Question 1

Accrued interest

Accepted Answer

A)  is quoted in the bond price in the financial press. 
B)  must be paid by the buyer of the bond and remitted to the seller of the bond. 
C)  must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D)  a and b. 
E)  a and c. 
A)  is quoted in the bond price in the financial press. 
B)  must be paid by the buyer of the bond and remitted to the seller of the bond. 
C)  must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D)  a and b. 
E)  a and c.

Question 2

Convertible bonds

Accepted Answer

A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  both a and b are true. 
E)  both a and c are true. 
A)  give their holders the ability to share in price appreciation of the underlying stock. 
B)  offer lower coupon rates than similar nonconvertible bonds. 
C)  offer higher coupon rates than similar nonconvertible bonds. 
D)  both a and b are true. 
E)  both a and c are true.

Question 3

A 10% coupon,annual payments,bond maturing in 10 years,is expected to make all coupon payments,but to pay only 50% of par value at maturity.What is the expected yield on this bond if the bond is purchased for $975?

Accepted Answer

A)  10.00%. 
B)  6.68%. 
C)  11.00%. 
D)  8.68%. 
E)  none of these. 
A)  10.00%. 
B)  6.68%. 
C)  11.00%. 
D)  8.68%. 
E)  none of these.

Question 4

Discuss the taxation ramifications of zero coupon bonds.How has this taxation procedure changed over the years? How has this change affected the demand for these bonds?

Accepted Answer

The only return on a zero coupon bond is

Question 5

Which of the following is not a type of international bond?

Accepted Answer

A)  Samurai bonds 
B)  Yankee bonds 
C)  bulldog bonds 
D)  Elton bonds 
E)  All of these are international bonds. 
A)  Samurai bonds 
B)  Yankee bonds 
C)  bulldog bonds 
D)  Elton bonds 
E)  All of these are international bonds.

Question 6

A zero-coupon bond is one that

Accepted Answer

A)  effectively has a zero percent coupon rate. 
B)  pays interest to the investor based on the general level of interest rates,rather than at a specified coupon rate. 
C)  pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D)  is issued by state governments because they don't have to pay interest. 
E)  is analyzed primarily by focusing ("zeroing in")on the coupon rate. 
A)  effectively has a zero percent coupon rate. 
B)  pays interest to the investor based on the general level of interest rates,rather than at a specified coupon rate. 
C)  pays interest to the investor without requiring the actual coupon to be mailed to the corporation. 
D)  is issued by state governments because they don't have to pay interest. 
E)  is analyzed primarily by focusing ("zeroing in")on the coupon rate.

Question 7

Collateralized bonds

Accepted Answer

A)  rely on the general earning power of the firm for the bond's safety. 
B)  are backed by specific assets of the issuing firm. 
C)  are considered the safest assets of the firm. 
D)  all of these are true. 
E)  both b and c are true. 
A)  rely on the general earning power of the firm for the bond's safety. 
B)  are backed by specific assets of the issuing firm. 
C)  are considered the safest assets of the firm. 
D)  all of these are true. 
E)  both b and c are true.

Question 8

The bond indenture includes

Accepted Answer

A)  the coupon rate of the bond. 
B)  the par value of the bond. 
C)  the maturity date of the bond. 
D)  all of these. 
E)  none of these. 
A)  the coupon rate of the bond. 
B)  the par value of the bond. 
C)  the maturity date of the bond. 
D)  all of these. 
E)  none of these.

Question 9

Debt securities are often called fixed-income securities because

Accepted Answer

A)  the government fixes the maximum rate that can be paid on bonds. 
B)  they are held predominantly by older people who are living on fixed incomes. 
C)  they pay a fixed amount at maturity. 
D)  they promise either a fixed stream of income or a stream of income determined by a specific formula. 
E)  they were the first type of investment offered to the public,which allowed them to "fix" their income at a higher level by investing in bonds. 
A)  the government fixes the maximum rate that can be paid on bonds. 
B)  they are held predominantly by older people who are living on fixed incomes. 
C)  they pay a fixed amount at maturity. 
D)  they promise either a fixed stream of income or a stream of income determined by a specific formula. 
E)  they were the first type of investment offered to the public,which allowed them to "fix" their income at a higher level by investing in bonds.

