Question 1

Which of the following statements regarding Collateralized Debt Obligations (CDOs) is FALSE?

Accepted Answer

A)  CDOs experienced rapid growth since the year 2000. 
B)  The assets used to back the CDOs are substantially diverse. 
C)  The credit quality within a CDO at the time of issue is diverse. 
D)  CDOs have generated significant credit and liquidity problems. 
E)  All of these are correct. 
A)  CDOs experienced rapid growth since the year 2000. 
B)  The assets used to back the CDOs are substantially diverse. 
C)  The credit quality within a CDO at the time of issue is diverse. 
D)  CDOs have generated significant credit and liquidity problems. 
E)  All of these are correct.

Question 2

Treasury Inflation Protected Securities (TIPS) ensures that investors will receive the promised yield in real terms by indexing bond principal and interest payments to the stock market.

Accepted Answer

A) True 
 B)False

Question 3

How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?

Accepted Answer

A)  $10,150.00 
B)  $10,000.00 
C)  $101.16 
D)  $10,160.00 
E)  $1,011.60 
A)  $10,150.00 
B)  $10,000.00 
C)  $101.16 
D)  $10,160.00 
E)  $1,011.60

Question 4

Collateralized mortgage obligations (CMOs) offset some of the problems associated with traditional mortgage pass-throughs because

Accepted Answer

A)  they are overcollateralized. 
B)  they have variable rates. 
C)  they are collateralized by auto-loans. 
D)  they are deep discount instruments. 
E)  they are collateralized by credit card debt. 
A)  they are overcollateralized. 
B)  they have variable rates. 
C)  they are collateralized by auto-loans. 
D)  they are deep discount instruments. 
E)  they are collateralized by credit card debt.

Question 5

Estimate the percentage price change for a five-year, $1,000 par value bond, with a 6 percent coupon, if the yield rises from 8 percent to 8.5 percent. Interest is paid semiannually.

Accepted Answer

A)  2.1 percent 
B)  -2.1 percent 
C)  4.4 percent 
D)  -4.4 percent 
E)  0 percent 
A)  2.1 percent 
B)  -2.1 percent 
C)  4.4 percent 
D)  -4.4 percent 
E)  0 percent

Question 6

Which type of bond is backed by the full faith and credit of the issuer and its entire taxing power?

Accepted Answer

A)  Fannie Mae 
B)  Freddie Mac 
C)  GSEs 
D)  general obligation bonds 
E)  revenue bonds 
A)  Fannie Mae 
B)  Freddie Mac 
C)  GSEs 
D)  general obligation bonds 
E)  revenue bonds

Question 7

At what point would an investor be indifferent between a Compco corporate bond yielding 8.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Accepted Answer

A)  6.05 percent 
B)  7.10 percent 
C)  8.15 percent 
D)  6.38 percent 
E)  2.34 percent 
A)  6.05 percent 
B)  7.10 percent 
C)  8.15 percent 
D)  6.38 percent 
E)  2.34 percent

Question 8

Consider a zero-coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity?

Accepted Answer

A)  0.86 percent 
B)  8.65 percent 
C)  8.00 percent 
D)  58.80 percent 
E)  6.564 percent 
A)  0.86 percent 
B)  8.65 percent 
C)  8.00 percent 
D)  58.80 percent 
E)  6.564 percent

Question 9

The term structure of interest rates is a static function that relates the

Accepted Answer

A)  term to call and the yield to maturity. 
B)  term to maturity and the yield to maturity. 
C)  term to call and the yield to call. 
D)  term to maturity and the coupon rate. 
E)  term to maturity and the current yield. 
A)  term to call and the yield to maturity. 
B)  term to maturity and the yield to maturity. 
C)  term to call and the yield to call. 
D)  term to maturity and the coupon rate. 
E)  term to maturity and the current yield.

Question 10

Revenue bonds are

Accepted Answer

A)  U.S. Treasury bonds backed by the full faith and credit of the issuer. 
B)  U.S. Treasury bonds backed by income generated form specific projects. 
C)  municipal bonds backed by the full faith and credit of the issuer. 
D)  municipal bonds backed by income generated from specific projects. 
E)  a type of U.S. agency security. 
A)  U.S. Treasury bonds backed by the full faith and credit of the issuer. 
B)  U.S. Treasury bonds backed by income generated form specific projects. 
C)  municipal bonds backed by the full faith and credit of the issuer. 
D)  municipal bonds backed by income generated from specific projects. 
E)  a type of U.S. agency security.

