Question 1

Which of the following institutions is most likely to purchase a private bond placement?

Accepted Answer

A)  commercial bank 
B)  finance company 
C)  insurance company 
D)  savings institution 
A)  commercial bank 
B)  finance company 
C)  insurance company 
D)  savings institution C

Question 2

Corporate bonds usually pay interest on an annual basis.

Accepted Answer

A) True 
 B)False  False

Question 3

Note maturities are usually ____, while bond maturities are ____.

Accepted Answer

A)  less than 10 years; 10 years or more 
B)  10 years or more; less than 10 years 
C)  less than 5 years; 5 years or more 
D)  5 years or more; less than 5 years 
A)  less than 10 years; 10 years or more 
B)  10 years or more; less than 10 years 
C)  less than 5 years; 5 years or more 
D)  5 years or more; less than 5 years A

Question 4

Subordinated indentures have claims against the firm's assets that are junior to the claims of both mortgage bonds and regular debentures.

Accepted Answer

A) True 
 B)False

Question 5

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 the above 
A)  more; less; lower 
B)  more; less; higher 
C)  less; more; higher 
D)  none of the above

Question 6

Interest earned from Treasury bonds is

Accepted Answer

A)  exempt from all income tax. 
B)  exempt from federal income tax. 
C)  exempt from state and local taxes. 
D)  subject to all income taxes. 
A)  exempt from all income tax. 
B)  exempt from federal income tax. 
C)  exempt from state and local taxes. 
D)  subject to all income taxes.

Question 7

Structured notes are issued by firms to borrow funds, and the repayment of interest and principal is based on specified market conditions.

Accepted Answer

A) True 
 B)False

Question 8

Bonds that are not secured by specific property are called

Accepted Answer

A)  a chattel mortgage. 
B)  open-end mortgage bonds. 
C)  debentures. 
D)  blanket mortgage bonds. 
A)  a chattel mortgage. 
B)  open-end mortgage bonds. 
C)  debentures. 
D)  blanket mortgage bonds.

Question 9

Devin, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Devin will hold the bonds until maturity. Thus, he will earn a returnof ____ percent.

Accepted Answer

A)  12 
B)  9 
C)  10.5 
D)  more information is needed to answer this question 
A)  12 
B)  9 
C)  10.5 
D)  more information is needed to answer this question

Question 10

Corporate bonds are more standardized than stocks.

Accepted Answer

A) True 
 B)False

Question 11

High-risk bonds are called trash bonds.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.

Accepted Answer

A)  50 
B)  70 
C)  10 
D)  5 
A)  50 
B)  70 
C)  10 
D)  5

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

A credit rating agency is paid by:

Accepted Answer

A)  the purchasers of the bonds that the agency rates. 
B)  the issuers of the bonds that the agency rates. 
C)  the taxpayers, because the rating agencies are government agencies. 
D)  the New York Stock Exchange or the over-the-counter market where the bonds are listed. 
A)  the purchasers of the bonds that the agency rates. 
B)  the issuers of the bonds that the agency rates. 
C)  the taxpayers, because the rating agencies are government agencies. 
D)  the New York Stock Exchange or the over-the-counter market where the bonds are listed.

Question 16

The bond debenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders.

Accepted Answer

A) True 
 B)False

Question 17

Stripped bonds are bonds whose cash flows have been transformed into a security representing the principal payment only and a security representing interest payments only.

Accepted Answer

A) True 
 B)False

Question 18

Treasury bonds are issued by state and local governments.

Accepted Answer

A) True 
 B)False

Question 19

____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.

Accepted Answer

A)  Bearer 
B)  Registered 
C)  Treasury 
D)  Corporate 
A)  Bearer 
B)  Registered 
C)  Treasury 
D)  Corporate

Question 20

Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields.

Accepted Answer

A)  higher; lower 
B)  lower; lower 
C)  higher; higher 
D)  none of the above 
A)  higher; lower 
B)  lower; lower 
C)  higher; higher 
D)  none of the above

Exam 7: Bond Markets

Which of the following institutions is most likely to purchase a private bond placement?

Corporate bonds usually pay interest on an annual basis.

Note maturities are usually ____, while bond maturities are ____.

Subordinated indentures have claims against the firm's assets that are junior to the claims of both mortgage bonds and regular debentures.

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.

Interest earned from Treasury bonds is

Structured notes are issued by firms to borrow funds, and the repayment of interest and principal is based on specified market conditions.

Bonds that are not secured by specific property are called

Devin, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Devin will hold the bonds until maturity. Thus, he will earn a returnof ____ percent.

Corporate bonds are more standardized than stocks.

High-risk bonds are called trash bonds.

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

The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.

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

A credit rating agency is paid by:

The bond debenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders.

Stripped bonds are bonds whose cash flows have been transformed into a security representing the principal payment only and a security representing interest payments only.

Treasury bonds are issued by state and local governments.

____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.

Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields.

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 Operations

Pension Fund Operations

Filters

Note maturities are usually , while bond maturities are .

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.

Corporate bonds that receive a rating from credit rating agencies are normally placed at yields.