Question 1

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

Accepted Answer

A)  interest rate risk 
B)  default risk 
C)  market risk 
D)  conversion risk 
E)  earnings risk 
A)  interest rate risk 
B)  default risk 
C)  market risk 
D)  conversion risk 
E)  earnings risk

Question 2

Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a pre-specified price on pre-specified dates?

Accepted Answer

A)  convertible 
B)  call 
C)  put 
D)  exchange 
E)  sinking fund 
A)  convertible 
B)  call 
C)  put 
D)  exchange 
E)  sinking fund

Question 3

A $5,000 face value municipal bond matures in 12 years and is priced at $4,850.The coupon rate is 5.5 percent with interest paid semiannually.What is the yield to maturity on the bond?

Accepted Answer

A)  4.77 percent 
B)  5.14 percent 
C)  5.40 percent 
D)  5.61 percent 
E)  5.85 percent 
A)  4.77 percent 
B)  5.14 percent 
C)  5.40 percent 
D)  5.61 percent 
E)  5.85 percent

Question 4

You own a bond that has a face value of $1,000 and a conversion ratio of 25.You have just received notification that the bond is being called at a premium of $40.The stock price is $41.20 a share.You should ________ your bond because the conversion value is ________.

Accepted Answer

A)  convert; less than the call price by $30.00 
B)  convert; greater than the call price by $10.00 
C)  convert; greater than the call price by $5.00 
D)  not convert; less than the call price by $10.00 
E)  not convert; greater than the call price by $30.00 
A)  convert; less than the call price by $30.00 
B)  convert; greater than the call price by $10.00 
C)  convert; greater than the call price by $5.00 
D)  not convert; less than the call price by $10.00 
E)  not convert; greater than the call price by $30.00

Question 5

You just purchased a 5-year STRIPS security that was created from a 30-year T-bond.How many payments will you receive?

Accepted Answer

A)  1 
B)  10 
C)  11 
D)  60 
E)  61 
A)  1 
B)  10 
C)  11 
D)  60 
E)  61

Question 6

Which one of the following is an unsecured bond issued by a corporation?

Accepted Answer

A)  indenture 
B)  general obligation bond 
C)  plain vanilla bond 
D)  debenture 
E)  trust bond 
A)  indenture 
B)  general obligation bond 
C)  plain vanilla bond 
D)  debenture 
E)  trust bond

Question 7

What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value?

Accepted Answer

A)  assumed interest 
B)  imputed interest 
C)  imaginary interest 
D)  convergent interest 
E)  original-issue interest 
A)  assumed interest 
B)  imputed interest 
C)  imaginary interest 
D)  convergent interest 
E)  original-issue interest

Question 8

You own a corporate bond which is yielding 7.2 percent.What is your after-tax yield if your marginal tax rate is 28 percent?

Accepted Answer

A)  2.90 percent 
B)  3.53 percent 
C)  4.20 percent 
D)  4.58 percent 
E)  5.18 percent 
A)  2.90 percent 
B)  3.53 percent 
C)  4.20 percent 
D)  4.58 percent 
E)  5.18 percent

Question 9

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund.What is this investment strategy called?

Accepted Answer

A)  cash flow matching 
B)  cash diversification 
C)  cash stabilization 
D)  in-out investing 
E)  plain vanilla matching 
A)  cash flow matching 
B)  cash diversification 
C)  cash stabilization 
D)  in-out investing 
E)  plain vanilla matching

Question 10

A Treasury bond has a quoted bid price of 95:12 and a quoted ask price of 95:25.What is the amount you will receive if you sell your bond that has a par value of $20,000?

Accepted Answer

A)  $19,016.12 
B)  $19,050.45 
C)  $19,062.60 
D)  $19,075.00 
E)  $19,120.31 
A)  $19,016.12 
B)  $19,050.45 
C)  $19,062.60 
D)  $19,075.00 
E)  $19,120.31

Question 11

A Treasury bond has a dollar price of $1,015.63.What would you expect the bond quote to be?

Accepted Answer

A)  101:05 
B)  101:15 
C)  101:16 
D)  101:18 
E)  101:22 
A)  101:05 
B)  101:15 
C)  101:16 
D)  101:18 
E)  101:22

Question 12

Which one of the following statements related to callable bonds is correct?

