Question 1

The junk bond market includes all of the following except:

Accepted Answer

A) fallen angels. 
B) profitable companies undergoing expansion. 
C) growth companies (small firms not that well established, making them unable to receive an investment quality rating). 
D) companies undergoing restructuring because of a leveraged buyout (LBO) or unfriendly takeover. 
A) fallen angels. 
B) profitable companies undergoing expansion. 
C) growth companies (small firms not that well established, making them unable to receive an investment quality rating). 
D) companies undergoing restructuring because of a leveraged buyout (LBO) or unfriendly takeover.

Question 2

A call provision allows the corporation to retire a bond before maturity by paying a small discount below par value.

Accepted Answer

A) True 
 B)False

Question 3

The bond market is dominated by institutional investors.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT a characteristic of preferred stock as an investment?

Accepted Answer

A) Preferred stockholders are entitled to receive their dividend prior to payment of dividends to common stockholders 
B) Preferred stock dividends are taxed at the capital gains rate for individual investors 
C) Preferred stock dividends may be omitted by the corporation under certain circumstances 
D) It is a hybrid security of common stock and debt 
A) Preferred stockholders are entitled to receive their dividend prior to payment of dividends to common stockholders 
B) Preferred stock dividends are taxed at the capital gains rate for individual investors 
C) Preferred stock dividends may be omitted by the corporation under certain circumstances 
D) It is a hybrid security of common stock and debt

Question 5

A secured corporate bond is referred to as a debenture.

Accepted Answer

A) True 
 B)False

Question 6

An important feature of the GNMA (GinnieMae) pass-through certificate is that there is no principal balance at maturity.

Accepted Answer

A) True 
 B)False

Question 7

Commercial paper represents a short-term credit instrument.

Accepted Answer

A) True 
 B)False

Question 8

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the effective yield?

Accepted Answer

A) 6.09% 
B) 6.38% 
C) 3.05% 
D) 25.53% 
E) 1.53% 
A) 6.09% 
B) 6.38% 
C) 3.05% 
D) 25.53% 
E) 1.53%

Question 9

A sinking fund may be used to pay off a perpetual bond.

Accepted Answer

A) True 
 B)False

Question 10

A provision in which semiannual or annual contributions are made by a corporation into a fund administered by a trustee for purposes of debt retirement is referred to as a:

Accepted Answer

A) call provision. 
B) put provision. 
C) sinking-fund provision. 
D) serial payment. 
A) call provision. 
B) put provision. 
C) sinking-fund provision. 
D) serial payment.

Question 11

The dollar volume of new corporate debt issues has exceeded the dollar volume of new corporate equity issues for many years.

Accepted Answer

A) True 
 B)False

Question 12

A strong incentive to a corporation to meet preferred stock dividend payments is provided by the ___________ feature of some preferred stocks.

Accepted Answer

A) Cumulative 
B) Convertible 
C) Callable 
D) All of the above 
A) Cumulative 
B) Convertible 
C) Callable 
D) All of the above

Question 13

An example of secured debt would be a:

Accepted Answer

A) contract where two signatures specified how the contract would be paid. 
B) contract in which a court kept the contract in its possession to see that nothing would happen to it. 
C) contract in which real assets are pledged as security for a loan. 
D) debenture. 
A) contract where two signatures specified how the contract would be paid. 
B) contract in which a court kept the contract in its possession to see that nothing would happen to it. 
C) contract in which real assets are pledged as security for a loan. 
D) debenture.

Question 14

What is the dollar value of a U.S. government bond quoted at 98 8/32?

Accepted Answer

$982.50
Explanation:

Question 15

Interest and capital gains on municipal bonds are tax-exempt by the IRS.

Accepted Answer

A) True 
 B)False

Question 16

The IRS taxes zero-coupon bonds as if interest were paid annually, even though no cash flow is received until maturity.

Accepted Answer

A) True 
 B)False

Question 17

While Treasury bonds and bills are quoted on the basis of price, Treasury notes are quoted on the basis of yield.

Accepted Answer

A) True 
 B)False

Question 18

A call feature may be valuable to:

Accepted Answer

A) investors. 
B) the issuing company. 
C) corporate employers. 
D) the IRS. 
A) investors. 
B) the issuing company. 
C) corporate employers. 
D) the IRS.

Question 19

Yankee bonds are issued by foreign governments, corporations, or are traded in the U.S. and denominated (payable) in U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 20

If inflation is higher than that expected at time of issue, inflation-indexed Treasury securities:

Accepted Answer

A) provide a lower return than fixed-income securities. 
B) provide a higher return than fixed-income securities. 
C) do not adequately compensate the investor for loss of purchasing power. 
D) may be called in by the government. 
A) provide a lower return than fixed-income securities. 
B) provide a higher return than fixed-income securities. 
C) do not adequately compensate the investor for loss of purchasing power. 
D) may be called in by the government.

Exam 11: Bond and Fixed-Income Fundamentals

The junk bond market includes all of the following except:

A call provision allows the corporation to retire a bond before maturity by paying a small discount below par value.

The bond market is dominated by institutional investors.

Which of the following is NOT a characteristic of preferred stock as an investment?

A secured corporate bond is referred to as a debenture.

An important feature of the GNMA (GinnieMae) pass-through certificate is that there is no principal balance at maturity.

Commercial paper represents a short-term credit instrument.

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the effective yield?

A sinking fund may be used to pay off a perpetual bond.

A provision in which semiannual or annual contributions are made by a corporation into a fund administered by a trustee for purposes of debt retirement is referred to as a:

The dollar volume of new corporate debt issues has exceeded the dollar volume of new corporate equity issues for many years.

A strong incentive to a corporation to meet preferred stock dividend payments is provided by the ___________ feature of some preferred stocks.

An example of secured debt would be a:

What is the dollar value of a U.S. government bond quoted at 98 8/32?

Interest and capital gains on municipal bonds are tax-exempt by the IRS.

The IRS taxes zero-coupon bonds as if interest were paid annually, even though no cash flow is received until maturity.

While Treasury bonds and bills are quoted on the basis of price, Treasury notes are quoted on the basis of yield.

A call feature may be valuable to:

Yankee bonds are issued by foreign governments, corporations, or are traded in the U.S. and denominated (payable) in U.S. dollars.

If inflation is higher than that expected at time of issue, inflation-indexed Treasury securities:

The Investment Setting

Security Markets

Participating in the Market

Investment Companies: Mutual Funds, Exchange-Traded Funds, Closed-End Funds, and Unit Investment Trusts

Economic Activity

Industry Analysis

Valuation of the Individual Firm

Financial Statement Analysis

Efficient Markets and Anomalies

Behavioral Finance and Technical Analysis

Principles of Bond Valuation and Investment

Convertible Securities and Warrants

Put and Call Options

Commodities and Financial Futures

Stock Index Futures and Options

A Basic Look at Portfolio Management and Capital Market Theory

Duration and Bond Portfolio Management

International Securities Markets

Investments in Real Assets

Alternative Investments: Private Equity and Hedge Funds

Measuring Risks and Returns of Portfolio Managers

A Comprehensive Analysis for Real Estate Investment Decisions

The Makeup of Institutional Investors

Filters