Question 1

By the time the subprime financial crisis hit in force,Fannie and Freddie had ________ subprime and Alt-A assets on their books.

Accepted Answer

A)  over $1 trillion of 
B)  very few 
C)  been prohibited from holding 
D)  none of the above 
A)  over $1 trillion of 
B)  very few 
C)  been prohibited from holding 
D)  none of the above

Question 2

Policies that limit the discretion of managers as a way of protecting bondholders' interests are called

Accepted Answer

A)  restrictive covenants. 
B)  debentures. 
C)  sinking funds. 
D)  bond indentures. 
A)  restrictive covenants. 
B)  debentures. 
C)  sinking funds. 
D)  bond indentures.

Question 3

Typically,the interest rate on corporate bonds will be ________ the more restrictions are placed on management through restrictive covenants,because ________.

Accepted Answer

A)  higher; corporate earnings will be limited by the restrictions 
B)  higher; the bonds will be considered safer by bondholders 
C)  lower; the bonds will be considered safer by buyers 
D)  lower; corporate earnings will be higher with more restrictions in place 
A)  higher; corporate earnings will be limited by the restrictions 
B)  higher; the bonds will be considered safer by bondholders 
C)  lower; the bonds will be considered safer by buyers 
D)  lower; corporate earnings will be higher with more restrictions in place

Question 4

The Commodity Futures Modernization Act (2000)removed derivative securities,such as CDSs,from regulatory oversight.This change opened the door for speculators to bet on the health of a company or pool of assets,and was certainly a culprit in the 2007-2009 financial crisis.Why did Congress pass such legislation?

Accepted Answer

derivatives are bets — nothing more. Jus

Question 5

The ________ value of a bond is the amount that the issuer must pay at maturity.

Accepted Answer

A)  market 
B)  present 
C)  discounted 
D)  face 
A)  market 
B)  present 
C)  discounted 
D)  face

Question 6

The primary issuers of capital market securities include

Accepted Answer

A)  the federal and local governments. 
B)  the federal and local governments, and corporations. 
C)  the federal and local governments, corporations, and financial institutions. 
D)  local governments and corporations. 
A)  the federal and local governments. 
B)  the federal and local governments, and corporations. 
C)  the federal and local governments, corporations, and financial institutions. 
D)  local governments and corporations.

Question 7

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

Accepted Answer

A) True 
 B)False

Question 8

(I)The coupon rate is the rate of interest that the issuer of the bond must pay.
(II)The coupon rate is usually fixed for the duration of the bond and does not fluctuate with market interest rates.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 9

Most of the time,the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

Accepted Answer

A)  above; interest-rate 
B)  above; default 
C)  below; interest-rate 
D)  below; default 
A)  above; interest-rate 
B)  above; default 
C)  below; interest-rate 
D)  below; default

Question 10

(I)Firms and individuals use the capital markets for long-term investments.
(II)Capital markets provide an alternative to investment in assets such as real estate and gold.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 11

What role do restrictive covenants play in bond markets?

Accepted Answer

Restrictive covenants play a crucial rol

Question 12

(I)The primary issuers of capital market securities are federal and local governments,and corporations.
(II)Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 13

What is a convertible bond? How does the convertibility feature affect the bond's price and interest rate?

Accepted Answer

A convertible bond is a type of corporat

Question 14

The primary reason that individuals and firms choose to borrow long-term is to reduce the risk that interest rates will ________ before they pay off their debt.

Accepted Answer

A)  rise 
B)  fall 
C)  become more volatile 
D)  become more stable 
A)  rise 
B)  fall 
C)  become more volatile 
D)  become more stable

Question 15

Governments never issue stock because

Accepted Answer

A)  they cannot sell ownership claims. 
B)  the Constitution expressly forbids it. 
C)  both A and B of the above. 
D)  neither A nor B of the above. 
A)  they cannot sell ownership claims. 
B)  the Constitution expressly forbids it. 
C)  both A and B of the above. 
D)  neither A nor B of the above.

Question 16

Which of the following statements about Treasury inflation-indexed bonds is not true?

Accepted Answer

A)  The principal amount used to compute the interest payment varies with the consumer price index. 
B)  The interest payment rises when inflation occurs. 
C)  The interest rate rises when inflation occurs. 
D)  At maturity, the securities pay the greater of face value or inflation-adjusted principal. 
A)  The principal amount used to compute the interest payment varies with the consumer price index. 
B)  The interest payment rises when inflation occurs. 
C)  The interest rate rises when inflation occurs. 
D)  At maturity, the securities pay the greater of face value or inflation-adjusted principal.

Question 17

(I)The primary issuers of capital market securities are financial institutions.
(II)The largest purchasers of capital market securities are corporations.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 18

The current yield on a $5,000,8 percent coupon bond selling for $4,000 is

Accepted Answer

A)  5%. 
B)  8%. 
C)  10%. 
D)  20%. 
E)  none of the above. 
A)  5%. 
B)  8%. 
C)  10%. 
D)  20%. 
E)  none of the above.

Question 19

To sell an old bond when interest rates have ________,the holder will have to ________ the price of the bond until the yield to the buyer is the same as the market rate.

Accepted Answer

A)  risen; lower 
B)  risen; raise 
C)  fallen; lower 
D)  risen; inflate 
A)  risen; lower 
B)  risen; raise 
C)  fallen; lower 
D)  risen; inflate

Question 20

Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A) True 
 B)False

Exam 12: The Bond Market

By the time the subprime financial crisis hit in force,Fannie and Freddie had ________ subprime and Alt-A assets on their books.

Policies that limit the discretion of managers as a way of protecting bondholders' interests are called

Typically,the interest rate on corporate bonds will be ________ the more restrictions are placed on management through restrictive covenants,because ________.

The ________ value of a bond is the amount that the issuer must pay at maturity.

The primary issuers of capital market securities include

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

(I)The coupon rate is the rate of interest that the issuer of the bond must pay. (II)The coupon rate is usually fixed for the duration of the bond and does not fluctuate with market interest rates.

Most of the time,the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

(I)Firms and individuals use the capital markets for long-term investments. (II)Capital markets provide an alternative to investment in assets such as real estate and gold.

What role do restrictive covenants play in bond markets?

(I)The primary issuers of capital market securities are federal and local governments,and corporations. (II)Governments never issue stock because they cannot sell ownership claims.

What is a convertible bond? How does the convertibility feature affect the bond's price and interest rate?

The primary reason that individuals and firms choose to borrow long-term is to reduce the risk that interest rates will ________ before they pay off their debt.

Governments never issue stock because

Which of the following statements about Treasury inflation-indexed bonds is not true?

(I)The primary issuers of capital market securities are financial institutions. (II)The largest purchasers of capital market securities are corporations.

The current yield on a $5,000,8 percent coupon bond selling for $4,000 is

To sell an old bond when interest rates have ________,the holder will have to ________ the price of the bond until the yield to the buyer is the same as the market rate.

Governments never issue stock because they cannot sell ownership claims.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Typically,the interest rate on corporate bonds will be the more restrictions are placed on management through restrictive covenants,because .

Most of the time,the interest rate on Treasury notes and bonds is that on money market securities because of risk.

To sell an old bond when interest rates have ,the holder will have to the price of the bond until the yield to the buyer is the same as the market rate.