Accepted Answer

A)  Callable bonds are issued at the call price. 
B)  Callable bonds can be called at any time. 
C)  Callable bonds are generally called at the market price at the time of the call. 
D)  Callable bonds are more apt to be called if market interest rates decline. 
E)  Callable bonds are generally priced higher than comparable noncallable bonds. 
A)  Callable bonds are issued at the call price. 
B)  Callable bonds can be called at any time. 
C)  Callable bonds are generally called at the market price at the time of the call. 
D)  Callable bonds are more apt to be called if market interest rates decline. 
E)  Callable bonds are generally priced higher than comparable noncallable bonds.

Question 13

Which of the following features apply to T-bills?
I.original maturities of 4,13,or 26 weeks
II.minimum face value of $10,000
III.sold at a discount
IV.semiannual interest payments

Accepted Answer

A)  IV only 
B)  I and III only 
C)  I and IV only 
D)  II and III only 
E)  II and IV only 
A)  IV only 
B)  I and III only 
C)  I and IV only 
D)  II and III only 
E)  II and IV only

Question 14

Which one of the following best defines a plain vanilla bond?

Accepted Answer

A)  bond secured by agricultural or food inventory 
B)  bond with relatively standard features 
C)  unsecured debt 
D)  bond secured with financial collateral 
E)  bond that has no coupon payments 
A)  bond secured by agricultural or food inventory 
B)  bond with relatively standard features 
C)  unsecured debt 
D)  bond secured with financial collateral 
E)  bond that has no coupon payments

Question 15

A STRIPS matures in 5 years,has a face value of $15,000,and has a yield to maturity of 4.4 percent.What is the price?

Accepted Answer

A)  $11,854.59 
B)  $12,066.53 
C)  $12,284.75 
D)  $12,322.01 
E)  $13,789.38 
A)  $11,854.59 
B)  $12,066.53 
C)  $12,284.75 
D)  $12,322.01 
E)  $13,789.38

Question 16

A Treasury bond has a quoted bid price of 101:15 and a quoted ask price of 101:22.What is the amount you will receive if you sell your bond that has a par value of $15,000?

Accepted Answer

A)  $15,016.12 
B)  $15,050.45 
C)  $15,062.60 
D)  $15,100.08 
E)  $15,220.31 
A)  $15,016.12 
B)  $15,050.45 
C)  $15,062.60 
D)  $15,100.08 
E)  $15,220.31

Question 17

A moral obligation bond is which type of a bond?

Accepted Answer

A)  municipal revenue 
B)  municipal GO 
C)  municipal hybrid 
D)  U.S. Treasury 
E)  U.S. agency 
A)  municipal revenue 
B)  municipal GO 
C)  municipal hybrid 
D)  U.S. Treasury 
E)  U.S. agency

Question 18

What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called?

Accepted Answer

A)  protective covenants 
B)  negative restrictions 
C)  prudent investment guidelines 
D)  safety monitors 
E)  risk ranges 
A)  protective covenants 
B)  negative restrictions 
C)  prudent investment guidelines 
D)  safety monitors 
E)  risk ranges

Question 19

A bond has a par value of $1,000 and a market price of $1,087.20.The conversion price is $40 and the stock price is $41.75.What is the conversion value?

Accepted Answer

A)  $1,043.75 
B)  $1,250.00 
C)  $1,481.10 
D)  $1,500.00 
E)  $1,652.00 
A)  $1,043.75 
B)  $1,250.00 
C)  $1,481.10 
D)  $1,500.00 
E)  $1,652.00

Question 20

Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured.Your marginal tax rate is 28 percent.Your equivalent taxable yield on the insured bonds is ________ percent and on the uninsured bonds is ________ percent.

Accepted Answer

A)  5.89; 6.27 
B)  6.11; 6.53 
C)  6.31; 6.81 
D)  6.67; 7.10 
E)  6.76; 7.10 
A)  5.89; 6.27 
B)  6.11; 6.53 
C)  6.31; 6.81 
D)  6.67; 7.10 
E)  6.76; 7.10

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a pre-specified price on pre-specified dates?

