Question 1

The face value of a U.S.government agency security

Accepted Answer

A)  Is always $1000. 
B)  Ranges from $1000 to $5000. 
C)  Ranges from $1000 to $100,000. 
D)  Ranges from $1000 to $50,000. 
E)  Is always $10,000. 
A)  Is always $1000. 
B)  Ranges from $1000 to $5000. 
C)  Ranges from $1000 to $100,000. 
D)  Ranges from $1000 to $50,000. 
E)  Is always $10,000.

Question 2

The bonds issued by the Bank of England are known as

Accepted Answer

A)  Gilts. 
B)  Bunds. 
C)  Limies. 
D)  Treasuries. 
E)  Benchmarks. 
A)  Gilts. 
B)  Bunds. 
C)  Limies. 
D)  Treasuries. 
E)  Benchmarks.

Question 3

A 7.0 percent coupon bond issued by the State of Tennessee sells for $1,000.What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the municipal bond if the investor is in the 29 percent marginal tax bracket?

Accepted Answer

A)  7.59% 
B)  12.25% 
C)  9.86% 
D)  14.63% 
E)  30.71% 
A)  7.59% 
B)  12.25% 
C)  9.86% 
D)  14.63% 
E)  30.71%

Question 4

Which of the following entities acquire mortgages and create mortgage backed securities?

Accepted Answer

A)  Federal National Mortgage Association (Fannie Mae) 
B)  Government National Mortgage Association (Ginnie Mae) 
C)  Federal Home Loan Mortgage Corporation (Freddie Mac) 
D)  All of the above. 
E)  None of the above. 
A)  Federal National Mortgage Association (Fannie Mae) 
B)  Government National Mortgage Association (Ginnie Mae) 
C)  Federal Home Loan Mortgage Corporation (Freddie Mac) 
D)  All of the above. 
E)  None of the above.

Question 5

At what point would an investor be indifferent between a GM corporate bond yielding 9.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Accepted Answer

A)  7.13% 
B)  7.60% 
C)  11.87% 
D)  12.67% 
E)  14.27% 
A)  7.13% 
B)  7.60% 
C)  11.87% 
D)  12.67% 
E)  14.27%

Question 6

Bonds rated BB or above are considered to be investment grade bonds.

Accepted Answer

A) True 
 B)False

Question 7

When a bond issue is secured by a legal claim on equipment it is known as a(n)

Accepted Answer

A)  Junior bond. 
B)  Income bond. 
C)  Bearer bond. 
D)  Trust certificate. 
E)  Perpetuity. 
A)  Junior bond. 
B)  Income bond. 
C)  Bearer bond. 
D)  Trust certificate. 
E)  Perpetuity.

Question 8

Which of the following is not a major rating agency for bonds?

Accepted Answer

A)  Moody's 
B)  Standard & Poor's 
C)  Fitch Investor Services 
D)  Value Line 
E)  Duff and Phelps 
A)  Moody's 
B)  Standard & Poor's 
C)  Fitch Investor Services 
D)  Value Line 
E)  Duff and Phelps

Question 9

Exhibit 17.1
Use the Information Below for the Following Problem(S)
 $\begin{array}{ccc}
\text { Company } & \text { Ticker } & \text { Coupon } & \text { Maturity}& \text { Last Price}& \text { Last Yield}& \text { EST Spread}& \text { UST}& \text { Est \$ Vol(000's)}\
\hline 
\text { Cen Fler } & \text { GE } & \text { 4.75 } & \text { 9/15/2019} & 99.544 & 4.808 & 62& 10 & 158736
\end{array}$
-Refer to Exhibit 17.1.What is the capital gains/loss yield on this bond?

Accepted Answer

A)  -0.038% 
B)  0.456% 
C)  0.038% 
D)  -0.456% 
E)  None of the above 
A)  -0.038% 
B)  0.456% 
C)  0.038% 
D)  -0.456% 
E)  None of the above

Question 10

You purchase a 10 3/8s February $10,000 par Treasury Note at 103:11 and hold it for exactly one year at which time you sell it.What is your rate of return if your selling price is 101:13?

Accepted Answer

A)  8.14% 
B)  8.16% 
C)  8.22% 
D)  8.32% 
E)  8.47% 
A)  8.14% 
B)  8.16% 
C)  8.22% 
D)  8.32% 
E)  8.47%

Question 11

If the yield to maturity for a par value TIPS bond with 8 years to maturity is 3%,and the yield to maturity of a U.S Treasury note with 8 years is 4.25%,this implies that

Accepted Answer

A)  The expected annual rate of inflation over the next 8 years is -1.25%. 
B)  The expected annual rate of inflation over the next 8 years is 1.25%. 
C)  The expected annual rate of inflation over the next 8 years is -2.25% 
D)  The expected annual rate of inflation over the next 8 years is 2.25% 
E)  None of the above. 
A)  The expected annual rate of inflation over the next 8 years is -1.25%. 
B)  The expected annual rate of inflation over the next 8 years is 1.25%. 
C)  The expected annual rate of inflation over the next 8 years is -2.25% 
D)  The expected annual rate of inflation over the next 8 years is 2.25% 
E)  None of the above.

