic value. 
B) Convertible bonds have limited downside risk with unlimited upside potential. 
C) A convertible bond is in the money when its call price is greater than its conversion value. 
D) Convertible bonds must be converted prior to or on the maturity date. 
E) Convertible bonds must be converted once they are called.

Question 13

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,083.29, and 4 years until the first call date. What is the call price if the yield to call is 6.0%?

Accepted Answer

A) $1,000 
B) $1,060 
C) $1,100 
D) $1,125 
E) $1,150 
A) $1,000 
B) $1,060 
C) $1,100 
D) $1,125 
E) $1,150

Question 14

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

Accepted Answer

A) indenture 
B) naked bond 
C) bullet bond 
D) covered bond 
E) trust bond 
A) indenture 
B) naked bond 
C) bullet bond 
D) covered bond 
E) trust bond

Question 15

The Federal Reserve is offering Treasury bills with a par value of $40 billion for sale. They have received $18 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:
$$\begin{array} { c c c c c } 
\text { Bidder } & \text { Frice Bid } &  \text { Oty } & \text { Bid } \
\text { A } & \$ 9,825 & \$  2 & \text { billion } \
\text { B } & \$ 9,815 & \$  6 & \text { billion } \
\text { C } & \$ 9,800 & \$ 14 & \text { billion } \
\text { D } & \$ 9,700 & \$ 20 & \text { billion }
\end{array}$$
How much money will the Federal Reserve raise from this offering?

Accepted Answer

A) $39.05 billion 
B) $39.10 billion 
C) $39.20 billion 
D) $39.30 billion 
E) $39.50 billion 
A) $39.05 billion 
B) $39.10 billion 
C) $39.20 billion 
D) $39.30 billion 
E) $39.50 billion

Question 16

You own a corporate bond, which is yielding 4.9%. What is your aftertax yield if your marginal tax rate is 28%?

Accepted Answer

A) 2.90% 
B) 3.53% 
C) 4.20% 
D) 4.58% 
E) 5.15% 
A) 2.90% 
B) 3.53% 
C) 4.20% 
D) 4.58% 
E) 5.15%

Question 17

What is the conversion ratio of a $1,000 par value bond that is selling for $913.36 and has a conversion price of $55.56?

Accepted Answer

A) 15 
B) 16 
C) 17 
D) 18 
E) 19 
A) 15 
B) 16 
C) 17 
D) 18 
E) 19

Question 18

A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio of 14. What is the conversion price?

Accepted Answer

A) $55.56 
B) $58.82 
C) $62.50 
D) $66.67 
E) $71.43 
A) $55.56 
B) $58.82 
C) $62.50 
D) $66.67 
E) $71.43

Question 19

You own a corporate bond, which is yielding 7.2%. What is your aftertax yield if your marginal tax rate is 28%?

Accepted Answer

A) 2.90% 
B) 3.53% 
C) 4.20% 
D) 4.58% 
E) 5.18% 
A) 2.90% 
B) 3.53% 
C) 4.20% 
D) 4.58% 
E) 5.18%

Question 20

A Treasury bond has a quoted bid price of 97.125 and a quoted ask price of 97.255. What is the amount you will receive if you sell your bond that has a par value of $25,000?

Accepted Answer

A) $24,281.25 
B) $24,313.75 
C) $24,418.34 
D) $24,841.34 
E) $25,329.50 
A) $24,281.25 
B) $24,313.75 
C) $24,418.34 
D) $24,841.34 
E) $25,329.50

The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents?

A bond has 6 years until it can be called, a 7% coupon, and a $1,000 face value. The bond has a market value of $1,031.90 and a yield to call of 7.35%. What is the call premium?

Which one of the following generally applies to municipal bonds?

Which one of the following applies to U.S. Treasury auctions?

A Treasury bond has a yield to maturity of 4.4%, a time to maturity of 10 years, and a coupon rate of 5.0%. What is the bond price?

Laura has an average tax rate of 15% and a marginal tax rate of 24%. What is her aftertax yield on a corporate bond which has a 4.5% yield?

Jeff owns a taxable bond portfolio, which is yielding 8.76%. His aftertax yield is 6.57%. What is his marginal tax rate?

Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should because .

Which one of the following accurately describes bond refunding?

Which of the following are common characteristics associated with corporate bonds? I. specified cash flows II. equity ownership III. call feature IV. set maturity date

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

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,083.29, and 4 years until the first call date. What is the call price if the yield to call is 6.0%?

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

You own a corporate bond, which is yielding 4.9%. What is your aftertax yield if your marginal tax rate is 28%?

What is the conversion ratio of a $1,000 par value bond that is selling for $913.36 and has a conversion price of $55.56?

A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio of 14. What is the conversion price?

You own a corporate bond, which is yielding 7.2%. What is your aftertax yield if your marginal tax rate is 28%?

A Treasury bond has a quoted bid price of 97.125 and a quoted ask price of 97.255. What is the amount you will receive if you sell your bond that has a par value of $25,000?

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

Exam 18: Corporate and Government Bonds

The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents?

A bond has 6 years until it can be called, a 7% coupon, and a $1,000 face value. The bond has a market value of $1,031.90 and a yield to call of 7.35%. What is the call premium?

Which one of the following generally applies to municipal bonds?

Which one of the following applies to U.S. Treasury auctions?

A Treasury bond has a yield to maturity of 4.4%, a time to maturity of 10 years, and a coupon rate of 5.0%. What is the bond price?

Laura has an average tax rate of 15% and a marginal tax rate of 24%. What is her aftertax yield on a corporate bond which has a 4.5% yield?

Jeff owns a taxable bond portfolio, which is yielding 8.76%. His aftertax yield is 6.57%. What is his marginal tax rate?

Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should ________ because ________.

Which one of the following accurately describes bond refunding?

Which of the following are common characteristics associated with corporate bonds? I. specified cash flows II. equity ownership III. call feature IV. set maturity date

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

A semiannual coupon bond has a 5% coupon rate, a $1,000 face value, a current value of $1,083.29, and 4 years until the first call date. What is the call price if the yield to call is 6.0%?

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

You own a corporate bond, which is yielding 4.9%. What is your aftertax yield if your marginal tax rate is 28%?

What is the conversion ratio of a $1,000 par value bond that is selling for $913.36 and has a conversion price of $55.56?

A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio of 14. What is the conversion price?

You own a corporate bond, which is yielding 7.2%. What is your aftertax yield if your marginal tax rate is 28%?

A Treasury bond has a quoted bid price of 97.125 and a quoted ask price of 97.255. What is the amount you will receive if you sell your bond that has a par value of $25,000?

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

Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should because .