Question 1

The indenture is a contract between the issuer and lenders that does all the following except:

Accepted Answer

A)  specifies the manner in which the principal must be repaid 
B)  details the nature of the debt issue 
C)  gives management's expectations about return of the proceeds 
D)  lists any restrictive covenants 
A)  specifies the manner in which the principal must be repaid 
B)  details the nature of the debt issue 
C)  gives management's expectations about return of the proceeds 
D)  lists any restrictive covenants

Question 2

Equipment trust certificates are used mainly by

Accepted Answer

A)  equipment manufacturers 
B)  oil drilling companies 
C)  state governments 
D)  trucking companies 
A)  equipment manufacturers 
B)  oil drilling companies 
C)  state governments 
D)  trucking companies

Question 3

A Treasury bill with 182 days to maturity is quoted at 5.62 bid, 5.60 asked, and an asked yield of 5.84. How much would you pay for this security?

Accepted Answer

A)  $9,440 
B)  $9,720 
C)  $9,708 
D)  $9,438 
A)  $9,440 
B)  $9,720 
C)  $9,708 
D)  $9,438

Question 4

CUP Company 8% bonds are currently selling for $950. These bonds (par value of $1,000) mature in one year and pay interest annually. Determine the yield to maturity (to the nearest tenth of 1 percent) on this bond issue.

Accepted Answer

A)  13.7% 
B)  13.0% 
C)  13.3% 
D)  5.0% 
A)  13.7% 
B)  13.0% 
C)  13.3% 
D)  5.0%

Question 5

Large companies build up short-term debt over the period of 1 to 2 years, then sell long-term debt using a portion of the proceeds to repay the short-term borrowings. This procedure is called:

Accepted Answer

A)  "drawing down" long-term credit 
B)  funding short-term debt 
C)  reducing the tax bite 
D)  extending the rates 
A)  "drawing down" long-term credit 
B)  funding short-term debt 
C)  reducing the tax bite 
D)  extending the rates

Question 6

How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent.

Accepted Answer

A)  5 
B)  10 
C)  11 
D)  7 
A)  5 
B)  10 
C)  11 
D)  7

Question 7

Mighty Mollusk, Inc. issued a 30-year bond which is callable in 8 years. It has a coupon rate of 5.5% payable semi-annually, a yield to maturity of 8% and a call premium of one year's interest. What is the yield to call?

Accepted Answer

A)  6.75% 
B)  13,67% 
C)  4.82% 
D)  11.42% 
A)  6.75% 
B)  13,67% 
C)  4.82% 
D)  11.42%

Question 8

The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

Accepted Answer

A)  lower, higher 
B)  higher, higher 
C)  lower, lower 
D)  higher, lower 
A)  lower, higher 
B)  higher, higher 
C)  lower, lower 
D)  higher, lower

Question 9

A U.S. Government bond was quoted at 95:13 "bid" and 95:15 "asked". How much would you have to pay for one of these $1,000.00 face value bonds?

Accepted Answer

A)  $951.50 
B)  $950.13 
C)  $950.15 
D)  $954.69 
A)  $951.50 
B)  $950.13 
C)  $950.15 
D)  $954.69

Question 10

By the capitalization-of-cash flows method, the value of an asset is a function of

Accepted Answer

A)  the book value of the asset 
B)  the risk of the asset's cash flows 
C)  the age of the asset 
D)  both the book value and the age of the asset 
A)  the book value of the asset 
B)  the risk of the asset's cash flows 
C)  the age of the asset 
D)  both the book value and the age of the asset

Question 11

Grace Corp. has a zero-coupon bond outstanding that matures in 15 years. This bond is selling for $327.50 today and will pay $1,000 at maturity. What is the yield to maturity to the investor who buys the bond and holds it until maturity?

Accepted Answer

A)  7.73% 
B)  9.33% 
C)  9.23% 
D)  9.77% 
A)  7.73% 
B)  9.33% 
C)  9.23% 
D)  9.77%

Question 12

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

Accepted Answer

A)  the current price 
B)  the required rate of return on the bond 
C)  the uniform annual interest payments 
D)  the maturity value 
A)  the current price 
B)  the required rate of return on the bond 
C)  the uniform annual interest payments 
D)  the maturity value

Question 13

How much would you have to pay for a U.S. Government bond ($1,000 maturity value) scheduled to mature in February, 2010 and quoted at 118:07 "bid" and 118:15 "asked"?

Accepted Answer

A)  $1,182.19 
B)  $1,181.50 
C)  $1,184.69 
D)  $1,180.70 
A)  $1,182.19 
B)  $1,181.50 
C)  $1,184.69 
D)  $1,180.70

Question 14

Which of the following is/are correct regarding the maturity date on securities? I. Long-term debt has a shorter maturity date than preferred stock.
II) Preferred stock can have no specific maturity date, so can be perpetual.

Accepted Answer

A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II 
A)  I only 
B)  II only 
C)  Both I and II 
D)  Neither I nor II

Question 15

Debt is usually issued with a par value of

Accepted Answer

A)  $500. 
B)  $0. 
C)  $1000. 
D)  $5000. 
A)  $500. 
B)  $0. 
C)  $1000. 
D)  $5000.

Question 16

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the ____ the time to maturity, the ____ the change in value.

