Question 1

What is the difference between General Obligation and Revenue bonds?

Accepted Answer

Both are bonds issued by state or local municipalities. GOs are backed by the full revenue stream of the municipality (often called the General Fund). They typically require voter approval. Revenue bonds are backed by a specific project's revenues,but not the general tax revenues of the municipality. Revenue bonds are thus riskier than GOs.

Question 2

When an investment banker purchases an offering from a bond issuer and then resells it to the public,this is known as a

Accepted Answer

A) rights offering. 
B) private placement. 
C) firm commitment. 
D) best efforts. 
E) standby offering. 
A) rights offering. 
B) private placement. 
C) firm commitment. 
D) best efforts. 
E) standby offering. C

Question 3

A bond investor has a 99 percent chance of receiving all of her promised payments on a particular bond issue in the first year of holding the bond,but only a 98 percent chance in the second year,and a 97 percent chance in the third year and beyond. What is the cumulative default probability over the first three years she holds the bond?

Accepted Answer

A) 3.75 percent 
B) 4.24 percent 
C) 5.89 percent 
D) 6.85 percent 
E) 7.33 percent 
A) 3.75 percent 
B) 4.24 percent 
C) 5.89 percent 
D) 6.85 percent 
E) 7.33 percent C

Question 4

Which one of the following bonds is likely to have the highest required rate of return,ceteris paribus?

Accepted Answer

A) AAA-rated non-callable corporate bond with a sinking fund 
B) AA-rated callable corporate bond with a sinking fund 
C) AAA-rated callable corporate bond with a sinking fund 
D) High-quality municipal bond 
E) AA-rated callable corporate bond without a sinking fund 
A) AAA-rated non-callable corporate bond with a sinking fund 
B) AA-rated callable corporate bond with a sinking fund 
C) AAA-rated callable corporate bond with a sinking fund 
D) High-quality municipal bond 
E) AA-rated callable corporate bond without a sinking fund

Question 5

Which of the following statements about Eurobonds is/are true?
I. The issuer chooses the currency of denomination.
II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds.
III. Eurobonds typically have denomination of $5,000 and $10,000.
IV. Eurobonds are bearer bonds.

Accepted Answer

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

Question 6

A life insurer owes $550,000 in eight years. To fund this outflow,the insurer wishes to buy STRIPS that mature in eight years. The STRIPS have a $5,000 face value per STRIP and pay a 6 percent APR with semiannual compounding. How much must the insurer spend now to fully fund the outflow (to the nearest dollar)?

Accepted Answer

A) $110,000 
B) $342,742 
C) $355,224 
D) $362,355 
E) $370,890 
A) $110,000 
B) $342,742 
C) $355,224 
D) $362,355 
E) $370,890

Question 7

TIPS are a Treasury offering that protects investors from unexpected increases in inflation.

Accepted Answer

A) True 
 B)False

Question 8

On September 1,2012,an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is

Accepted Answer

A) $9,295.45. 
B) $9,300.55. 
C) $9,313.75. 
D) $9,321.82. 
E) $9,333.24. 
A) $9,295.45. 
B) $9,300.55. 
C) $9,313.75. 
D) $9,321.82. 
E) $9,333.24.

Question 9

With TIPS,the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.

Accepted Answer

A) True 
 B)False

Question 10

You are an investment banker and one of your large U.S. corporate clients has come to you asking for help deciding on the best market in which to place a sizable issue of bonds. You could try to issue dollar-denominated bonds,or euro or yen-denominated bonds. You could also issue in the United States or overseas. What major factors should you consider in advising your client on where to market the issue?

Accepted Answer

Some of the key variables would include

Question 11

What do bond rating agencies look at in setting a bond's rating?

Accepted Answer

1. Profitability of operations
2. Compet

Question 12

An investor is trying to decide between a muni paying 5.75 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?

Accepted Answer

A) 80.00 percent 
B) 20.00 percent 
C) 25.00 percent 
D) 66.67 percent 
E) 30.00 percent 
A) 80.00 percent 
B) 20.00 percent 
C) 25.00 percent 
D) 66.67 percent 
E) 30.00 percent

Question 13

An investor is holding a $1,000 par,10-year 9 percent coupon convertible bond with a 9 percent required bond yield. The bond is convertible into 40 shares of stock. Each share is worth $30. The bond has a current market value of $1,200. If interest rates don't change,what is the maximum gain and loss on the bond?

Accepted Answer

The maximum gain is unlimited; the bond'

Question 14

A municipal bondholder buys a 5 percent coupon annual payment muni bond at a price of $4,900. The bond has a $5,000 face value. In one year she sells the bond for $4,975. The appropriate capital gains tax rate is 15 percent and her ordinary income tax rate is 28 percent. What is her after-tax rate of return?