Question 10

What is the relationship between the price of a straight bond and the price of a callable bond?

Accepted Answer

A)  The straight bond's price will be higher than the callable bond's price for low interest rates. 
B)  The straight bond's price will be lower than the callable bond's price for low interest rates. 
C)  The straight bond's price will change as interest rates change,but the callable bond's price will stay the same. 
D)  The straight bond and the callable bond will have the same price. 
E)  There is no consistent relationship between the two types of bonds. 
A)  The straight bond's price will be higher than the callable bond's price for low interest rates. 
B)  The straight bond's price will be lower than the callable bond's price for low interest rates. 
C)  The straight bond's price will change as interest rates change,but the callable bond's price will stay the same. 
D)  The straight bond and the callable bond will have the same price. 
E)  There is no consistent relationship between the two types of bonds.

Question 11

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond A is ____________.

Accepted Answer

A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these 
A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these

Question 12

An 8% coupon Canada bond pays interest on May 30 and November 30 and is traded for settlement on August 15.The accrued interest on the $100,000 face value of this bond is _________.

Accepted Answer

A)  $491.80 
B)  $800.00 
C)  $983.61 
D)  $1,661.20 
E)  none of these 
A)  $491.80 
B)  $800.00 
C)  $983.61 
D)  $1,661.20 
E)  none of these

Question 13

Three years ago you purchased a bond for $974.69.The bond had three years to maturity,a coupon rate of 8%,paid annually,and a face value of $1,000.Each year you reinvested all coupon interest at the prevailing reinvestment rate shown in the table below.Today is the bond's maturity date.What is your realized compound yield on the bond? $$\begin{array} { l c } 
\text { Time } & \text { Prevailing Reinvestment Rate } \
0 \text { (purchase date) } & 6.0 \% \
1 & 7.2 \% \
2 & 9.4 \% \
3 \text { (maturity date) } & 8.2 \%
\end{array}$$

Accepted Answer

A)  6.43% 
B)  7.96% 
C)  8.23% 
D)  8.97% 
E)  9.13% 
A)  6.43% 
B)  7.96% 
C)  8.23% 
D)  8.97% 
E)  9.13%

Question 14

The current yield on a bond is equal to ________.

Accepted Answer

A)  the internal rate of return 
B)  the yield to maturity 
C)  annual interest divided by the par value 
D)  annual interest divided by the current market price 
E)  none of these 
A)  the internal rate of return 
B)  the yield to maturity 
C)  annual interest divided by the par value 
D)  annual interest divided by the current market price 
E)  none of these

Question 15

Floating-rate bonds are designed to ___________ while convertible bonds are designed to __________.

Accepted Answer

A)  minimize the holders' interest rate risk;give the investor the ability to share in the price appreciation of the company's stock 
B)  maximize the holders' interest rate risk;give the investor the ability to share in the price appreciation of the company's stock 
C)  minimize the holders' interest rate risk;give the investor the ability to benefit from interest rate changes 
D)  maximize the holders' interest rate risk;give investor the ability to share in the profits of the issuing company 
E)  none of these 
A)  minimize the holders' interest rate risk;give the investor the ability to share in the price appreciation of the company's stock 
B)  maximize the holders' interest rate risk;give the investor the ability to share in the price appreciation of the company's stock 
C)  minimize the holders' interest rate risk;give the investor the ability to benefit from interest rate changes 
D)  maximize the holders' interest rate risk;give investor the ability to share in the profits of the issuing company 
E)  none of these

Question 16

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond B is _________.

