Question 1

Jeff owns a taxable bond portfolio which is yielding 8.76 percent.His after-tax yield is 6.57 percent.What is his marginal tax rate?

Accepted Answer

A)  25 percent 
B)  28 percent 
C)  31 percent 
D)  32 percent 
E)  34 percent 
A)  25 percent 
B)  28 percent 
C)  31 percent 
D)  32 percent 
E)  34 percent

Question 2

A Treasury bond has a 3.4 percent coupon,a quoted price of 101:06,and 9 years to maturity.What is the yield to maturity?

Accepted Answer

A)  3.25 percent 
B)  3.93 percent 
C)  4.03 percent 
D)  4.90 percent 
E)  5.92 percent 
A)  3.25 percent 
B)  3.93 percent 
C)  4.03 percent 
D)  4.90 percent 
E)  5.92 percent

Question 3

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

Accepted Answer

A)  general obligation bonds 
B)  local taxation bonds 
C)  fully funded bonds 
D)  revenue bonds 
E)  private activity bonds 
A)  general obligation bonds 
B)  local taxation bonds 
C)  fully funded bonds 
D)  revenue bonds 
E)  private activity bonds

Question 4

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

Accepted Answer

A)  private activity bond 
B)  private revenue bond 
C)  private corporate bond 
D)  private agency bond 
E)  private income bond 
A)  private activity bond 
B)  private revenue bond 
C)  private corporate bond 
D)  private agency bond 
E)  private income bond

Question 5

Adjustable-rate bonds are identified by which one of the following characteristics?

Accepted Answer

A)  The coupon rate will increase should the credit rating of the bond decline. 
B)  Different bonds within the same issue have different coupon rates. 
C)  Bondholders can defer coupon payments at their discretion. 
D)  The amount of each coupon payment will depend on the free cash flow of the issuer. 
E)  The coupon rate changes in response to changes in current market rates. 
A)  The coupon rate will increase should the credit rating of the bond decline. 
B)  Different bonds within the same issue have different coupon rates. 
C)  Bondholders can defer coupon payments at their discretion. 
D)  The amount of each coupon payment will depend on the free cash flow of the issuer. 
E)  The coupon rate changes in response to changes in current market rates.

Question 6

Which one of the following defines an in-the-money bond?

Accepted Answer

A)  secured bond with collateral value that exceeds the bond's price 
B)  callable bond with a call price that exceeds the current market price 
C)  put bond with a put price that exceeds the current market price 
D)  convertible bond with a call price that exceeds its conversion value 
E)  convertible bond with a conversion value that exceeds its call price 
A)  secured bond with collateral value that exceeds the bond's price 
B)  callable bond with a call price that exceeds the current market price 
C)  put bond with a put price that exceeds the current market price 
D)  convertible bond with a call price that exceeds its conversion value 
E)  convertible bond with a conversion value that exceeds its call price

Question 7

A bond that is currently selling for $925.44 has a conversion price of $25.00.If the par value is $1,000,what is the conversion ratio?

Accepted Answer

A)  35 
B)  38 
C)  40 
D)  42 
E)  44 
A)  35 
B)  38 
C)  40 
D)  42 
E)  44

Question 8

Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell?

Accepted Answer

A)  commission 
B)  imputed cost 
C)  imputed interest 
D)  bid-ask spread 
E)  ask price 
A)  commission 
B)  imputed cost 
C)  imputed interest 
D)  bid-ask spread 
E)  ask price

Question 9

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

Accepted Answer

A)  Convertible bonds have a maximum value equal to the bond's intrinsic value. 
B)  Convertible bonds have limited downside risk with unlimited upside potential. 
C)  A convertible bond is in-the-money when its call price is greater than its conversion value. 
D)  Convertible bonds must be converted prior to or on the maturity date. 
E)  Convertible bonds must be converted once they are called. 
A)  Convertible bonds have a maximum value equal to the bond's intrinsic value. 
B)  Convertible bonds have limited downside risk with unlimited upside potential. 
C)  A convertible bond is in-the-money when its call price is greater than its conversion value. 
D)  Convertible bonds must be converted prior to or on the maturity date. 
E)  Convertible bonds must be converted once they are called.

