Question 1

What is the purpose of the capital market? How do capital market securities differ from money market securities in their general characteristics?

Accepted Answer

What is the purpose of the capital marke

Question 2

The ________ rate is the rate of interest that the issuer must pay.

Accepted Answer

A)  market 
B)  coupon 
C)  discount 
D)  funds 
A)  market 
B)  coupon 
C)  discount 
D)  funds

Question 3

Bonds

Accepted Answer

A)  are securities that represent a debt owed by the issuer to the investor. 
B)  obligate the issuer to pay a specified amount at a given date, generally without periodic interest payments. 
C)  both A and B of the above. 
D)  none of the above. 
A)  are securities that represent a debt owed by the issuer to the investor. 
B)  obligate the issuer to pay a specified amount at a given date, generally without periodic interest payments. 
C)  both A and B of the above. 
D)  none of the above.

Question 4

Corporations may enter the capital markets because

Accepted Answer

A)  they do not have sufficient capital to fund their investment opportunities. 
B)  they want to preserve their capital to protect against expected needs. 
C)  it is required by the Securities and Exchange Commission (SE
C) . 
D)  none of the above. 
A)  they do not have sufficient capital to fund their investment opportunities. 
B)  they want to preserve their capital to protect against expected needs. 
C)  it is required by the Securities and Exchange Commission (SE
C) . 
D)  none of the above.

Question 5

Treasury bonds are subject to ________ risk but are free of ________ risk.

Accepted Answer

A)  default; interest-rate 
B)  default; underwriting 
C)  interest-rate; default 
D)  interest-rate; underwriting 
A)  default; interest-rate 
B)  default; underwriting 
C)  interest-rate; default 
D)  interest-rate; underwriting

Question 6

What is a bond's current yield? How does the current yield differ from the yield to maturity and what determines how close the two values are?

Accepted Answer

Current yield is defined as the annual c

Question 7

(I)Because interest rates on Treasury bills are more volatile than rates on long-term securities,the return on short-term Treasury securities is usually above that on longer-term Treasury securities.
(II)A Treasury STRIP separates the periodic interest payments from the final principal repayment.

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 8

What is a bond indenture?

Accepted Answer

A bond is a long term debt instrument. T

Question 9

The current yield on a bond is a good approximation of the bond's yield to maturity when the bond matures in five years or less and its price differs from its par value by a large amount.

Accepted Answer

A) True 
 B)False

Question 10

(I)There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges.
(II)When firms sell securities for the very first time,the issue is an initial public offering.

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

Registered bonds have now been largely replaced by bearer bonds,which do not have coupons.

Accepted Answer

A) True 
 B)False

Question 12

(I)Restrictive covenants often limit the amount of dividends that firms can pay the stockholders.
(II)Most corporate indentures include a call provision,which states that the issuer has the right to force the holder to sell the bond back.

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

In its simplest form,a credit default swap provides

Accepted Answer

A)  insurance against default in the principle and interest payments of a credit instrument. 
B)  an alternative method for bond issuers to pay principle and interest payments via a swap. 
C)  bond investors with a method to swap interest payments for principle payments during a "credit event." 
D)  the government with a guarantee that certain bond issues will not run into credit problems. 
A)  insurance against default in the principle and interest payments of a credit instrument. 
B)  an alternative method for bond issuers to pay principle and interest payments via a swap. 
C)  bond investors with a method to swap interest payments for principle payments during a "credit event." 
D)  the government with a guarantee that certain bond issues will not run into credit problems.

Question 14

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

Accepted Answer

Bonds have been a source of finance for

Question 15

The current yield is a less accurate approximation of the yield to maturity the ________ the time to maturity of the bond and the ________ the price is from/to the par value.

Accepted Answer

A)  shorter; closer 
B)  shorter; farther 
C)  longer; closer 
D)  longer; farther 
A)  shorter; closer 
B)  shorter; farther 
C)  longer; closer 
D)  longer; farther

Question 16

Which of the following are true for the current yield?

Accepted Answer

A)  The current yield is defined as the yearly coupon payment divided by the price of the security. 
B)  The current yield and the yield to maturity always move together. 
C)  The formula for the current yield is identical to the formula describing the yield to maturity for a discount bond. 
D)  All of the above are true. 
E)  Only A and B of the above are true. 
A)  The current yield is defined as the yearly coupon payment divided by the price of the security. 
B)  The current yield and the yield to maturity always move together. 
C)  The formula for the current yield is identical to the formula describing the yield to maturity for a discount bond. 
D)  All of the above are true. 
E)  Only A and B of the above are true.

Question 17

Explain the different types of corporate bonds.

Accepted Answer

There are several different types of cor

Question 18

(I)Most corporate bonds have a face value of $1,000,pay interest semiannually,and can be redeemed anytime the issuer wishes.
(II)Registered bonds have now been largely replaced by bearer bonds,which do not have coupons.

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 19

(I)In most years,the rate of return on short-term Treasury bills is below that on the 20-year Treasury bond.
(II)Interest rates on Treasury bills are more volatile than rates on long-term Treasury securities.

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 20

Most of the time,the interest rate on Treasury notes is below that on money market securities because of their low default risk.

Accepted Answer

A) True 
 B)False

Exam 12: The Bond Market

What is the purpose of the capital market? How do capital market securities differ from money market securities in their general characteristics?

The ________ rate is the rate of interest that the issuer must pay.

Bonds

Corporations may enter the capital markets because

Treasury bonds are subject to ________ risk but are free of ________ risk.

What is a bond's current yield? How does the current yield differ from the yield to maturity and what determines how close the two values are?

(I)Because interest rates on Treasury bills are more volatile than rates on long-term securities,the return on short-term Treasury securities is usually above that on longer-term Treasury securities. (II)A Treasury STRIP separates the periodic interest payments from the final principal repayment.

What is a bond indenture?

The current yield on a bond is a good approximation of the bond's yield to maturity when the bond matures in five years or less and its price differs from its par value by a large amount.

(I)There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges. (II)When firms sell securities for the very first time,the issue is an initial public offering.

Registered bonds have now been largely replaced by bearer bonds,which do not have coupons.

(I)Restrictive covenants often limit the amount of dividends that firms can pay the stockholders. (II)Most corporate indentures include a call provision,which states that the issuer has the right to force the holder to sell the bond back.

In its simplest form,a credit default swap provides

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

The current yield is a less accurate approximation of the yield to maturity the ________ the time to maturity of the bond and the ________ the price is from/to the par value.

Which of the following are true for the current yield?

Explain the different types of corporate bonds.

(I)Most corporate bonds have a face value of $1,000,pay interest semiannually,and can be redeemed anytime the issuer wishes. (II)Registered bonds have now been largely replaced by bearer bonds,which do not have coupons.

(I)In most years,the rate of return on short-term Treasury bills is below that on the 20-year Treasury bond. (II)Interest rates on Treasury bills are more volatile than rates on long-term Treasury securities.

Most of the time,the interest rate on Treasury notes is below that on money market securities because of their low default risk.

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

Treasury bonds are subject to risk but are free of risk.

The current yield is a less accurate approximation of the yield to maturity the the time to maturity of the bond and the the price is from/to the par value.