Question 1

The longer the maturity of the bond, the more significantly its price changes in response to a given change in interest rates.

Accepted Answer

A) True 
 B)False

Question 2

Unlike bonds issued in the United States, which are bearer bonds, Eurobonds are typically issued as registered bonds.

Accepted Answer

A) True 
 B)False

Question 3

The par value of debt is:

Accepted Answer

A) the amount added to interest payments to be repaid at the maturity date. 
B) the amount owed to the lender. 
C) the sum of all interest payments during the life of the debt. 
D) the amount of adjustment in the maturity value of the debt due to interest rate fluctuations. 
E) the sum of interest and inflation adjusted par value of debt. 
A) the amount added to interest payments to be repaid at the maturity date. 
B) the amount owed to the lender. 
C) the sum of all interest payments during the life of the debt. 
D) the amount of adjustment in the maturity value of the debt due to interest rate fluctuations. 
E) the sum of interest and inflation adjusted par value of debt.

Question 4

A bond that can be redeemed for cash at the bondholder's option when certain circumstances exist is called a(n):

Accepted Answer

A) convertible bond. 
B) putable bond. 
C) callable bond. 
D) debenture. 
E) income bond. 
A) convertible bond. 
B) putable bond. 
C) callable bond. 
D) debenture. 
E) income bond.

Question 5

In general, long-term unsecured debts have lower interest rates (costs) than long-term secured debts for a particular firm.

Accepted Answer

A) True 
 B)False

Question 6

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond?

Accepted Answer

A) The value of the bond at 8 percent is $385.54. 
B) The value of the bond at 10 percent is $463.19. 
C) The maturity value of the bond at 8 percent is $508.34. 
D) The maturity value of the bond at 7 percent is $508.34. 
E) The value of the bond at 7 percent is $508.34. 
A) The value of the bond at 8 percent is $385.54. 
B) The value of the bond at 10 percent is $463.19. 
C) The maturity value of the bond at 8 percent is $508.34. 
D) The maturity value of the bond at 7 percent is $508.34. 
E) The value of the bond at 7 percent is $508.34.

Question 7

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be:

Accepted Answer

A) selling at a discount; i.e., the bond's market price should be less than its face (maturity) value. 
B) selling at a premium; i.e., the bond's market price should be greater than its face value. 
C) selling at par; i.e., the bond's market price should be the same as its face value. 
D) a floating-rate bond yielding market adjusted interest. 
E) an indexed bond that adjusts interest payments on the basis of an inflation index. 
A) selling at a discount; i.e., the bond's market price should be less than its face (maturity) value. 
B) selling at a premium; i.e., the bond's market price should be greater than its face value. 
C) selling at par; i.e., the bond's market price should be the same as its face value. 
D) a floating-rate bond yielding market adjusted interest. 
E) an indexed bond that adjusts interest payments on the basis of an inflation index.

Question 8

The two principal types of municipal bonds are:

Accepted Answer

A) general obligation bonds and indexed bonds. 
B) income bonds and putable bonds. 
C) revenue bonds and general obligation bonds. 
D) floating-rate bonds and indexed bonds. 
E) floating-rate bonds and revenue bonds. 
A) general obligation bonds and indexed bonds. 
B) income bonds and putable bonds. 
C) revenue bonds and general obligation bonds. 
D) floating-rate bonds and indexed bonds. 
E) floating-rate bonds and revenue bonds.

Question 9

If a bond's yield to maturity is less than its coupon rate, the bond should be selling at a discount; i.e., the bond's market price should be less than its face (maturity) value.

Accepted Answer

A) True 
 B)False

Question 10

Federal funds represent:

Accepted Answer

A) funds collected from federal tax payment by banks. 
B) loans from the federal government to banks. 
C) loans from one bank to another bank. 
D) funds held at banks for the repayment of loans to the federal government. 
E) funds collected from investors for investment in federal securities. 
A) funds collected from federal tax payment by banks. 
B) loans from the federal government to banks. 
C) loans from one bank to another bank. 
D) funds held at banks for the repayment of loans to the federal government. 
E) funds collected from investors for investment in federal securities.

Question 11

Banks generally use the federal funds market to:

Accepted Answer

A) repay loans to investors. 
B) adjust their reserves. 
C) make interest payments on loans. 
D) make security deposits with other banks. 
E) repay loans to the federal government. 
A) repay loans to investors. 
B) adjust their reserves. 
C) make interest payments on loans. 
D) make security deposits with other banks. 
E) repay loans to the federal government.

Question 12

At the time a bond is issued, the coupon rate on the bond is set at a level that will cause:

Accepted Answer

A) the coupon rate to be equal to the yield to call on the bond. 
B) the market interest rate to be greater than the coupon rate of the bond. 
C) the yield to maturity to be less than the market yield on the bond. 
D) the issuing price to be equal the face (par) value of the bond. 
E) the market value to be greater than the maturity value of the bond. 
A) the coupon rate to be equal to the yield to call on the bond. 
B) the market interest rate to be greater than the coupon rate of the bond. 
C) the yield to maturity to be less than the market yield on the bond. 
D) the issuing price to be equal the face (par) value of the bond. 
E) the market value to be greater than the maturity value of the bond.

Question 13

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the _____ of the bond for the maturity (par) value and _____ for the years to maturity.