Question 10

The Federal Reserve is offering Treasury bills with a par value of $40 billion for sale.They have received $18 billion of noncompetitive bids.The competitive bids for a $10,000 par value bond are:   How much money will the Federal Reserve raise from this offering?

Accepted Answer

A)  $39.05 billion 
B)  $39.10 billion 
C)  $39.20 billion 
D)  $39.30 billion 
E)  $39.50 billion 
A)  $39.05 billion 
B)  $39.10 billion 
C)  $39.20 billion 
D)  $39.30 billion 
E)  $39.50 billion

Question 11

What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called?

Accepted Answer

A)  restrictive actions 
B)  prohibitions 
C)  negative conditions 
D)  protective covenants 
E)  restrictive amendments 
A)  restrictive actions 
B)  prohibitions 
C)  negative conditions 
D)  protective covenants 
E)  restrictive amendments

Question 12

After the call protection period,which one of the following basically serves as the upper price limit on a callable bond?

Accepted Answer

A)  present value of all future bond payments discounted at the current market rate of interest 
B)  face value of the bond 
C)  call price of the bond 
D)  current market price of the bond 
E)  current market price of a comparable noncallable bond 
A)  present value of all future bond payments discounted at the current market rate of interest 
B)  face value of the bond 
C)  call price of the bond 
D)  current market price of the bond 
E)  current market price of a comparable noncallable bond

Question 13

A STRIPS that matures in 6 years is selling for $10,950.The par value is $15,000.What is the yield to maturity?

Accepted Answer

A)  3.36 percent 
B)  4.67 percent 
C)  5.31 percent 
D)  6.54 percent 
E)  6.75 percent 
A)  3.36 percent 
B)  4.67 percent 
C)  5.31 percent 
D)  6.54 percent 
E)  6.75 percent

Question 14

Sonya has a marginal tax rate of 36 percent.A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent.Sonya should invest in the ________ bond because the critical marginal tax rate is ________ percent.

Accepted Answer

A)  corporate; 17 
B)  corporate; 34 
C)  corporate; 51 
D)  municipal; 43 
E)  municipal; 51 
A)  corporate; 17 
B)  corporate; 34 
C)  corporate; 51 
D)  municipal; 43 
E)  municipal; 51

Question 15

A convertible bond has a par value of $1,000 and a market price of $1,116.76.If the conversion ratio is 19,what is the conversion price?

Accepted Answer

A)  $43.48 
B)  $45.45 
C)  $47.62 
D)  $52.63 
E)  $55.56 
A)  $43.48 
B)  $45.45 
C)  $47.62 
D)  $52.63 
E)  $55.56

Question 16

A bond is currently priced at $1,055.40 and has a par value of $1,000.If the conversion ratio is 24,what is the conversion price?

Accepted Answer

A)  $35.71 
B)  $37.04 
C)  $38.46 
D)  $40.00 
E)  $41.67 
A)  $35.71 
B)  $37.04 
C)  $38.46 
D)  $40.00 
E)  $41.67

Question 17

You have a marginal tax rate of 35 percent and an average tax rate of 29 percent.Municipal bonds in your area are yielding 4.20 percent.What is your equivalent taxable yield?

Accepted Answer

A)  5.16 percent 
B)  5.93 percent 
C)  5.13 percent 
D)  6.25 percent 
E)  6.46 percent 
A)  5.16 percent 
B)  5.93 percent 
C)  5.13 percent 
D)  6.25 percent 
E)  6.46 percent

Question 18

Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond?

Accepted Answer

A)  out-of-the money value 
B)  in-the-money value 
C)  discounted value 
D)  external value 
E)  intrinsic value 
A)  out-of-the money value 
B)  in-the-money value 
C)  discounted value 
D)  external value 
E)  intrinsic value

Question 19

A bond is currently priced at $1,076.88 and has a par value of $1,000.If the conversion ratio is 37,what is the conversion price?

Accepted Answer

A)  $35.71 
B)  $37.04 
C)  $38.46 
D)  $40.00 
E)  $41.67 
A)  $35.71 
B)  $37.04 
C)  $38.46 
D)  $40.00 
E)  $41.67

Question 20

Which one of the following statements related to TIPS is correct assuming an inflationary environment?