Accepted Answer

The answer of A municipal bondholder buys a 5 percent...

Question 15

A T-bond with a $1,000 par is quoted at a bid of 105: 7 and an ask of 105:
9) If you sell the bond,you will receive

Accepted Answer

A) $1,052.81. 
B) $1,052.19. 
C) $1,057.22. 
D) $1,059.22. 
E) none of the options. 
A) $1,052.81. 
B) $1,052.19. 
C) $1,057.22. 
D) $1,059.22. 
E) none of the options.

Question 16

You find the following quote for a corporate bond ($1,000 par,paying interest semiannually):

Accepted Answer

@#IMG-DLM& a. What was the range of the price for

Question 17

An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent interest is equivalent to a corporate bond paying _____ interest.

Accepted Answer

A) 11.79 percent 
B) 10.17 percent 
C) 9.08 percent 
D) 9.68 percent 
E) 8.47 percent 
A) 11.79 percent 
B) 10.17 percent 
C) 9.08 percent 
D) 9.68 percent 
E) 8.47 percent

Question 18

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

Accepted Answer

A) $10,213.00 
B) $10,869.28 
C) $11,822.25 
D) $11,843.37 
E) $12,201.11 
A) $10,213.00 
B) $10,869.28 
C) $11,822.25 
D) $11,843.37 
E) $12,201.11

Question 19

The quoted ask yield on a 30-year $1,000 par T-bond with a 6.25 percent coupon and a price quote of 106: 16 is ___________ (use semiannual compounding).

Accepted Answer

A) 2.94 percent 
B) 2.90 percent 
C) 5.79 percent 
D) 5.87 percent 
E) 4.95 percent 
A) 2.94 percent 
B) 2.90 percent 
C) 5.79 percent 
D) 5.87 percent 
E) 4.95 percent

Question 20

An 18-year T-bond can be stripped into how many separate securities?

Accepted Answer

A) 18 
B) 19 
C) 36 
D) 37 
E) 38 
A) 18 
B) 19 
C) 36 
D) 37 
E) 38

What is the difference between General Obligation and Revenue bonds?

When an investment banker purchases an offering from a bond issuer and then resells it to the public,this is known as a

Which one of the following bonds is likely to have the highest required rate of return,ceteris paribus?

Which of the following statements about Eurobonds is/are true? I. The issuer chooses the currency of denomination. II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds. III. Eurobonds typically have denomination of $5,000 and $10,000. IV. Eurobonds are bearer bonds.

TIPS are a Treasury offering that protects investors from unexpected increases in inflation.

On September 1,2012,an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is

With TIPS,the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.

What do bond rating agencies look at in setting a bond's rating?

An investor is trying to decide between a muni paying 5.75 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?

A T-bond with a $1,000 par is quoted at a bid of 105: 7 and an ask of 105: 9) If you sell the bond,you will receive

You find the following quote for a corporate bond ($1,000 par,paying interest semiannually):

An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent interest is equivalent to a corporate bond paying _____ interest.

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

The quoted ask yield on a 30-year $1,000 par T-bond with a 6.25 percent coupon and a price quote of 106: 16 is ___________ (use semiannual compounding).

An 18-year T-bond can be stripped into how many separate securities?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters

Exam 6: Bond Markets

What is the difference between General Obligation and Revenue bonds?

When an investment banker purchases an offering from a bond issuer and then resells it to the public,this is known as a

Which one of the following bonds is likely to have the highest required rate of return,ceteris paribus?

Which of the following statements about Eurobonds is/are true? I. The issuer chooses the currency of denomination. II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds. III. Eurobonds typically have denomination of $5,000 and $10,000. IV. Eurobonds are bearer bonds.

TIPS are a Treasury offering that protects investors from unexpected increases in inflation.

On September 1,2012,an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is

With TIPS,the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.

What do bond rating agencies look at in setting a bond's rating?

An investor is trying to decide between a muni paying 5.75 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?

A T-bond with a $1,000 par is quoted at a bid of 105: 7 and an ask of 105: 9) If you sell the bond,you will receive

You find the following quote for a corporate bond ($1,000 par,paying interest semiannually):

An investor is in the 28 percent federal tax bracket and pays a 9 percent state tax rate and 4 percent in local income taxes. For this investor a municipal bond paying 6 percent interest is equivalent to a corporate bond paying _____ interest.

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

The quoted ask yield on a 30-year $1,000 par T-bond with a 6.25 percent coupon and a price quote of 106: 16 is ___________ (use semiannual compounding).

An 18-year T-bond can be stripped into how many separate securities?

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, Monetary Policy, and Interest Rates

Money Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, Credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

Filters