Question 1

The bond market is served by bond dealers, who can play a broker role by matching up buyers and sellers.

Accepted Answer

A) True 
 B)False

Question 2

All of the bonds issued by a particular company will have the same maturity, price, and credit rating.

Accepted Answer

A) True 
 B)False

Question 3

____ bonds have the most active secondary market. ​

Accepted Answer

A) Treasury 
B) Zero-coupon corporate 
C) Junk 
D) Municipal ​ 
A) Treasury 
B) Zero-coupon corporate 
C) Junk 
D) Municipal ​

Question 4

For bonds issued under a _______ arrangement, the underwriter guarantees the issuer that the bonds will be sold at a specified price. ​

Accepted Answer

A) specific value 
B) fixed proceeds 
C) best efforts 
D) firm commitment 
A) specific value 
B) fixed proceeds 
C) best efforts 
D) firm commitment

Question 5

____ commonly have maturities of 10 years or longer.

Accepted Answer

A) Commercial paper certificates 
B) Treasury bills 
C) Federal fund notes 
D) Bonds 
A) Commercial paper certificates 
B) Treasury bills 
C) Federal fund notes 
D) Bonds

Question 6

Bond dealers do not have an inventory of bonds.

Accepted Answer

A) True 
 B)False

Question 7

High-risk bonds are called trash bonds.

Accepted Answer

A) True 
 B)False

Question 8

A(n)__________ allows investors to exchange a bond for a stated number of shares of the firm's _________.

Accepted Answer

A) equity-for-debt swap; common stock 
B) debt-for-equity swap; preferred stock 
C) call provision; common stock 
D) convertible bond; common stock 
A) equity-for-debt swap; common stock 
B) debt-for-equity swap; preferred stock 
C) call provision; common stock 
D) convertible bond; common stock

Question 9

Many bonds have different call prices: a higher price for calling the bonds to meet sinking-fund requirements and a lower price if the bonds are called for any other reason.

Accepted Answer

A) True 
 B)False

Question 10

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

Accepted Answer

A) more; less; lower 
B) more; less; higher 
C) less; more; higher 
D) None of these are correct. 
A) more; less; lower 
B) more; less; higher 
C) less; more; higher 
D) None of these are correct.

Question 11

(Financial calculator required.)Erin, a private investor, can purchase $1,000 par value bonds for $980. The bonds have a 10 percent coupon rate, pay interest annually, and have 20 years remaining until maturity. Erin's yield to maturity is ____ percent.

Accepted Answer

A) 9.96 
B) 10.00 
C) 10.33 
D) 10.24 
E) None of these are correct. 
A) 9.96 
B) 10.00 
C) 10.33 
D) 10.24 
E) None of these are correct.

Question 12

Municipal general obligation bonds are ____. Municipal revenue bonds are ____. ​

Accepted Answer

A) supported by the municipal government's ability to tax; supported by the municipal government's ability to tax 
B) supported by the municipal government's ability to tax; supported by revenue generated from the project 
C) always subject to federal taxes; always exempt from state and local taxes 
D) typically zero-coupon bonds; typically zero-coupon bonds 
A) supported by the municipal government's ability to tax; supported by the municipal government's ability to tax 
B) supported by the municipal government's ability to tax; supported by revenue generated from the project 
C) always subject to federal taxes; always exempt from state and local taxes 
D) typically zero-coupon bonds; typically zero-coupon bonds

Question 13

A call provision on bonds normally   allows the firm to

Accepted Answer

A) sell new bonds at par value. 
B) sell new bonds above market value. 
C) sell bonds to the Treasury. 
D) buy back bonds that it previously issued. 
A) sell new bonds at par value. 
B) sell new bonds above market value. 
C) sell bonds to the Treasury. 
D) buy back bonds that it previously issued.

Question 14

Everything else being equal, which of the following bond ratings is associated with the highest yield? ​

Accepted Answer

A) Baa 
B) ​A 
C) ​Aa 
D) ​Aaa 
A) Baa 
B) ​A 
C) ​Aa 
D) ​Aaa

Question 15

During weak economic periods, newly issued junk bonds require lower risk premiums than in strong economic periods.

Accepted Answer

A) True 
 B)False

Question 16

Bonds issued by large well-known corporations in large volume are illiquid because most buyers hold these bonds until maturity.

Accepted Answer

A) True 
 B)False

Question 17

Many bonds are listed on the New York Stock Exchange (NYSE).

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements is NOT true regarding STRIPS?

Accepted Answer

A) They are not issued by the Treasury. 
B) They are created and sold by various financial institutions. 
C) They are backed by the U.S. government. 
D) They have to be held until maturity. 
E) All of these are true regarding STRIPS. 
A) They are not issued by the Treasury. 
B) They are created and sold by various financial institutions. 
C) They are backed by the U.S. government. 
D) They have to be held until maturity. 
E) All of these are true regarding STRIPS.

Question 19

Treasury bond dealers ​

Accepted Answer

A) quote an ask price for customers who want to sell existing Treasury bonds to the dealers. 
B) profit from a very wide spread between bid and ask prices in the Treasury securities market. 
C) may trade Treasury bonds among themselves. 
D) make a primary market for Treasury bonds. 
A) quote an ask price for customers who want to sell existing Treasury bonds to the dealers. 
B) profit from a very wide spread between bid and ask prices in the Treasury securities market. 
C) may trade Treasury bonds among themselves. 
D) make a primary market for Treasury bonds.

Question 20

The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.

Accepted Answer

A) True 
 B)False

Exam 7: Bond Markets

The bond market is served by bond dealers, who can play a broker role by matching up buyers and sellers.

All of the bonds issued by a particular company will have the same maturity, price, and credit rating.

____ bonds have the most active secondary market. ​

For bonds issued under a _______ arrangement, the underwriter guarantees the issuer that the bonds will be sold at a specified price. ​

____ commonly have maturities of 10 years or longer.

Bond dealers do not have an inventory of bonds.

High-risk bonds are called trash bonds.

A(n)__________ allows investors to exchange a bond for a stated number of shares of the firm's _________.

Many bonds have different call prices: a higher price for calling the bonds to meet sinking-fund requirements and a lower price if the bonds are called for any other reason.

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

(Financial calculator required.)Erin, a private investor, can purchase $1,000 par value bonds for $980. The bonds have a 10 percent coupon rate, pay interest annually, and have 20 years remaining until maturity. Erin's yield to maturity is ____ percent.

Municipal general obligation bonds are ____. Municipal revenue bonds are ____. ​

A call provision on bonds normally allows the firm to

Everything else being equal, which of the following bond ratings is associated with the highest yield? ​

During weak economic periods, newly issued junk bonds require lower risk premiums than in strong economic periods.

Bonds issued by large well-known corporations in large volume are illiquid because most buyers hold these bonds until maturity.

Many bonds are listed on the New York Stock Exchange (NYSE).

Which of the following statements is NOT true regarding STRIPS?

Treasury bond dealers ​

The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.

Role of Financial Markets and Institutions

Determination of Interest Rates

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

____ bonds have the most active secondary market.

For bonds issued under a _______ arrangement, the underwriter guarantees the issuer that the bonds will be sold at a specified price.

A(n)__ allows investors to exchange a bond for a stated number of shares of the firm's _.

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using debt and equity, which implies a degree of financial leverage.

Municipal general obligation bonds are . Municipal revenue bonds are .

Everything else being equal, which of the following bond ratings is associated with the highest yield?

Treasury bond dealers