Exam 8: Understanding Risk and Market Factors in Financial Securities

If the current yield on tax-exempt bonds is 8 percent and comparable taxable bonds carry a 12 percent yield, the break-even marginal tax rate must be 33.3 percent.

The feature of a bond contract that some researchers refer to as a "zero sum game" is known as the:

The yields on junk bonds tend to be insufficient to cover the default risk inherent in such issues.

A rise in the marginal tax rate will make high coupon _______ more attractive relative to high coupon _______.

What types of risk are encountered by a purchaser of callable securities?

Further purchases of junk bonds by thrift institutions were outlawed by passage of the:

In general, the issuer of high-coupon callable bonds must pay a greater call premium than the issuer of low-coupon callable bonds relative to non-callable securities.

How can a buyer of loan-backed securities reduce prepayment risk? Why would this be important?