A $5,000 face value municipal bond matures in 12 years and is priced at $4,850.The coupon rate is 5.5 percent with interest paid semiannually.What is the yield to maturity on the bond?

You own a bond that has a face value of $1,000 and a conversion ratio of 25.You have just received notification that the bond is being called at a premium of $40.The stock price is $41.20 a share.You should your bond because the conversion value is .

You just purchased a 5-year STRIPS security that was created from a 30-year T-bond.How many payments will you receive?

Which one of the following is an unsecured bond issued by a corporation?

What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value?

You own a corporate bond which is yielding 7.2 percent.What is your after-tax yield if your marginal tax rate is 28 percent?

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund.What is this investment strategy called?

A Treasury bond has a quoted bid price of 95:12 and a quoted ask price of 95:25.What is the amount you will receive if you sell your bond that has a par value of $20,000?

A Treasury bond has a dollar price of $1,015.63.What would you expect the bond quote to be?

Which one of the following statements related to callable bonds is correct?

Which of the following features apply to T-bills? I.original maturities of 4,13,or 26 weeks II.minimum face value of $10,000 III.sold at a discount IV.semiannual interest payments

Which one of the following best defines a plain vanilla bond?

A STRIPS matures in 5 years,has a face value of $15,000,and has a yield to maturity of 4.4 percent.What is the price?

A Treasury bond has a quoted bid price of 101:15 and a quoted ask price of 101:22.What is the amount you will receive if you sell your bond that has a par value of $15,000?

A moral obligation bond is which type of a bond?

What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called?

A bond has a par value of $1,000 and a market price of $1,087.20.The conversion price is $40 and the stock price is $41.75.What is the conversion value?

Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured.Your marginal tax rate is 28 percent.Your equivalent taxable yield on the insured bonds is percent and on the uninsured bonds is percent.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 18: Corporate and Government Bonds

Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a pre-specified price on pre-specified dates?

A $5,000 face value municipal bond matures in 12 years and is priced at $4,850.The coupon rate is 5.5 percent with interest paid semiannually.What is the yield to maturity on the bond?

You own a bond that has a face value of $1,000 and a conversion ratio of 25.You have just received notification that the bond is being called at a premium of $40.The stock price is $41.20 a share.You should ________ your bond because the conversion value is ________.

You just purchased a 5-year STRIPS security that was created from a 30-year T-bond.How many payments will you receive?

Which one of the following is an unsecured bond issued by a corporation?

What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value?

You own a corporate bond which is yielding 7.2 percent.What is your after-tax yield if your marginal tax rate is 28 percent?

A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund.What is this investment strategy called?

A Treasury bond has a quoted bid price of 95:12 and a quoted ask price of 95:25.What is the amount you will receive if you sell your bond that has a par value of $20,000?

A Treasury bond has a dollar price of $1,015.63.What would you expect the bond quote to be?

Which one of the following statements related to callable bonds is correct?

Which of the following features apply to T-bills? I.original maturities of 4,13,or 26 weeks II.minimum face value of $10,000 III.sold at a discount IV.semiannual interest payments

Which one of the following best defines a plain vanilla bond?

A STRIPS matures in 5 years,has a face value of $15,000,and has a yield to maturity of 4.4 percent.What is the price?

A Treasury bond has a quoted bid price of 101:15 and a quoted ask price of 101:22.What is the amount you will receive if you sell your bond that has a par value of $15,000?

A moral obligation bond is which type of a bond?

What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called?

A bond has a par value of $1,000 and a market price of $1,087.20.The conversion price is $40 and the stock price is $41.75.What is the conversion value?

Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured.Your marginal tax rate is 28 percent.Your equivalent taxable yield on the insured bonds is ________ percent and on the uninsured bonds is ________ percent.

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

You own a bond that has a face value of $1,000 and a conversion ratio of 25.You have just received notification that the bond is being called at a premium of $40.The stock price is $41.20 a share.You should your bond because the conversion value is .

Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured.Your marginal tax rate is 28 percent.Your equivalent taxable yield on the insured bonds is percent and on the uninsured bonds is percent.