Question 1

Interest income from Treasury securities is ________________,and interest income from municipal bonds is always ________________.

Accepted Answer

A) exempt from federal taxes; exempt from all taxes 
B) taxable at the state level only; exempt from state taxes only 
C) taxable at federal level only; exempt from federal taxes 
D) taxable at the state level; taxed at the federal level 
E) totally tax exempt; exempt from state taxes 
A) exempt from federal taxes; exempt from all taxes 
B) taxable at the state level only; exempt from state taxes only 
C) taxable at federal level only; exempt from federal taxes 
D) taxable at the state level; taxed at the federal level 
E) totally tax exempt; exempt from state taxes

Question 2

Which of the following is/are true about callable bonds?
I. Must always be called at par
II. Will normally be called after interest rates drop
III. Can be called by either the bondholder or the bond issuer
IV. Have higher required returns than non-callable bonds

Accepted Answer

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

Question 3

The dirty price plus accrued interest is called the clean price of the security.

Accepted Answer

A) True 
 B)False

Question 4

On July 1,2012,you purchase a $10,000 par T-note that matures in five years. The coupon rate is 8 percent and the price quote is 98: 6. The last coupon payment was May 1,2012,and the next payment is November 1,2012 (184 days total). The accrued interest is

Accepted Answer

A) $132.61. 
B) $101.00. 
C) $50.54. 
D) $40.65. 
E) $35.67. 
A) $132.61. 
B) $101.00. 
C) $50.54. 
D) $40.65. 
E) $35.67.

Question 5

You buy a principal STRIP maturing in five years. The price quote per hundred of par for the STRIP is 75.75 percent. Using semiannual compounding,what is the promised yield to maturity on the STRIP?

Accepted Answer

A) 5.632 percent 
B) 5.712 percent 
C) 2.816 percent 
D) 2.945 percent 
E) 4.566 percent 
A) 5.632 percent 
B) 5.712 percent 
C) 2.816 percent 
D) 2.945 percent 
E) 4.566 percent

Question 6

The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488 percent. If the face value is $1,000,what should be the QUOTED cost of the bond today (use semiannual compounding)?

Accepted Answer

A) 103:6 
B) 103:7 
C) 103:8 
D) 103:9 
E) 103:10 
A) 103:6 
B) 103:7 
C) 103:8 
D) 103:9 
E) 103:10

Question 7

In a Treasury bond quote with a $1,000 face value,you find the bid is equal to 100:
24 and the ask is equal to 100:
26. You could buy this bond for $1,008.125.

Accepted Answer

A) True 
 B)False

Question 8

An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.

Accepted Answer

A) True 
 B)False

Question 9

You purchase a $1,000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

Accepted Answer

A) $4.50 
B) $5.26 
C) $6.50 
D) $7.10 
E) $7.25 
A) $4.50 
B) $5.26 
C) $6.50 
D) $7.10 
E) $7.25

Question 10

The quoted ask yield on a 14-year $1,000 par T-bond with a 7 percent semiannual payment coupon and a price quote of 98: 15 is

Accepted Answer

A) 7.00 percent. 
B) 7.18 percent. 
C) 7.30 percent. 
D) 3.59 percent. 
E) 3.63 percent. 
A) 7.00 percent. 
B) 7.18 percent. 
C) 7.30 percent. 
D) 3.59 percent. 
E) 3.63 percent.

Question 11

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

Accepted Answer

A) True 
 B)False

Question 12

The total sale proceeds from selling the stripped components of a Treasury security can sometimes be greater than the fair present value of the Treasury security. Why might this happen?

Accepted Answer

STRIPS are useful tools to minimize inte

Question 13

Bearer bonds are bonds

Accepted Answer

A) with coupons attached that are redeemable by whoever has the bond. 
B) where the registered owner automatically receives bond payments when scheduled. 
C) in which the issue matures on a series of dates. 
D) issued in another currency other than the bond issuer's home currency. 
E) issued in a different country other than the bond issuer's home country. 
A) with coupons attached that are redeemable by whoever has the bond. 
B) where the registered owner automatically receives bond payments when scheduled. 
C) in which the issue matures on a series of dates. 
D) issued in another currency other than the bond issuer's home currency. 
E) issued in a different country other than the bond issuer's home country.