Accepted Answer

A) market price; the number of years until the bond can be first called 
B) face value; five years 
C) call price; the number of years until the bond can be first called 
D) principal value; 10 years 
E) issue price; the number of years until the bond can be first called 
A) market price; the number of years until the bond can be first called 
B) face value; five years 
C) call price; the number of years until the bond can be first called 
D) principal value; 10 years 
E) issue price; the number of years until the bond can be first called

Question 14

A certificate of deposit represents:

Accepted Answer

A) a promissory note of payment by a bank that borrows reserves from another bank. 
B) a deposit in a checking account in a bank. 
C) a promissory note of payment by the issuing institution to the investor. 
D) a time deposit of a state government with the federal government. 
E) a time deposit at a bank or other financial intermediary. 
A) a promissory note of payment by a bank that borrows reserves from another bank. 
B) a deposit in a checking account in a bank. 
C) a promissory note of payment by the issuing institution to the investor. 
D) a time deposit of a state government with the federal government. 
E) a time deposit at a bank or other financial intermediary.

Question 15

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's:

Accepted Answer

A) earnings per share and thus the dividends it pays each year. 
B) cost of using such debt and thus the bond's interest rate. 
C) ability to procure raw material for production. 
D) tax liability to the federal government. 
E) current assets and the bond's maturity value. 
A) earnings per share and thus the dividends it pays each year. 
B) cost of using such debt and thus the bond's interest rate. 
C) ability to procure raw material for production. 
D) tax liability to the federal government. 
E) current assets and the bond's maturity value.

Question 16

_____ bonds are often called by the firm prior to maturity.

Accepted Answer

A) Floating rate 
B) Mortgage 
C) Callable 
D) Municipal 
E) Corporate 
A) Floating rate 
B) Mortgage 
C) Callable 
D) Municipal 
E) Corporate

Question 17

A bond that pays interest only when a firm has sufficient earnings to cover the interest payments is called a(n):

Accepted Answer

A) callable bond. 
B) putable bond. 
C) convertible bond. 
D) income bond. 
E) indexed bond. 
A) callable bond. 
B) putable bond. 
C) convertible bond. 
D) income bond. 
E) indexed bond.

Question 18

The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. From the given information, calculate the annual coupon rate on the bond.

Accepted Answer

A) 10% 
B) 12% 
C) 14% 
D) 17% 
E) 21% 
A) 10% 
B) 12% 
C) 14% 
D) 17% 
E) 21%

Question 19

A debt backed by some form of specific property is known as a:

Accepted Answer

A) debenture. 
B) mortgage bond. 
C) subordinated debt. 
D) U.S. government bond. 
E) general obligation municipal bond. 
A) debenture. 
B) mortgage bond. 
C) subordinated debt. 
D) U.S. government bond. 
E) general obligation municipal bond.

Question 20

A(n) _____ is a provision that facilitates the orderly retirement of a bond issue.

Accepted Answer

A) amortization fund 
B) depreciation fund 
C) redemption fund 
D) conversion fund 
E) sinking fund 
A) amortization fund 
B) depreciation fund 
C) redemption fund 
D) conversion fund 
E) sinking fund

The longer the maturity of the bond, the more significantly its price changes in response to a given change in interest rates.

Unlike bonds issued in the United States, which are bearer bonds, Eurobonds are typically issued as registered bonds.

The par value of debt is:

A bond that can be redeemed for cash at the bondholder's option when certain circumstances exist is called a(n):

In general, long-term unsecured debts have lower interest rates (costs) than long-term secured debts for a particular firm.

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond?

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be:

The two principal types of municipal bonds are:

If a bond's yield to maturity is less than its coupon rate, the bond should be selling at a discount; i.e., the bond's market price should be less than its face (maturity) value.

Federal funds represent:

Banks generally use the federal funds market to:

At the time a bond is issued, the coupon rate on the bond is set at a level that will cause:

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the _ of the bond for the maturity (par) value and _ for the years to maturity.

A certificate of deposit represents:

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's:

_____ bonds are often called by the firm prior to maturity.

A bond that pays interest only when a firm has sufficient earnings to cover the interest payments is called a(n):

The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. From the given information, calculate the annual coupon rate on the bond.

A debt backed by some form of specific property is known as a:

A(n) _____ is a provision that facilitates the orderly retirement of a bond issue.

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

The longer the maturity of the bond, the more significantly its price changes in response to a given change in interest rates.

Unlike bonds issued in the United States, which are bearer bonds, Eurobonds are typically issued as registered bonds.

The par value of debt is:

A bond that can be redeemed for cash at the bondholder's option when certain circumstances exist is called a(n):

In general, long-term unsecured debts have lower interest rates (costs) than long-term secured debts for a particular firm.

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond?

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be:

The two principal types of municipal bonds are:

If a bond's yield to maturity is less than its coupon rate, the bond should be selling at a discount; i.e., the bond's market price should be less than its face (maturity) value.

Federal funds represent:

Banks generally use the federal funds market to:

At the time a bond is issued, the coupon rate on the bond is set at a level that will cause:

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the _____ of the bond for the maturity (par) value and _____ for the years to maturity.

A certificate of deposit represents:

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's:

_____ bonds are often called by the firm prior to maturity.

A bond that pays interest only when a firm has sufficient earnings to cover the interest payments is called a(n):

The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. From the given information, calculate the annual coupon rate on the bond.

A debt backed by some form of specific property is known as a:

A(n) _____ is a provision that facilitates the orderly retirement of a bond issue.

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

The computation for the yield to call (YTC) is the same as that for the yield to maturity (YTM), except that we substitute the _ of the bond for the maturity (par) value and _ for the years to maturity.