Accepted Answer

A)  TIPS have a maturity value of $1,000. 
B)  TIPS pay an interest payment based on the latest T-bill rate. 
C)  TIPS pay a fixed coupon rate. 
D)  The principal amount of a TIPS is adjusted annually for inflation. 
E)  The interest rate is adjusted semiannually for inflation. 
A)  TIPS have a maturity value of $1,000. 
B)  TIPS pay an interest payment based on the latest T-bill rate. 
C)  TIPS pay a fixed coupon rate. 
D)  The principal amount of a TIPS is adjusted annually for inflation. 
E)  The interest rate is adjusted semiannually for inflation.

Jeff owns a taxable bond portfolio which is yielding 8.76 percent.His after-tax yield is 6.57 percent.What is his marginal tax rate?

A Treasury bond has a 3.4 percent coupon,a quoted price of 101:06,and 9 years to maturity.What is the yield to maturity?

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

Adjustable-rate bonds are identified by which one of the following characteristics?

Which one of the following defines an in-the-money bond?

A bond that is currently selling for $925.44 has a conversion price of $25.00.If the par value is $1,000,what is the conversion ratio?

Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell?

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

The Federal Reserve is offering Treasury bills with a par value of $40 billion for sale.They have received $18 billion of noncompetitive bids.The competitive bids for a $10,000 par value bond are: How much money will the Federal Reserve raise from this offering?

What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called?

After the call protection period,which one of the following basically serves as the upper price limit on a callable bond?

A STRIPS that matures in 6 years is selling for $10,950.The par value is $15,000.What is the yield to maturity?

Sonya has a marginal tax rate of 36 percent.A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent.Sonya should invest in the bond because the critical marginal tax rate is percent.

A convertible bond has a par value of $1,000 and a market price of $1,116.76.If the conversion ratio is 19,what is the conversion price?

A bond is currently priced at $1,055.40 and has a par value of $1,000.If the conversion ratio is 24,what is the conversion price?

You have a marginal tax rate of 35 percent and an average tax rate of 29 percent.Municipal bonds in your area are yielding 4.20 percent.What is your equivalent taxable yield?

Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond?

A bond is currently priced at $1,076.88 and has a par value of $1,000.If the conversion ratio is 37,what is the conversion price?

Which one of the following statements related to TIPS is correct assuming an inflationary environment?

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

Jeff owns a taxable bond portfolio which is yielding 8.76 percent.His after-tax yield is 6.57 percent.What is his marginal tax rate?

A Treasury bond has a 3.4 percent coupon,a quoted price of 101:06,and 9 years to maturity.What is the yield to maturity?

Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

Adjustable-rate bonds are identified by which one of the following characteristics?

Which one of the following defines an in-the-money bond?

A bond that is currently selling for $925.44 has a conversion price of $25.00.If the par value is $1,000,what is the conversion ratio?

Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell?

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

The Federal Reserve is offering Treasury bills with a par value of $40 billion for sale.They have received $18 billion of noncompetitive bids.The competitive bids for a $10,000 par value bond are: How much money will the Federal Reserve raise from this offering?

What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called?

After the call protection period,which one of the following basically serves as the upper price limit on a callable bond?

A STRIPS that matures in 6 years is selling for $10,950.The par value is $15,000.What is the yield to maturity?

Sonya has a marginal tax rate of 36 percent.A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent.Sonya should invest in the ________ bond because the critical marginal tax rate is ________ percent.

A convertible bond has a par value of $1,000 and a market price of $1,116.76.If the conversion ratio is 19,what is the conversion price?

A bond is currently priced at $1,055.40 and has a par value of $1,000.If the conversion ratio is 24,what is the conversion price?

You have a marginal tax rate of 35 percent and an average tax rate of 29 percent.Municipal bonds in your area are yielding 4.20 percent.What is your equivalent taxable yield?

Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond?

A bond is currently priced at $1,076.88 and has a par value of $1,000.If the conversion ratio is 37,what is the conversion price?

Which one of the following statements related to TIPS is correct assuming an inflationary environment?

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

Sonya has a marginal tax rate of 36 percent.A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent.Sonya should invest in the bond because the critical marginal tax rate is percent.