Question 11

You purchase a 9 3/4s February $10,000 par Treasury note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Accepted Answer

A)  8.14 percent 
B)  8.75 percent 
C)  9.75 percent 
D)  9.81 percent 
E)  10.47 percent 
A)  8.14 percent 
B)  8.75 percent 
C)  9.75 percent 
D)  9.81 percent 
E)  10.47 percent

Question 12

Bond ratings are negatively related to

Accepted Answer

A)  profitability. 
B)  cash flow coverage. 
C)  earnings instability. 
D)  bond maturity. 
E)  coupon rate. 
A)  profitability. 
B)  cash flow coverage. 
C)  earnings instability. 
D)  bond maturity. 
E)  coupon rate.

Question 13

Issues that provide funds to retire another issue early are known as

Accepted Answer

A)  bearer bonds. 
B)  secured debentures. 
C)  unsecured debentures. 
D)  revenue bonds. 
E)  refunding bonds. 
A)  bearer bonds. 
B)  secured debentures. 
C)  unsecured debentures. 
D)  revenue bonds. 
E)  refunding bonds.

Question 14

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

Accepted Answer

A) True 
 B)False

Question 15

What is the current price of a zero-coupon bond with a 7 percent yield to maturity that matures in 20 years?

Accepted Answer

A)  $1,000 
B)  $2,582 
C)  $25.82 
D)  $258.42 
E)  $100.00 
A)  $1,000 
B)  $2,582 
C)  $25.82 
D)  $258.42 
E)  $100.00

Question 16

What is the value of a zero-coupon bond with a yield to maturity of 9 percent, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)

Accepted Answer

A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00 
A)  $208.29 
B)  $414.64 
C)  $422.41 
D)  $643.93 
E)  $910.00

Question 17

Yield to maturity and current yield are equal when the bond is selling for exactly par value.

Accepted Answer

A) True 
 B)False

Question 18

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 12.1. What annual dollar coupon amount will investors receive?

Accepted Answer

A)  $4.75 
B)  $47.50 
C)  $4.808 
D)  $48.08 
E)  $62 
A)  $4.75 
B)  $47.50 
C)  $4.808 
D)  $48.08 
E)  $62

Which of the following statements regarding Collateralized Debt Obligations (CDOs) is FALSE?

Treasury Inflation Protected Securities (TIPS) ensures that investors will receive the promised yield in real terms by indexing bond principal and interest payments to the stock market.

How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?

Collateralized mortgage obligations (CMOs) offset some of the problems associated with traditional mortgage pass-throughs because

Estimate the percentage price change for a five-year, $1,000 par value bond, with a 6 percent coupon, if the yield rises from 8 percent to 8.5 percent. Interest is paid semiannually.

Which type of bond is backed by the full faith and credit of the issuer and its entire taxing power?

At what point would an investor be indifferent between a Compco corporate bond yielding 8.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Consider a zero-coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity?

The term structure of interest rates is a static function that relates the

Revenue bonds are

You purchase a 9 3/4s February $10,000 par Treasury note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Bond ratings are negatively related to

Issues that provide funds to retire another issue early are known as

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

What is the current price of a zero-coupon bond with a 7 percent yield to maturity that matures in 20 years?

What is the value of a zero-coupon bond with a yield to maturity of 9 percent, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)

Yield to maturity and current yield are equal when the bond is selling for exactly par value.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 12.1. What annual dollar coupon amount will investors receive?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 12: Bond Fundamentals and Valuation

Which of the following statements regarding Collateralized Debt Obligations (CDOs) is FALSE?

Treasury Inflation Protected Securities (TIPS) ensures that investors will receive the promised yield in real terms by indexing bond principal and interest payments to the stock market.

How much would you expect to pay for a $10,000 stripped Treasury bond quoted at 101:16?

Collateralized mortgage obligations (CMOs) offset some of the problems associated with traditional mortgage pass-throughs because

Estimate the percentage price change for a five-year, $1,000 par value bond, with a 6 percent coupon, if the yield rises from 8 percent to 8.5 percent. Interest is paid semiannually.

Which type of bond is backed by the full faith and credit of the issuer and its entire taxing power?

At what point would an investor be indifferent between a Compco corporate bond yielding 8.5 percent and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25 percent?

Consider a zero-coupon bond that has a current price of $436.19 and matures in 10 years. What is its yield to maturity?

The term structure of interest rates is a static function that relates the

Revenue bonds are

You purchase a 9 3/4s February $10,000 par Treasury note at 101:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:17?

Bond ratings are negatively related to

Issues that provide funds to retire another issue early are known as

The internal rate of return is that discount rate that sets the present value of cash flows from an investment equal to its par value.

What is the current price of a zero-coupon bond with a 7 percent yield to maturity that matures in 20 years?

What is the value of a zero-coupon bond with a yield to maturity of 9 percent, a par value of $1,000, and 10 years to maturity? (Assume semi-annual compounding)

Yield to maturity and current yield are equal when the bond is selling for exactly par value.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 12.1. What annual dollar coupon amount will investors receive?

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

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