Question 1

The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

Accepted Answer

A) True 
 B)False

Question 2

At what point would an investor be indifferent between a Drifton corporate bond yielding 12.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Accepted Answer

A)  6.05% 
B)  7.10% 
C)  8.15% 
D)  9.38% 
E)  16.27% 
A)  6.05% 
B)  7.10% 
C)  8.15% 
D)  9.38% 
E)  16.27%

Question 3

How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?

Accepted Answer

A)  $10,150.00 
B)  $10,000.00 
C)  $101.16 
D)  $10,160.00 
E)  None of the above 
A)  $10,150.00 
B)  $10,000.00 
C)  $101.16 
D)  $10,160.00 
E)  None of the above

Question 4

Which bond provision would be considered the most risky for an investor who is concerned that market interest rates will drop dramatically over the life of the bond?

Accepted Answer

A)  Sinking fund 
B)  Deferred call 
C)  Freely callable 
D)  Non-callable 
E)  None of the above 
A)  Sinking fund 
B)  Deferred call 
C)  Freely callable 
D)  Non-callable 
E)  None of the above

Question 5

A U.S.dollar-denominated bond sold in the United States by a Japanese-firm is called a(n):

Accepted Answer

A)  Yankee bond. 
B)  Homeland bond. 
C)  International bond. 
D)  U.S. Domestic bond. 
E)  Japanese U.S. Regional bond. 
A)  Yankee bond. 
B)  Homeland bond. 
C)  International bond. 
D)  U.S. Domestic bond. 
E)  Japanese U.S. Regional bond.

Question 6

You purchase a 11 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 100:13?

Accepted Answer

A)  10.14% 
B)  11.75% 
C)  8.22% 
D)  8.32% 
E)  8.16% 
A)  10.14% 
B)  11.75% 
C)  8.22% 
D)  8.32% 
E)  8.16%

Question 7

Wealthy individual investors typically account for 90 to 95 percent of investors in the bond market.

Accepted Answer

A) True 
 B)False

Question 8

General obligation bonds are

Accepted Answer

A)  U.S. Treasury bonds backed by the full faith and credit of the issuer. 
B)  U.S. Treasury bonds backed by income generated form specific projects. 
C)  Municipal bonds backed by the full faith and credit of the issuer. 
D)  Municipal bonds backed by income generated from specific projects. 
E)  A type of U.S. agency security. 
A)  U.S. Treasury bonds backed by the full faith and credit of the issuer. 
B)  U.S. Treasury bonds backed by income generated form specific projects. 
C)  Municipal bonds backed by the full faith and credit of the issuer. 
D)  Municipal bonds backed by income generated from specific projects. 
E)  A type of U.S. agency security.

Question 9

Exhibit 17.2
Use the Information Below for the Following Problem(S)
XLR Corporation just issued a $1,000 par value bond with a 7% yield to maturity, twenty years to maturity, with an 8% semi-annual coupon rate.
-Refer to Exhibit 17.2.If market interest rates rise to 10%,what will the price of the XLR Corporate bond be in three years?

Accepted Answer

A)  $832.89 
B)  $838.07 
C)  $1097.63 
D)  $1,102.85 
E)  $1,191.43 
A)  $832.89 
B)  $838.07 
C)  $1097.63 
D)  $1,102.85 
E)  $1,191.43

Question 10

Treasury bonds which can be purchased at a discount to be used at par to pay estate taxes are called

Accepted Answer

A)  Estate bonds. 
B)  Flower bonds. 
C)  Municipal bonds. 
D)  Probate bonds. 
E)  Survivor bonds. 
A)  Estate bonds. 
B)  Flower bonds. 
C)  Municipal bonds. 
D)  Probate bonds. 
E)  Survivor bonds.

Question 11

What is the value of a zero coupon bond with a yield to maturity of 9%,a par value of $1,000,and 10 years to maturity? (Assume semi-annual compounding)

Accepted Answer

A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00 
A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00

Question 12

A bond that only pays a principal payment at maturity date is known as a(n):

Accepted Answer

A)  Blank bond. 
B)  Maturity bond. 
C)  Interest free bond. 
D)  Mini-coupon bond. 
E)  Zero coupon bond. 
A)  Blank bond. 
B)  Maturity bond. 
C)  Interest free bond. 
D)  Mini-coupon bond. 
E)  Zero coupon bond.

