Question 1

Eurodollar bonds are:

Accepted Answer

A) denominated in Eurodollars 
B) extremely long-term obligations 
C) scrutinized by the SEC 
D) none of the above 
A) denominated in Eurodollars 
B) extremely long-term obligations 
C) scrutinized by the SEC 
D) none of the above

Question 2

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

Accepted Answer

A) purchasing power spread 
B) credit risk premium 
C) horizon risk premium 
D) two of the above 
E) none of the above 
A) purchasing power spread 
B) credit risk premium 
C) horizon risk premium 
D) two of the above 
E) none of the above

Question 3

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

Accepted Answer

A) BBB+ 
B) BB+ 
C) B+ 
D) CCC 
A) BBB+ 
B) BB+ 
C) B+ 
D) CCC

Question 4

__________________ allows stock to be held in the name of a brokerage house.

Accepted Answer

A) The Federal Reserve 
B) Street name 
C) The Securities Exchange Act of 1944 
D) none of the above 
A) The Federal Reserve 
B) Street name 
C) The Securities Exchange Act of 1944 
D) none of the above

Question 5

Which of the following statements is false?

Accepted Answer

A) Preferred stock that is both cumulative and convertible is a popular financing choice for investors purchasing shares of stock in small firms with high growth potential. 
B) Bond issues of a single firm can have different bond ratings if their security provisions differ. 
C) Yankee bonds are dollar-denominated bonds that are sold outside the United States. 
D) All of the above statements are correct. 
A) Preferred stock that is both cumulative and convertible is a popular financing choice for investors purchasing shares of stock in small firms with high growth potential. 
B) Bond issues of a single firm can have different bond ratings if their security provisions differ. 
C) Yankee bonds are dollar-denominated bonds that are sold outside the United States. 
D) All of the above statements are correct.

Question 6

A document which is administered by a trustee, and includes in great detail the various provisions of the loan agreement is called the:

Accepted Answer

A) trust indenture 
B) debenture 
C) bond covenant 
D) bearer bond 
A) trust indenture 
B) debenture 
C) bond covenant 
D) bearer bond

Question 7

Firms issue more equities than bonds for the following reason(s).

Accepted Answer

A) it is cheaper to raise equity than to borrow 
B) bonds have a maturity date making them pricier 
C) both a and b are true 
D) none of the above are true 
A) it is cheaper to raise equity than to borrow 
B) bonds have a maturity date making them pricier 
C) both a and b are true 
D) none of the above are true

Question 8

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Accepted Answer

A) True 
 B)False

Question 9

Preferred stock is an equity security that has a senior claim to the firm's earnings and assets over bonds.

Accepted Answer

A) True 
 B)False

Question 10

AT&T 10-year, $1,000 par value bond is selling at $1,158.91.Interest on this bond is paid semianually.If the annual yield to maturity is 14%, what is the annual coupon rate of the AT&T bond?

Accepted Answer

A) 118.5% 
B) 15% 
C) 17% 
D) none of the above 
A) 118.5% 
B) 15% 
C) 17% 
D) none of the above

Question 11

If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date, the firm would have to remitpay the following to the bondholders:

Accepted Answer

A) $500 
B) $530 
C) $0 
D) none of the above 
A) $500 
B) $530 
C) $0 
D) none of the above

Question 12

A bond that allows the same assets to be used as security in future issues is called a (n):

Accepted Answer

A) first mortgage bond 
B) equipment trust certificate 
C) closed-end mortgage bond 
D) open-end mortgage bond 
A) first mortgage bond 
B) equipment trust certificate 
C) closed-end mortgage bond 
D) open-end mortgage bond

Question 13

Which of the following statements is most correct?

Accepted Answer

A) A closed-end mortgage bond is one that allows the same assets to be used as security in future bond issues. 
B) CPositive covenants in a trust indenture restrict or limit the actions the firm can take. 
C) Retractable bonds can be redeemed prior to maturity by the firm. 
D) Most of the annual funds raised from security issues come from corporate bond sales.All of the above are correct. 
A) A closed-end mortgage bond is one that allows the same assets to be used as security in future bond issues. 
B) CPositive covenants in a trust indenture restrict or limit the actions the firm can take. 
C) Retractable bonds can be redeemed prior to maturity by the firm. 
D) Most of the annual funds raised from security issues come from corporate bond sales.All of the above are correct.