Question 12

Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements regarding Collateralized Debt Obligations (CDOs)is false?

Accepted Answer

A)  CDOs experienced rapid growth since the year 2000. 
B)  The assets used to back the CDOs are substantially diverse. 
C)  The credit quality within a CDO at the time of issue is diverse. 
D)  CDOs have generated significant credit and liquidity problems. 
E)  All of the above statements are true. 
A)  CDOs experienced rapid growth since the year 2000. 
B)  The assets used to back the CDOs are substantially diverse. 
C)  The credit quality within a CDO at the time of issue is diverse. 
D)  CDOs have generated significant credit and liquidity problems. 
E)  All of the above statements are true.

Question 14

TIPS are U.S Treasury securities where the coupon rate is

Accepted Answer

A)  Zero 
B)  Indexed to the rate of inflation. 
C)  Indexed to the discount rate. 
D)  Indexed to the prime rate. 
E)  None of the above. 
A)  Zero 
B)  Indexed to the rate of inflation. 
C)  Indexed to the discount rate. 
D)  Indexed to the prime rate. 
E)  None of the above.

Question 15

Bonds can have different types of collateral and can be either secured,unsecured or registered bonds.

Accepted Answer

A) True 
 B)False

Question 16

Bond ratings are negatively related to

Accepted Answer

A)  Profitability. 
B)  Cash flow coverage. 
C)  Earnings instability. 
D)  All of the above. 
E)  None of the above. 
A)  Profitability. 
B)  Cash flow coverage. 
C)  Earnings instability. 
D)  All of the above. 
E)  None of the above.

Question 17

High-yield bonds are considered "investment" grade.

Accepted Answer

A) True 
 B)False

Question 18

The refunding provision of an indenture allows bonds to be retired unless

Accepted Answer

A)  They are replaced with a lower coupon bond issue. 
B)  The remaining time to maturity is less than five years. 
C)  The remaining time to maturity is greater than five years. 
D)  The stated time period in the indenture has not passed. 
E)  The stated time period in the indenture has passed. 
A)  They are replaced with a lower coupon bond issue. 
B)  The remaining time to maturity is less than five years. 
C)  The remaining time to maturity is greater than five years. 
D)  The stated time period in the indenture has not passed. 
E)  The stated time period in the indenture has passed.

Question 19

What was developed in the early 1980s to offset some of the problems with traditional mortgage pass-throughs?

Accepted Answer

A)  Variable rate mortgages. 
B)  Collateralized mortgage obligations (CMOs) 
C)  Leveraged buyouts (LBOs) 
D)  Deep discount bonds (DDBs) 
E)  High yield bonds. 
A)  Variable rate mortgages. 
B)  Collateralized mortgage obligations (CMOs) 
C)  Leveraged buyouts (LBOs) 
D)  Deep discount bonds (DDBs) 
E)  High yield bonds.

Question 20

Which type of bond is backed by the full faith and credit of the issuer and its entire taxing power?

Accepted Answer

A)  Fannie Mae 
B)  Freddie Mac 
C)  GSEs 
D)  General obligation 
E)  Revenue 
A)  Fannie Mae 
B)  Freddie Mac 
C)  GSEs 
D)  General obligation 
E)  Revenue

Exam 17: Bond Fundamentals

The face value of a U.S.government agency security

The bonds issued by the Bank of England are known as

A 7.0 percent coupon bond issued by the State of Tennessee sells for $1,000.What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the municipal bond if the investor is in the 29 percent marginal tax bracket?

Which of the following entities acquire mortgages and create mortgage backed securities?

At what point would an investor be indifferent between a GM corporate bond yielding 9.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Bonds rated BB or above are considered to be investment grade bonds.

When a bond issue is secured by a legal claim on equipment it is known as a(n)

Which of the following is not a major rating agency for bonds?

Exhibit 17.1 Use the Information Below for the Following Problem(S) Company Ticker Coupon Maturity Last Price Last Yield EST Spread UST Est \ Vol(000's) Cen Fler GE 4.75 9/15/2019 99.544 4.808 62 10 158736 -Refer to Exhibit 17.1.What is the capital gains/loss yield on this bond?

You purchase a 10 3/8s February $10,000 par Treasury Note at 103:11 and hold it for exactly one year at which time you sell it.What is your rate of return if your selling price is 101:13?

If the yield to maturity for a par value TIPS bond with 8 years to maturity is 3%,and the yield to maturity of a U.S Treasury note with 8 years is 4.25%,this implies that

Samurai bonds are yen-denominated bonds sold in markets outside Japan by international syndicates.

Which of the following statements regarding Collateralized Debt Obligations (CDOs)is false?

TIPS are U.S Treasury securities where the coupon rate is

Bonds can have different types of collateral and can be either secured,unsecured or registered bonds.

Bond ratings are negatively related to

High-yield bonds are considered "investment" grade.

The refunding provision of an indenture allows bonds to be retired unless

What was developed in the early 1980s to offset some of the problems with traditional mortgage pass-throughs?

Which type of bond is backed by the full faith and credit of the issuer and its entire taxing power?

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Securities Markets: Organization and Operation

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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