Question 1

A certificate of deposit represents:

Accepted Answer

A)  a promissory note of payment by a bank borrowing reserves from another bank. 
B)  a deposit in a savings account in a bank. 
C)  a promissory note of payment by the issuing institution to the investor. 
D)  a time deposit of a state government with the federal government. 
E)  a time deposit at a bank or other financial intermediary. 
A)  a promissory note of payment by a bank borrowing reserves from another bank. 
B)  a deposit in a savings account in a bank. 
C)  a promissory note of payment by the issuing institution to the investor. 
D)  a time deposit of a state government with the federal government. 
E)  a time deposit at a bank or other financial intermediary.

Question 2

Because short-term interest rates are much more volatile than long-term rates, an investor would, in the real world, be subject to much more interest rate price risk if he or she purchased a 30-day bond than if he or she bought a 30-year bond.

Accepted Answer

A) True 
 B)False

Question 3

When the market value of debt is the same as its par value, it is:

Accepted Answer

A)  refinanced at a lower interest rate. 
B)  a par bond selling at its face value 
C)  issued at a premium 
D)  repaid at the maturity date 
E)  selling at a discount 
A)  refinanced at a lower interest rate. 
B)  a par bond selling at its face value 
C)  issued at a premium 
D)  repaid at the maturity date 
E)  selling at a discount

Question 4

Which of the following statements is true of the price of a bond that is less than the bond's face value?

Accepted Answer

A)  As the coupon rates remain constant, the market value of the bond remains unchanged. 
B)  The price of the bond will decrease further below the bond's face value when the rates in the market are too high 
C)  The price of the bond will increase as the bond gets closer to its maturity because the bond's value has to equal its face value at maturity. 
D)  The market value of the bond will increase with the interest received at the maturity of the bond. 
E)  The par value of the bond will increase with an increase in the bond price in the market until maturity. 
A)  As the coupon rates remain constant, the market value of the bond remains unchanged. 
B)  The price of the bond will decrease further below the bond's face value when the rates in the market are too high 
C)  The price of the bond will increase as the bond gets closer to its maturity because the bond's value has to equal its face value at maturity. 
D)  The market value of the bond will increase with the interest received at the maturity of the bond. 
E)  The par value of the bond will increase with an increase in the bond price in the market until maturity.

Question 5

Which of the following statements is true of a zero coupon bond?

Accepted Answer

A)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the borrower would exercise the call option and call in the bonds. 
B)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity value would be more than its par value. 
C)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity would increase from 10 years to 15 years. 
D)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value. 
E)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's coupon rate would decrease from 10 percent to 5 percent. 
A)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the borrower would exercise the call option and call in the bonds. 
B)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity value would be more than its par value. 
C)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's maturity would increase from 10 years to 15 years. 
D)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond would sell at a premium over its $1,000 par value. 
E)  If a 10-year, $1,000 par, zero coupon bond were issued at a price that gave investors a 10 percent rate of return, and if interest rates then dropped to the point where rd = YTM = 5%, the bond's coupon rate would decrease from 10 percent to 5 percent.

Question 6

Which of the following types of investor would be most likely to purchase zero coupon bonds?

Accepted Answer

A)  Retired individuals seeking income for current consumption 
B)  Individuals in high tax brackets 
C)  Tax-free investors such as pension funds 
D)  Risk-averse individuals anticipating increases in interest rates 
E)  Individuals with no interest income 
A)  Retired individuals seeking income for current consumption 
B)  Individuals in high tax brackets 
C)  Tax-free investors such as pension funds 
D)  Risk-averse individuals anticipating increases in interest rates 
E)  Individuals with no interest income

Question 7

Omega Software Corporation's bond with a face value of $1,000 is currently selling at a premium in the financial markets. If the bond's yield to maturity is 11.5 percent, then the bond's:

Accepted Answer

A)  coupon rate of interest will be less than 11.5 percent. 
B)  coupon rate of interest will be greater than 11.5 percent. 
C)  coupon rate of interest will be equal to 11.5 percent. 
D)  maturity value will be greater than $1,000. 
E)  maturity value will be less than $1,000. 
A)  coupon rate of interest will be less than 11.5 percent. 
B)  coupon rate of interest will be greater than 11.5 percent. 
C)  coupon rate of interest will be equal to 11.5 percent. 
D)  maturity value will be greater than $1,000. 
E)  maturity value will be less than $1,000.