Question 14

An example of a collateralized bondasset securitization is:

Accepted Answer

A) a bond backed by credit card receivables 
B) a debenture 
C) a subordinated debenture 
D) all the above 
A) a bond backed by credit card receivables 
B) a debenture 
C) a subordinated debenture 
D) all the above

Question 15

Which of the following risks would not be faced by investors in domestic bonds?

Accepted Answer

A) credit (or default) risk 
B) interest rate risk 
C) reinvestment rate (or rollover) risk 
D) exchange rate risk 
A) credit (or default) risk 
B) interest rate risk 
C) reinvestment rate (or rollover) risk 
D) exchange rate risk

Question 16

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

Accepted Answer

A) True 
 B)False

Question 17

Bond ratings are paid for by:

Accepted Answer

A) the issuing firm 
B) the trustee 
C) the investment banker 
D) none of the above 
A) the issuing firm 
B) the trustee 
C) the investment banker 
D) none of the above

Question 18

Credit risk is another term for default risk.

Accepted Answer

A) True 
 B)False

Question 19

A trustee represents the company to ensure that the covenants of the bond indenture are met.

Accepted Answer

A) True 
 B)False

Question 20

To accurately compare the rate of return on one investment with another, they should be:

Accepted Answer

A) equal in size or dollar amount 
B) measured over different time periods 
C) measured over equal time periods 
D) held for more than one year 
A) equal in size or dollar amount 
B) measured over different time periods 
C) measured over equal time periods 
D) held for more than one year

Eurodollar bonds are:

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

__________________ allows stock to be held in the name of a brokerage house.

Which of the following statements is false?

A document which is administered by a trustee, and includes in great detail the various provisions of the loan agreement is called the:

Firms issue more equities than bonds for the following reason(s).

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Preferred stock is an equity security that has a senior claim to the firm's earnings and assets over bonds.

AT&T 10-year, $1,000 par value bond is selling at $1,158.91.Interest on this bond is paid semianually.If the annual yield to maturity is 14%, what is the annual coupon rate of the AT&T bond?

If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date, the firm would have to remitpay the following to the bondholders:

A bond that allows the same assets to be used as security in future issues is called a (n):

Which of the following statements is most correct?

An example of a collateralized bondasset securitization is:

Which of the following risks would not be faced by investors in domestic bonds?

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

Bond ratings are paid for by:

Credit risk is another term for default risk.

A trustee represents the company to ensure that the covenants of the bond indenture are met.

To accurately compare the rate of return on one investment with another, they should be:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters

Exam 10: Bonds and Stocks: Characteristics and Valuation

Eurodollar bonds are:

The _____________ is the difference in return earned by investing in a longer term bond that has the same credit risk as a shorter-term bond.

According to Standard & Poors and Fitch, bonds rated ______ and below are considered to be speculative or "junk."

__________________ allows stock to be held in the name of a brokerage house.

Which of the following statements is false?

A document which is administered by a trustee, and includes in great detail the various provisions of the loan agreement is called the:

Firms issue more equities than bonds for the following reason(s).

Eurodollar bonds are dollar-denominated bonds that are sold outside the United States.

Preferred stock is an equity security that has a senior claim to the firm's earnings and assets over bonds.

AT&T 10-year, $1,000 par value bond is selling at $1,158.91.Interest on this bond is paid semianually.If the annual yield to maturity is 14%, what is the annual coupon rate of the AT&T bond?

If a bond with a par value of $500 and a call premium of 6% is called in before its maturity date, the firm would have to remitpay the following to the bondholders:

A bond that allows the same assets to be used as security in future issues is called a (n):

Which of the following statements is most correct?

An example of a collateralized bondasset securitization is:

Which of the following risks would not be faced by investors in domestic bonds?

The dividends paid on stock issued by corporations in the United States are tax deductible to the issuing corporation.

Bond ratings are paid for by:

Credit risk is another term for default risk.

A trustee represents the company to ensure that the covenants of the bond indenture are met.

To accurately compare the rate of return on one investment with another, they should be:

The Financial Environment

Money and the Monetary System

Banks and Other Financial Institutions

Federal Reserve System

Policy Makers and the Money Supply

International Finance and Trade

Savings and Investment Process

Interest Rates

Time Value of Money

Securities Markets

Financial Return and Risk Concepts

Business Organization and Financial Data

Financial Analysis and Long-Term Financial Planning

Managing Working Capital

Short-Term Business Financing

Capital Budgeting Analysis

Capital Structure and the Cost of Capital

Filters