Question 1

Capital market trading occurs in

Accepted Answer

A) the primary market. 
B) the secondary market. 
C) both A and B of the above. 
D) none of the above. 
A) the primary market. 
B) the secondary market. 
C) both A and B of the above. 
D) none of the above. C

Question 2

(I)Securities that have an original maturity greater than one year are traded in capital markets. (II)The best known capital market securities are stocks and bonds.

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. C

Question 3

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

not answered

Question 4

(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 5

(I)Securities that have an original maturity greater than one year are traded in money markets. (II)The best known money market securities are stocks and bonds.

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 6

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 7

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

Accepted Answer

A) True 
 B)False

Question 8

Capital market securities are less liquid and have longer maturities than money market securities.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 11

The prices of Treasury notes, bonds, and bills are quoted

Accepted Answer

A) as a percentage of the coupon rate. 
B) as a percentage of the previous day's closing value. 
C) as a percentage of $100 face value. 
D) as a multiple of the annual interest paid. 
A) as a percentage of the coupon rate. 
B) as a percentage of the previous day's closing value. 
C) as a percentage of $100 face value. 
D) as a multiple of the annual interest paid.

Question 12

(I)Capital market securities fall into two categories: bonds and stocks. (II)Long-term bonds include government bonds and long-term notes, municipal bonds, and corporate bonds.

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

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 14

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 15

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 16

When an old bond's market value is above its par value, the bond is selling at a ________. This occurs because the old bond's coupon rate is ________ the coupon rates of new bonds with similar risk.

Accepted Answer

A) premium; below 
B) premium; above 
C) discount; below 
D) discount; above 
A) premium; below 
B) premium; above 
C) discount; below 
D) discount; above

Question 17

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

Accepted Answer

The answer of What is a callable bond? How does...

Question 18

The first step in finding the value of a bond is to

Accepted Answer

A) discount back the cash flows using an interest rate that represents the yield available on other bonds of like risk and maturity. 
B) identify the cash flows the holder of the bond will receive. 
C) contact the holder of the bond. 
D) none of the above. 
A) discount back the cash flows using an interest rate that represents the yield available on other bonds of like risk and maturity. 
B) identify the cash flows the holder of the bond will receive. 
C) contact the holder of the bond. 
D) none of the above.

Question 19

(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 20

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.

Exam 12: The Bond Market

Capital market trading occurs in

(I)Securities that have an original maturity greater than one year are traded in capital markets. (II)The best known capital market securities are stocks and bonds.

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)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.

(I)Securities that have an original maturity greater than one year are traded in money markets. (II)The best known money market securities are stocks and bonds.

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.

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

Capital market securities are less liquid and have longer maturities than money market securities.

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

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

The prices of Treasury notes, bonds, and bills are quoted

(I)Capital market securities fall into two categories: bonds and stocks. (II)Long-term bonds include government bonds and long-term notes, municipal bonds, and corporate bonds.

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

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

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

When an old bond's market value is above its par value, the bond is selling at a ________. This occurs because the old bond's coupon rate is ________ the coupon rates of new bonds with similar risk.

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

The first step in finding the value of a bond is to

(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.

Bonds

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 Why Are They so Damaging to the Economy

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

Savings Associations and Credit Unions

Finance Companies

Filters

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.

When an old bond's market value is above its par value, the bond is selling at a . This occurs because the old bond's coupon rate is the coupon rates of new bonds with similar risk.