Question 8

Typically, debentures have higher interest rates than mortgage bonds primarily because mortgage bonds are backed by assets while debentures are unsecured.

Accepted Answer

A) True 
 B)False

Question 9

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)

Accepted Answer

A)  $941.36 
B)  $1,051.25 
C)  $1,115.57 
D)  $1,391.00 
E)  $825.49 
A)  $941.36 
B)  $1,051.25 
C)  $1,115.57 
D)  $1,391.00 
E)  $825.49

Question 10

A bond that pays no annual interest and is sold at a discount below its par value is called a:

Accepted Answer

A)  mortgage bond. 
B)  callable bond. 
C)  convertible bond. 
D)  putable bond. 
E)  zero coupon bond. 
A)  mortgage bond. 
B)  callable bond. 
C)  convertible bond. 
D)  putable bond. 
E)  zero coupon bond.

Question 11

Municipal bonds are issued by:

Accepted Answer

A)  financial institutions. 
B)  state and local governments. 
C)  commercial banks. 
D)  the federal government. 
E)  non-governmental organizations. 
A)  financial institutions. 
B)  state and local governments. 
C)  commercial banks. 
D)  the federal government. 
E)  non-governmental organizations.

Question 12

The greater a bond's default risk, the greater the:

Accepted Answer

A)  maturity value of the bond. 
B)  risk of exercise of a call provision on the bond. 
C)  interest rate stability of the bond in the long run. 
D)  investment in the bond by risk-averse investors. 
E)  default risk premium (DRP) associated with the bond. 
A)  maturity value of the bond. 
B)  risk of exercise of a call provision on the bond. 
C)  interest rate stability of the bond in the long run. 
D)  investment in the bond by risk-averse investors. 
E)  default risk premium (DRP) associated with the bond.

Question 13

The indentures for publicly traded bonds are approved by:

Accepted Answer

A)  the state government. 
B)  the Securities and Exchange Commission. 
C)  the federal government. 
D)  the Public Company Accounting Oversight Board. 
E)  the local government. 
A)  the state government. 
B)  the Securities and Exchange Commission. 
C)  the federal government. 
D)  the Public Company Accounting Oversight Board. 
E)  the local government.

Question 14

Issuing zero coupon bonds might appeal to a company that is considering investing in a long-term project that will not generate positive cash flows for several years.

Accepted Answer

A) True 
 B)False

Question 15

The date on which the principal amount of a debt is due is the:

Accepted Answer

A)  maturity date. 
B)  reinvestment date. 
C)  issue date. 
D)  repurchase date. 
E)  priority date. 
A)  maturity date. 
B)  reinvestment date. 
C)  issue date. 
D)  repurchase date. 
E)  priority date.

Question 16

Commercial paper is issued in denominations of:

Accepted Answer

A)  $10. 
B)  $100. 
C)  $1,000. 
D)  $100,000. 
E)  $1,000,000. 
A)  $10. 
B)  $100. 
C)  $1,000. 
D)  $100,000. 
E)  $1,000,000.

Question 17

A(n) _____ certificate of deposit (CD) can be redeemed by whoever owns it at maturity.

Accepted Answer

A)  exchangeable 
B)  jumbo 
C)  negotiable 
D)  mature 
E)  commercial 
A)  exchangeable 
B)  jumbo 
C)  negotiable 
D)  mature 
E)  commercial

Question 18

If interest rates decline, bondholders will earn:

Accepted Answer

A)  a lower rate of return on reinvested cash flows. 
B)  a higher current yield. 
C)  no capital gain on the bond's maturity. 
D)  a lower coupon interest on the bond. 
E)  a higher maturity value on the maturity date. 
A)  a lower rate of return on reinvested cash flows. 
B)  a higher current yield. 
C)  no capital gain on the bond's maturity. 
D)  a lower coupon interest on the bond. 
E)  a higher maturity value on the maturity date.