Accepted Answer

A)  shorter, greater 
B)  longer, smaller 
C)  longer, greater 
D)  shorter, smaller 
A)  shorter, greater 
B)  longer, smaller 
C)  longer, greater 
D)  shorter, smaller

Question 17

The following bond quotation indicates that the holder expects to receive ____ in interest annually:
PACEI 11s 09 11.6 20 95 -1

Accepted Answer

A)  $90 
B)  $116 
C)  $95 
D)  $110 
A)  $90 
B)  $116 
C)  $95 
D)  $110

Question 18

Which of the following is NOT one of the various types of long-term debt?

Accepted Answer

A)  Junior debentures 
B)  Secured loans 
C)  Senior debentures 
D)  Preferred stock 
A)  Junior debentures 
B)  Secured loans 
C)  Senior debentures 
D)  Preferred stock

Question 19

Which of the following statements concerning preferred stocks is true?

Accepted Answer

A)  Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders. 
B)  Preferred stock dividends per share are normally increased as the earnings of the firm increase. 
C)  Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. 
D)  The par value of a stock is always the same as the initial selling price. 
A)  Preferred stockholders have a prior claim on the income and assets of the firm as compared to the claims of lenders. 
B)  Preferred stock dividends per share are normally increased as the earnings of the firm increase. 
C)  Preferred dividends per share are usually not cut or suspended unless the firm is faced with serious financial problems. 
D)  The par value of a stock is always the same as the initial selling price.

Question 20

A refrigerator manufacturer, Zero King, issued a zero coupon bond with 10 years to maturity. What is the yield-to-maturity of this bond if it is sold for $352?

Accepted Answer

A)  12.2% 
B)  10% 
C)  11% 
D)  9% 
A)  12.2% 
B)  10% 
C)  11% 
D)  9%

Exam 6: Fixed Income Securities: Characteristics and Valuation

The indenture is a contract between the issuer and lenders that does all the following except:

Equipment trust certificates are used mainly by

A Treasury bill with 182 days to maturity is quoted at 5.62 bid, 5.60 asked, and an asked yield of 5.84. How much would you pay for this security?

CUP Company 8% bonds are currently selling for $950. These bonds (par value of $1,000) mature in one year and pay interest annually. Determine the yield to maturity (to the nearest tenth of 1 percent) on this bond issue.

Large companies build up short-term debt over the period of 1 to 2 years, then sell long-term debt using a portion of the proceeds to repay the short-term borrowings. This procedure is called:

How many semiannual interest payments remain on a bond that is selling for $917.25? The coupon rate of the bond is 8 percent, interest is payable semiannually, and the current market rate of return on a similar risk bond is 10 percent.

Mighty Mollusk, Inc. issued a 30-year bond which is callable in 8 years. It has a coupon rate of 5.5% payable semi-annually, a yield to maturity of 8% and a call premium of one year's interest. What is the yield to call?

The ____ the investor's required rate of return on a bond, the ____ will be the value of the bond to the investor.

A U.S. Government bond was quoted at 95:13 "bid" and 95:15 "asked". How much would you have to pay for one of these $1,000.00 face value bonds?

By the capitalization-of-cash flows method, the value of an asset is a function of

Grace Corp. has a zero-coupon bond outstanding that matures in 15 years. This bond is selling for $327.50 today and will pay $1,000 at maturity. What is the yield to maturity to the investor who buys the bond and holds it until maturity?

The yield-to-maturity of a bond with a finite maturity date is a function of all of the following variables except:

How much would you have to pay for a U.S. Government bond ($1,000 maturity value) scheduled to mature in February, 2010 and quoted at 118:07 "bid" and 118:15 "asked"?

Which of the following is/are correct regarding the maturity date on securities? I. Long-term debt has a shorter maturity date than preferred stock. II) Preferred stock can have no specific maturity date, so can be perpetual.

Debt is usually issued with a par value of

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the ____ the time to maturity, the ____ the change in value.

The following bond quotation indicates that the holder expects to receive ____ in interest annually: PACEI 11s 09 11.6 20 95 -1

Which of the following is NOT one of the various types of long-term debt?

Which of the following statements concerning preferred stocks is true?

A refrigerator manufacturer, Zero King, issued a zero coupon bond with 10 years to maturity. What is the yield-to-maturity of this bond if it is sold for $352?

The Role and Objective of Financial Management

The Domestic and International Financial Marketplace

Evaluation of Financial Performance

Financial Planning and Forecasting

The Time Value of Money

Common Stock: Characteristics, Valuation, and Issuance

Analysis of Risk and Return

Capital Budgeting and Cash Flow Analysis

Capital Budgeting: Decision Criteria and Real Option Considerations

Capital Budgeting and Risk

The Cost of Capital

Capital Structure Concepts

Capital Structure Management in Practice

Dividend Policy

Working Capital Policy and Short-term Financing

The Management of Cash and Marketable Securities

Management of Accounts Receivable and Inventories

Lease and Intermediate-term Financing

Financing With Derivatives

Risk Management

International Financial Management

Corporate Restructuring

Continuous Compounding and Discounting

Mutually Exclusive Investments Having Unequal Lives

Breakeven Analysis

Bond Refunding Analysis

Taxes

Filters

The the investor's required rate of return on a bond, the will be the value of the bond to the investor.

The basic relationship in bond valuation is for a given percentage point change in the required rate of return, the the time to maturity, the the change in value.