Question 14

Accrued interest owed to the bond seller increases as the next coupon payment date approaches.

Accepted Answer

A) True 
 B)False

Question 15

The largest type of municipal bonds outstanding is _______________.

Accepted Answer

A) revenue bonds 
B) industrial development bonds 
C) Treasury STRIPS 
D) convertible bonds 
E) general obligation bonds 
A) revenue bonds 
B) industrial development bonds 
C) Treasury STRIPS 
D) convertible bonds 
E) general obligation bonds

Question 16

A holder of Rainbow Funds convertible bonds with a $1,000 par and a $1,100 price can convert the bond to 25 shares of common stock. The stock is currently priced at $36 per share. By what percent does the stock price have to rise to make conversion potentially attractive?

Accepted Answer

A) 10.00 percent 
B) 14.73 percent 
C) 22.22 percent 
D) 23.64 percent 
E) 25.69 percent 
A) 10.00 percent 
B) 14.73 percent 
C) 22.22 percent 
D) 23.64 percent 
E) 25.69 percent

Question 17

T-notes and T-bonds are issued in minimum denominations of $100,or multiples of $100.

Accepted Answer

A) True 
 B)False

Question 18

Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue.

Accepted Answer

A) True 
 B)False

Question 19

Treasury notes and bonds and municipal bonds are default risk free.

Accepted Answer

A) True 
 B)False

Question 20

You purchased a five-year annual payment 6 percent coupon bond for $1,000 and you planned on holding it to maturity. However,right after you bought the bond,it was called at $1,043.29 when all interest rates fell to 5 percent and remained there for the full five years. You reinvested the money for the full five years. What was your annual compound rate of return off your original investment?

Accepted Answer

A) 6.00 percent 
B) 5.89 percent 
C) 5.75 percent 
D) 5.23 percent 
E) 5.00 percent 
A) 6.00 percent 
B) 5.89 percent 
C) 5.75 percent 
D) 5.23 percent 
E) 5.00 percent

Exam 6: Bond Markets

Interest income from Treasury securities is ________________,and interest income from municipal bonds is always ________________.

Which of the following is/are true about callable bonds? I. Must always be called at par II. Will normally be called after interest rates drop III. Can be called by either the bondholder or the bond issuer IV. Have higher required returns than non-callable bonds

The dirty price plus accrued interest is called the clean price of the security.

On July 1,2012,you purchase a $10,000 par T-note that matures in five years. The coupon rate is 8 percent and the price quote is 98: 6. The last coupon payment was May 1,2012,and the next payment is November 1,2012 (184 days total). The accrued interest is

You buy a principal STRIP maturing in five years. The price quote per hundred of par for the STRIP is 75.75 percent. Using semiannual compounding,what is the promised yield to maturity on the STRIP?

The ask yield on a 6 percent coupon Treasury bond maturing in eight years is 5.488 percent. If the face value is $1,000,what should be the QUOTED cost of the bond today (use semiannual compounding)?

In a Treasury bond quote with a $1,000 face value,you find the bid is equal to 100: 24 and the ask is equal to 100: 26. You could buy this bond for $1,008.125.

An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.

You purchase a $1,000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

The quoted ask yield on a 14-year $1,000 par T-bond with a 7 percent semiannual payment coupon and a price quote of 98: 15 is

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

The total sale proceeds from selling the stripped components of a Treasury security can sometimes be greater than the fair present value of the Treasury security. Why might this happen?

Bearer bonds are bonds

Accrued interest owed to the bond seller increases as the next coupon payment date approaches.

The largest type of municipal bonds outstanding is _______________.

A holder of Rainbow Funds convertible bonds with a $1,000 par and a $1,100 price can convert the bond to 25 shares of common stock. The stock is currently priced at $36 per share. By what percent does the stock price have to rise to make conversion potentially attractive?

T-notes and T-bonds are issued in minimum denominations of $100,or multiples of $100.

Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue.

Treasury notes and bonds and municipal bonds are default risk free.

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

Interest income from Treasury securities is ,and interest income from municipal bonds is always .