Question 1

Income bonds specify that interest is to be paid only to the extent that it is earned in current income.

Accepted Answer

A) True 
 B)False

Question 2

Junk bonds normally provide:

Accepted Answer

A) a higher yield than Treasury bonds. 
B) a lower yield than Treasury bonds. 
C) a lower yield than AA corporate bonds. 
D) More than one of the above is true 
A) a higher yield than Treasury bonds. 
B) a lower yield than Treasury bonds. 
C) a lower yield than AA corporate bonds. 
D) More than one of the above is true

Question 3

Foreign-pay bonds are issued in a foreign country and are payable in U.S. dollars.

Accepted Answer

A) True 
 B)False

Question 4

Inflation-indexed Treasury securities provide returns through:

Accepted Answer

A) interest payments, plus a conversion privilege. 
B) interest payments, plus an increase in value due to inflation. 
C) tax-exempt interest payments. 
D) cumulative interest payments. 
A) interest payments, plus a conversion privilege. 
B) interest payments, plus an increase in value due to inflation. 
C) tax-exempt interest payments. 
D) cumulative interest payments.

Question 5

Public utility issues have a greater yield than other corporate issues, primarily because:

Accepted Answer

A) nuclear utility issues carry an extremely high risk premium. 
B) public utility issues generally have a longer maturity. 
C) investor demand for utility issues is greater than for other issues. 
D) utilities' demands for funds is greater than that of other segments. 
A) nuclear utility issues carry an extremely high risk premium. 
B) public utility issues generally have a longer maturity. 
C) investor demand for utility issues is greater than for other issues. 
D) utilities' demands for funds is greater than that of other segments.

Question 6

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months.
a) How much interest would an investor receive?
b) What will be the price of the Treasury bill?
c) What will be the true rate of return?

Accepted Answer

a) 2.5%
b) $975
c) 10.25%
Expl

Question 7

An after-acquired clause requires that new property must be placed under the original mortgage.

Accepted Answer

A) True 
 B)False

Question 8

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%, what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

Accepted Answer

11.19%
Explanation: Refer to E

Question 9

A Treasury bill is a long-term obligation of the federal government.

Accepted Answer

A) True 
 B)False

Question 10

The bond market investor must be prepared to deal in a relatively strong primary market (new issues market) and a relatively weak secondary market (resale market).

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements about U.S. Treasury securities is true?

Accepted Answer

A) The interest earned on Treasury bills is fully taxable by states 
B) All Treasury securities are considered to be risk-free 
C) The maturities of Treasury bills, notes, and bonds tend to be different 
D) More than one of the above is true 
A) The interest earned on Treasury bills is fully taxable by states 
B) All Treasury securities are considered to be risk-free 
C) The maturities of Treasury bills, notes, and bonds tend to be different 
D) More than one of the above is true

Question 12

While the stock market has an active secondary market, the bond market consists primarily of investors who buy and hold bond issues to maturity.

Accepted Answer

A) True 
 B)False

Question 13

For the major bond-rating agencies, the lowest level of an investment grade bond is:

Accepted Answer

A) AA (investment grade includes AAA and A
A) . 
B) A (investment grade includes AAA, AA and 
A) . 
C) BBB (investment grade includes AAA, AA, A, and BB
B) . 
D) B (investment grade includes AAA, AA, A, BBB, BB and 
B) . 
A) AA (investment grade includes AAA and A
A) . 
B) A (investment grade includes AAA, AA and 
A) . 
C) BBB (investment grade includes AAA, AA, A, and BB
B) . 
D) B (investment grade includes AAA, AA, A, BBB, BB and 
B) .

Question 14

The primary difference between large (jumbo) and small Certificates of Deposit, besides dollar amount, is:

Accepted Answer

A) that jumbo certificates have a variable interest rate. 
B) that small certificates are considered to be risk-free. 
C) that there is no secondary market for small certificates of deposit. 
D) None of the above 
A) that jumbo certificates have a variable interest rate. 
B) that small certificates are considered to be risk-free. 
C) that there is no secondary market for small certificates of deposit. 
D) None of the above

Question 15

Corporate issues make up the largest percentage of new debt offerings in the bond market.

Accepted Answer

A) True 
 B)False

Question 16

Interest on federally-sponsored credit agency issues (such as the Federal Home Loan Bank) is not tax-free to the recipient.

Accepted Answer

A) True 
 B)False

Question 17

There is customarily a small spread between bid and asked prices of Treasury notes and bonds, because:

Accepted Answer

A) they are traded at a discount from par. 
B) there is competition from other markets. 
C) the market for Treasury issues is liquid. 
D) there are not many government securities dealers. 
A) they are traded at a discount from par. 
B) there is competition from other markets. 
C) the market for Treasury issues is liquid. 
D) there are not many government securities dealers.

Question 18

Corporate bonds generally trade in units of:

Accepted Answer

A) $100. 
B) $1,000. 
C) $5,000. 
D) $10,000. 
A) $100. 
B) $1,000. 
C) $5,000. 
D) $10,000.

Question 19

A bond with a put provision allows the investor to:

Accepted Answer

A) convert the bond to a specified number of shares of common stock. 
B) sell the bond back to the corporation at a small premium over par at a specified time period. 
C) sell the bond back to the corporation at par at a specified time period. 
D) receive additional interest payments if inflation goes above a specified level. 
A) convert the bond to a specified number of shares of common stock. 
B) sell the bond back to the corporation at a small premium over par at a specified time period. 
C) sell the bond back to the corporation at par at a specified time period. 
D) receive additional interest payments if inflation goes above a specified level.

Question 20

Which of the following types of bond issues is the most price-sensitive?

Accepted Answer

A) Fixed-rate long-term bonds 
B) Floating-rate bonds 
C) Long-term zero-coupon bonds 
D) Fixed-rate short-term bonds 
E) Treasury bills 
A) Fixed-rate long-term bonds 
B) Floating-rate bonds 
C) Long-term zero-coupon bonds 
D) Fixed-rate short-term bonds 
E) Treasury bills

Exam 11: Bond and Fixed-Income Fundamentals

Income bonds specify that interest is to be paid only to the extent that it is earned in current income.

Junk bonds normally provide:

Foreign-pay bonds are issued in a foreign country and are payable in U.S. dollars.

Inflation-indexed Treasury securities provide returns through:

Public utility issues have a greater yield than other corporate issues, primarily because:

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months. a) How much interest would an investor receive? b) What will be the price of the Treasury bill? c) What will be the true rate of return?

An after-acquired clause requires that new property must be placed under the original mortgage.

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%, what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

A Treasury bill is a long-term obligation of the federal government.

The bond market investor must be prepared to deal in a relatively strong primary market (new issues market) and a relatively weak secondary market (resale market).

Which of the following statements about U.S. Treasury securities is true?

While the stock market has an active secondary market, the bond market consists primarily of investors who buy and hold bond issues to maturity.

For the major bond-rating agencies, the lowest level of an investment grade bond is:

The primary difference between large (jumbo) and small Certificates of Deposit, besides dollar amount, is:

Corporate issues make up the largest percentage of new debt offerings in the bond market.

Interest on federally-sponsored credit agency issues (such as the Federal Home Loan Bank) is not tax-free to the recipient.

There is customarily a small spread between bid and asked prices of Treasury notes and bonds, because:

Corporate bonds generally trade in units of:

A bond with a put provision allows the investor to:

Which of the following types of bond issues is the most price-sensitive?

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