Question 19

A contract that is negotiated directly with a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

Accepted Answer

A)  preferred stock. 
B)  commercial paper. 
C)  convertible debt. 
D)  a term loan. 
E)  a bond issue. 
A)  preferred stock. 
B)  commercial paper. 
C)  convertible debt. 
D)  a term loan. 
E)  a bond issue.

Question 20

When liquidating a traditional certificate of deposit (CD) prior to maturity, the owner:

Accepted Answer

A)  must repay the interest due on the CD. 
B)  must return it to the issuing institution. 
C)  must refund the difference in the face value and market value of the CD to the issuing institution. 
D)  must claim the interest earned by the bank by investing the CD amount. 
E)  must deposit the amount equivalent to the CD amount in a savings account with the same bank. 
A)  must repay the interest due on the CD. 
B)  must return it to the issuing institution. 
C)  must refund the difference in the face value and market value of the CD to the issuing institution. 
D)  must claim the interest earned by the bank by investing the CD amount. 
E)  must deposit the amount equivalent to the CD amount in a savings account with the same bank.

A certificate of deposit represents:

Because short-term interest rates are much more volatile than long-term rates, an investor would, in the real world, be subject to much more interest rate price risk if he or she purchased a 30-day bond than if he or she bought a 30-year bond.

When the market value of debt is the same as its par value, it is:

Which of the following statements is true of the price of a bond that is less than the bond's face value?

Which of the following statements is true of a zero coupon bond?

Which of the following types of investor would be most likely to purchase zero coupon bonds?

Omega Software Corporation's bond with a face value of $1,000 is currently selling at a premium in the financial markets. If the bond's yield to maturity is 11.5 percent, then the bond's:

Typically, debentures have higher interest rates than mortgage bonds primarily because mortgage bonds are backed by assets while debentures are unsecured.

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)

A bond that pays no annual interest and is sold at a discount below its par value is called a:

Municipal bonds are issued by:

The greater a bond's default risk, the greater the:

The indentures for publicly traded bonds are approved by:

Issuing zero coupon bonds might appeal to a company that is considering investing in a long-term project that will not generate positive cash flows for several years.

The date on which the principal amount of a debt is due is the:

Commercial paper is issued in denominations of:

A(n) _____ certificate of deposit (CD) can be redeemed by whoever owns it at maturity.

If interest rates decline, bondholders will earn:

A contract that is negotiated directly with a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

When liquidating a traditional certificate of deposit (CD) prior to maturity, the owner:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 6: Bonds Debtcharacteristics and Valuation

A certificate of deposit represents:

Because short-term interest rates are much more volatile than long-term rates, an investor would, in the real world, be subject to much more interest rate price risk if he or she purchased a 30-day bond than if he or she bought a 30-year bond.

When the market value of debt is the same as its par value, it is:

Which of the following statements is true of the price of a bond that is less than the bond's face value?

Which of the following statements is true of a zero coupon bond?

Which of the following types of investor would be most likely to purchase zero coupon bonds?

Omega Software Corporation's bond with a face value of $1,000 is currently selling at a premium in the financial markets. If the bond's yield to maturity is 11.5 percent, then the bond's:

Typically, debentures have higher interest rates than mortgage bonds primarily because mortgage bonds are backed by assets while debentures are unsecured.

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? (Round the answer to two decimal places.)

A bond that pays no annual interest and is sold at a discount below its par value is called a:

Municipal bonds are issued by:

The greater a bond's default risk, the greater the:

The indentures for publicly traded bonds are approved by:

Issuing zero coupon bonds might appeal to a company that is considering investing in a long-term project that will not generate positive cash flows for several years.

The date on which the principal amount of a debt is due is the:

Commercial paper is issued in denominations of:

A(n) _____ certificate of deposit (CD) can be redeemed by whoever owns it at maturity.

If interest rates decline, bondholders will earn:

A contract that is negotiated directly with a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

When liquidating a traditional certificate of deposit (CD) prior to maturity, the owner:

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters