Question 1

Commercial paper is issued in denominations of:

Accepted Answer

A) $10 only. 
B) $100 or less. 
C) $1,000 only. 
D) $100,000 or more. 
E) $1,000,000 only. 
A) $10 only. 
B) $100 or less. 
C) $1,000 only. 
D) $100,000 or more. 
E) $1,000,000 only.

Question 2

If interest rates decline, bondholders will earn:

Accepted Answer

A) a lower rate of return on reinvested cash flows. 
B) a higher current yield. 
C) no capital gain on the bond's maturity. 
D) a lower coupon interest on the bond. 
E) a higher maturity value on the maturity date. 
A) a lower rate of return on reinvested cash flows. 
B) a higher current yield. 
C) no capital gain on the bond's maturity. 
D) a lower coupon interest on the bond. 
E) a higher maturity value on the maturity date.

Question 3

The principal value of a bond generally is written on the outside cover of the debt contract, so it is sometimes called the:

Accepted Answer

A) maturity value. 
B) premium value. 
C) yield value. 
D) face value. 
E) discounted value. 
A) maturity value. 
B) premium value. 
C) yield value. 
D) face value. 
E) discounted value.

Question 4

Which of the following statements is true about commercial paper?

Accepted Answer

A) Commercial paper always matures in two months. 
B) Commercial paper is issued by bankrupt firms. 
C) Commercial paper pays annual interest. 
D) Commercial paper is issued at a discount. 
E) Commercial paper is issued in denominations of $100. 
A) Commercial paper always matures in two months. 
B) Commercial paper is issued by bankrupt firms. 
C) Commercial paper pays annual interest. 
D) Commercial paper is issued at a discount. 
E) Commercial paper is issued in denominations of $100.

Question 5

A contract that is negotiated directly between a borrowing firm and a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

Accepted Answer

A) preferred stock. 
B) commercial paper. 
C) convertible debt. 
D) a term loan. 
E) a bond issue. 
A) preferred stock. 
B) commercial paper. 
C) convertible debt. 
D) a term loan. 
E) a bond issue.

Question 6

Two years ago, Synergy Inc. issued a 15-year callable bond with a $1,000 face value and a 12 percent coupon rate of interest (paid semiannually). The bond cannot be called until five years after issue, at which time the call price will equal $1,120. Currently, the bond is selling for $989.What is the bond's yield to call (YTC).

Accepted Answer

A) 7.88% 
B) 15.76% 
C) 12.45% 
D) 12.17% 
E) 12.56% 
A) 7.88% 
B) 15.76% 
C) 12.45% 
D) 12.17% 
E) 12.56%

Question 7

Which of the following types of bonds protects a bondholder against increases in interest rates?

Accepted Answer

A) Floating-rate bonds 
B) Income bonds 
C) Bonds with call provisions 
D) Municipal bonds 
E) Mortgage bonds 
A) Floating-rate bonds 
B) Income bonds 
C) Bonds with call provisions 
D) Municipal bonds 
E) Mortgage bonds

Question 8

On the maturity date, _____.

Accepted Answer

A) the maturity value of the debt is to be repaid 
B) the first installment of the installment loan is due 
C) the interest payment is due 
D) the market interest rate rises above the coupon rate 
E) the market price of the bond rises above the face value of the debt 
A) the maturity value of the debt is to be repaid 
B) the first installment of the installment loan is due 
C) the interest payment is due 
D) the market interest rate rises above the coupon rate 
E) the market price of the bond rises above the face value of the debt

Question 9

The financial pages of the local newspaper helped Mary in identifying that she can buy a bond ($1,000 par) for $800. If the coupon rate is 10 percent, the annual interest payments equal $80.

Accepted Answer

A) True 
 B)False

Question 10

A(n) _____ bond can be exchanged for shares of equity at the owner's (bondholder's) discretion.

Accepted Answer

A) debenture 
B) indenture 
C) callable 
D) convertible 
E) putable 
A) debenture 
B) indenture 
C) callable 
D) convertible 
E) putable

Question 11

A bond differs from a term loan in that:

Accepted Answer

A) a bond issue is negotiated between a financial institution and an investor. 
B) a bond is sold to a financial institution only. 
C) a bond is always offered to the public at a variable coupon rate. 
D) a bond has a higher issuance cost. 
E) a bond involves minimal formal documentation. 
A) a bond issue is negotiated between a financial institution and an investor. 
B) a bond is sold to a financial institution only. 
C) a bond is always offered to the public at a variable coupon rate. 
D) a bond has a higher issuance cost. 
E) a bond involves minimal formal documentation.

Question 12

Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity. These bonds will pay $45 interest every 6 months. Current market conditions are such that the bonds will be sold at net $937.79. What is the yield to maturity (YTM) of the issue as a broker would quote it to an investor?

Accepted Answer

A) 11% 
B) 10% 
C) 9% 
D) 8% 
E) 7% 
A) 11% 
B) 10% 
C) 9% 
D) 8% 
E) 7%

Question 13

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent, how much should the investor be willing to pay for this bond?

Accepted Answer

A) $941.36 
B) $1,051.25 
C) $1,115.57 
D) $1,391.00 
E) $1,113.00 
A) $941.36 
B) $1,051.25 
C) $1,115.57 
D) $1,391.00 
E) $1,113.00

Question 14

If an investor buys a bond and holds it until it matures, the average rate of return the investor will earn per year is called the bond's:

Accepted Answer

A) coupon rate. 
B) yield to maturity. 
C) yield to call. 
D) current yield. 
E) capital gains yield. 
A) coupon rate. 
B) yield to maturity. 
C) yield to call. 
D) current yield. 
E) capital gains yield.

Question 15

The percentage rate of return that investors earn on a bond consists of a(n):

Accepted Answer

A) interest yield plus a capital gains yield. 
B) interest yield plus the maturity value of the bond. 
C) expected interest yield plus the principal value of the bond. 
D) expected capital gains yield plus the future value of coupon payments. 
E) market interest rate plus the coupon interest rate. 
A) interest yield plus a capital gains yield. 
B) interest yield plus the maturity value of the bond. 
C) expected interest yield plus the principal value of the bond. 
D) expected capital gains yield plus the future value of coupon payments. 
E) market interest rate plus the coupon interest rate.

Question 16

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be:

Accepted Answer

A) positive because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity. 
B) negative because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity. 
C) positive because she purchased the bond at a premium and the bond price will approach its market price as it nears its maturity. 
D) negative because she purchased the bond at a premium and the bond price will approach its face value as it nears its maturity. 
E) positive because she purchased the bond at a discount and the bond price will approach its market price as it nears its maturity. 
A) positive because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity. 
B) negative because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity. 
C) positive because she purchased the bond at a premium and the bond price will approach its market price as it nears its maturity. 
D) negative because she purchased the bond at a premium and the bond price will approach its face value as it nears its maturity. 
E) positive because she purchased the bond at a discount and the bond price will approach its market price as it nears its maturity.

Question 17

Rolling Coast Inc. issued BBB bonds two years ago. These bonds provided a yield to maturity (YTM) of 11.5 percent. Long-term risk-free government bonds were yielding 8.7 percent at the time. The current risk premium on BBB bonds versus government bonds is half of what it was two years ago. If the risk-free long-term government bonds are currently yielding 7.8 percent, then at what interest rate should Rolling Coast expect to issue new bonds?

Accepted Answer

A) 7.8% 
B) 8.7% 
C) 9.2% 
D) 10.2% 
E) 12.9% 
A) 7.8% 
B) 8.7% 
C) 9.2% 
D) 10.2% 
E) 12.9%

Question 18

Municipal bonds are issued by:

Accepted Answer

A) financial institutions. 
B) state and local governments. 
C) commercial banks. 
D) the federal government. 
E) non-governmental organizations. 
A) financial institutions. 
B) state and local governments. 
C) commercial banks. 
D) the federal government. 
E) non-governmental organizations.

Question 19

As junk bonds are high-risk instruments, the returns on such bonds are not very high.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements is true about foreign bonds?

Accepted Answer

A) The interest rate on foreign bonds is adjusted annually for inflation. 
B) Foreign bonds are bonds sold in a foreign country and are denominated in the currency of the country in which the issue is sold. 
C) Foreign bonds are bonds sold by a foreign borrower but convertible to bonds issued in the foreign country. 
D) The term Eurodebt specifically applies to any foreign bonds denominated in U.S. dollars. 
E) The interest rate on foreign bonds is adjusted annually for exchange rate fluctuations. 
A) The interest rate on foreign bonds is adjusted annually for inflation. 
B) Foreign bonds are bonds sold in a foreign country and are denominated in the currency of the country in which the issue is sold. 
C) Foreign bonds are bonds sold by a foreign borrower but convertible to bonds issued in the foreign country. 
D) The term Eurodebt specifically applies to any foreign bonds denominated in U.S. dollars. 
E) The interest rate on foreign bonds is adjusted annually for exchange rate fluctuations.

Commercial paper is issued in denominations of:

If interest rates decline, bondholders will earn:

The principal value of a bond generally is written on the outside cover of the debt contract, so it is sometimes called the:

Which of the following statements is true about commercial paper?

A contract that is negotiated directly between a borrowing firm and a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

Which of the following types of bonds protects a bondholder against increases in interest rates?

On the maturity date, _____.

The financial pages of the local newspaper helped Mary in identifying that she can buy a bond ($1,000 par) for $800. If the coupon rate is 10 percent, the annual interest payments equal $80.

A(n) _____ bond can be exchanged for shares of equity at the owner's (bondholder's) discretion.

A bond differs from a term loan in that:

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent, how much should the investor be willing to pay for this bond?

If an investor buys a bond and holds it until it matures, the average rate of return the investor will earn per year is called the bond's:

The percentage rate of return that investors earn on a bond consists of a(n):

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be:

Municipal bonds are issued by:

As junk bonds are high-risk instruments, the returns on such bonds are not very high.

Which of the following statements is true about foreign bonds?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters

Exam 6: Bonds Debt Characteristics and Valuation

Commercial paper is issued in denominations of:

If interest rates decline, bondholders will earn:

The principal value of a bond generally is written on the outside cover of the debt contract, so it is sometimes called the:

Which of the following statements is true about commercial paper?

A contract that is negotiated directly between a borrowing firm and a bank and under which the borrower agrees to make a series of interest and principal payments to the bank on specific dates is called:

Which of the following types of bonds protects a bondholder against increases in interest rates?

On the maturity date, _____.

The financial pages of the local newspaper helped Mary in identifying that she can buy a bond ($1,000 par) for $800. If the coupon rate is 10 percent, the annual interest payments equal $80.

A(n) _____ bond can be exchanged for shares of equity at the owner's (bondholder's) discretion.

A bond differs from a term loan in that:

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent, how much should the investor be willing to pay for this bond?

If an investor buys a bond and holds it until it matures, the average rate of return the investor will earn per year is called the bond's:

The percentage rate of return that investors earn on a bond consists of a(n):

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be:

Municipal bonds are issued by:

As junk bonds are high-risk instruments, the returns on such bonds are not very high.

Which of the following statements is true about foreign bonds?

An Overview of Managerial Finance

Analysis of Financial Statements

The Financial Environment: Markets, Institutions, and Investment Banking

Time Value of Money

The Cost of Money Interest Rates

Stocks Equity Characteristics and Valuation

Risk and Rates of Return

Capital Budgeting Techniques

Project Cash Flows and Risk

The Cost of Capital

Capital Structure

Distribution of Retained Earnings: Dividends and Stock Repurchases

Managing Short-Term Financing Liabilities

Managing Short-Term Assets

Financial Planning and Control

Filters