Accepted Answer

A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these 
A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these

Question 17

Consider the following $1,000 par value zero-coupon bonds: $$\begin{array} { l c c } 
\text { Bond } &\text { Years to Maturity } & \text { Price } \
\hline \text { A } & 1 & \$ 909.09 \
\text { B } & 2 & \$ 811.62 \
\text { C } & 3 & \$ 711.78 \
\text { D } & 4 & \$ 635.52
\end{array}$$
The yield to maturity on bond D is _______.

Accepted Answer

A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these 
A)  10% 
B)  11% 
C)  12% 
D)  14% 
E)  none of these

Question 18

A US Treasury bond quoted at 107:16 107:18 has a bid price of _______ and an asked price of _____.

Accepted Answer

A)  $107.16,$107.18 
B)  $1,071.60,$1,071.80 
C)  $1,075.00,$1,075.63 
D)  $1,071.80,$1,071.60 
E)  $1,070.50,$1,070.56 
A)  $107.16,$107.18 
B)  $1,071.60,$1,071.80 
C)  $1,075.00,$1,075.63 
D)  $1,071.80,$1,071.60 
E)  $1,070.50,$1,070.56

Question 19

A ___________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date.

Accepted Answer

A)  callable 
B)  coupon 
C)  retractable or put 
D)  Treasury 
E)  zero-coupon 
A)  callable 
B)  coupon 
C)  retractable or put 
D)  Treasury 
E)  zero-coupon

Question 20

A coupon bond is a bond that _________.

Accepted Answer

A)  pays interest on a regular basis (typically every six months) 
B)  does not pay interest on a regular basis but pays a lump sum at maturity 
C)  can always be converted into a specific number of shares of common stock in the issuing company 
D)  always sells at par 
E)  none of these 
A)  pays interest on a regular basis (typically every six months) 
B)  does not pay interest on a regular basis but pays a lump sum at maturity 
C)  can always be converted into a specific number of shares of common stock in the issuing company 
D)  always sells at par 
E)  none of these

Exam 12: Macroeconomic and Industry Analysis

Accrued interest

Convertible bonds

A 10% coupon,annual payments,bond maturing in 10 years,is expected to make all coupon payments,but to pay only 50% of par value at maturity.What is the expected yield on this bond if the bond is purchased for $975?

Discuss the taxation ramifications of zero coupon bonds.How has this taxation procedure changed over the years? How has this change affected the demand for these bonds?

Which of the following is not a type of international bond?

A zero-coupon bond is one that

Collateralized bonds

The bond indenture includes

Debt securities are often called fixed-income securities because

What is the relationship between the price of a straight bond and the price of a callable bond?

Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 \ 909.09 B 2 \ 811.62 C 3 \ 711.78 D 4 \ 635.52 The yield to maturity on bond A is ____________.

An 8% coupon Canada bond pays interest on May 30 and November 30 and is traded for settlement on August 15.The accrued interest on the $100,000 face value of this bond is _________.

The current yield on a bond is equal to ________.

Floating-rate bonds are designed to ___________ while convertible bonds are designed to __________.

Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 \ 909.09 B 2 \ 811.62 C 3 \ 711.78 D 4 \ 635.52 The yield to maturity on bond B is _________.

Consider the following $1,000 par value zero-coupon bonds: Bond Years to Maturity Price A 1 \ 909.09 B 2 \ 811.62 C 3 \ 711.78 D 4 \ 635.52 The yield to maturity on bond D is _______.

A US Treasury bond quoted at 107:16 107:18 has a bid price of _______ and an asked price of _____.

A ___________ bond is a bond where the bondholder has the right to cash in the bond before maturity at a specified price after a specific date.

A coupon bond is a bond that _________.

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yield

Managing Bond Portfolios

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Performance Evaluation and Active Portfolio Management

Globalization and International Investing

Taxes, Inflation, and Investment Strategy

Investors and the Investment Process

Mutual Fund: Objectives, Types, NAV, Turnover Ratio, and More

International Finance and Investments: Understanding Foreign Markets and Risks

Filters

Floating-rate bonds are designed to _ while convertible bonds are designed to .

A US Treasury bond quoted at 107:16 107:18 has a bid price of ___ and an asked price of _.