Question 13

The major owners of high-yield bonds have been

Accepted Answer

A)  Commercial banks. 
B)  Savings and loans. 
C)  Mutual funds. 
D)  California Credit Unions (CCU's). 
E)  European banks. 
A)  Commercial banks. 
B)  Savings and loans. 
C)  Mutual funds. 
D)  California Credit Unions (CCU's). 
E)  European banks.

Question 14

You purchase a 9 3/4s February $10,000 par Treasury Note at 101:11 and hold it for exactly one year at which time you sell it.What is your rate of return if your selling price is 101:17?

Accepted Answer

A)  8.14% 
B)  8.75% 
C)  9.75% 
D)  9.81% 
E)  10.47% 
A)  8.14% 
B)  8.75% 
C)  9.75% 
D)  9.81% 
E)  10.47%

Question 15

Alternative institutions favor different sectors of the bond market based on

Accepted Answer

A)  The level of interest rates. 
B)  The tax code applicable to the institution. 
C)  The nature of the institution's asset structure 
D)  a and b. 
E)  b and c. 
A)  The level of interest rates. 
B)  The tax code applicable to the institution. 
C)  The nature of the institution's asset structure 
D)  a and b. 
E)  b and c.

Question 16

A major source of risk faced by GNMA issues is

Accepted Answer

A)  Default risk. 
B)  Prepayment risk. 
C)  Counterparty risk. 
D)  a and b. 
E)  a, b and c. 
A)  Default risk. 
B)  Prepayment risk. 
C)  Counterparty risk. 
D)  a and b. 
E)  a, b and c.

Question 17

Calculate the yield to maturity of a zero coupon bond with a face value of $1000,maturing in 15 years and selling for a price of $525.75.

Accepted Answer

A)  5.62% 
B)  4.38% 
C)  8.74% 
D)  15.26% 
E)  16.27% 
A)  5.62% 
B)  4.38% 
C)  8.74% 
D)  15.26% 
E)  16.27%

Question 18

Treasury Inflation Protected Securities (TIPS)ensures that investors will received the promised yield in real terms by indexing bond principal and interest payments to the stock market.

Accepted Answer

A) True 
 B)False

Question 19

Calculate the yield to maturity of a zero coupon bond with a face value of $1000,maturing in 10 years and selling for a price of $529.30.

Accepted Answer

A)  6.57% 
B)  8.45% 
C)  4.16% 
D)  10.23% 
E)  12.17% 
A)  6.57% 
B)  8.45% 
C)  4.16% 
D)  10.23% 
E)  12.17%

Question 20

In the case of a bond,the only contractual factor is the amount of interest payments,since beginning and ending bond prices are determined by market forces.

Accepted Answer

A) True 
 B)False

Exam 17: Bond Fundamentals

The coupon of a bond indicates the income that the bond investor will receive over the life of the bond.

At what point would an investor be indifferent between a Drifton corporate bond yielding 12.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?

Which bond provision would be considered the most risky for an investor who is concerned that market interest rates will drop dramatically over the life of the bond?

A U.S.dollar-denominated bond sold in the United States by a Japanese-firm is called a(n):

You purchase a 11 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 100:13?

Wealthy individual investors typically account for 90 to 95 percent of investors in the bond market.

General obligation bonds are

Treasury bonds which can be purchased at a discount to be used at par to pay estate taxes are called

What is the value of a zero coupon bond with a yield to maturity of 9%,a par value of $1,000,and 10 years to maturity? (Assume semi-annual compounding)

A bond that only pays a principal payment at maturity date is known as a(n):

The major owners of high-yield bonds have been

You purchase a 9 3/4s February $10,000 par Treasury Note at 101:11 and hold it for exactly one year at which time you sell it.What is your rate of return if your selling price is 101:17?

Alternative institutions favor different sectors of the bond market based on

A major source of risk faced by GNMA issues is

Calculate the yield to maturity of a zero coupon bond with a face value of $1000,maturing in 15 years and selling for a price of $525.75.

Treasury Inflation Protected Securities (TIPS)ensures that investors will received the promised yield in real terms by indexing bond principal and interest payments to the stock market.

Calculate the yield to maturity of a zero coupon bond with a face value of $1000,maturing in 10 years and selling for a price of $529.30.

In the case of a bond,the only contractual factor is the amount of interest payments,since beginning and ending bond prices are determined by market forces.

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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