Question 1

The following are participating investors in bond markets.

Accepted Answer

A)  Canadian Treasury. 
B)  Life insurance companies. 
C)  Chartered banks. 
D)  Choices a and b. 
E)  Choices b and c. 
A)  Canadian Treasury. 
B)  Life insurance companies. 
C)  Chartered banks. 
D)  Choices a and b. 
E)  Choices b and c. E

Question 2

General obligation bonds are

Accepted Answer

A)  Treasury bonds backed by the full faith and credit of the issuer. 
B)  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)  Treasury bonds backed by the full faith and credit of the issuer. 
B)  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. C

Question 3

A major source of risk faced by CMO issues is

Accepted Answer

A)  Default risk. 
B)  Prepayment risk. 
C)  Counterparty risk. 
D)  Choices a and b. 
E)  Choices a, b and c. 
A)  Default risk. 
B)  Prepayment risk. 
C)  Counterparty risk. 
D)  Choices a and b. 
E)  Choices a, b and c. B

Question 4

What was developed in the early 1980s to offset some of the problems with traditional mortgage pass-throughs.

Accepted Answer

A)  Variable rate mortgages. 
B)  Collateralized mortgage obligations (CMOs) 
C)  Leveraged buyouts (LBOs) 
D)  Deep discount bonds (DDBs) 
E)  High yield bonds. 
A)  Variable rate mortgages. 
B)  Collateralized mortgage obligations (CMOs) 
C)  Leveraged buyouts (LBOs) 
D)  Deep discount bonds (DDBs) 
E)  High yield bonds.

Question 5

When homeowners pay off mortgages when they sell their homes, or when homeowners refinance home mortgages, they effectively

Accepted Answer

A)  Make the maturities of CMO securities longer. 
B)  Make the maturities of CMO securities shorter. 
C)  Make the maturities of Canadian Treasury securities longer. 
D)  Make the maturities of Canadian Treasury securities shorter. 
E)  None of the above. 
A)  Make the maturities of CMO securities longer. 
B)  Make the maturities of CMO securities shorter. 
C)  Make the maturities of Canadian Treasury securities longer. 
D)  Make the maturities of Canadian Treasury securities shorter. 
E)  None of the above.

Question 6

Revenue bonds are

Accepted Answer

A)  Treasury bonds backed by the full faith and credit of the issuer. 
B)  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)  Treasury bonds backed by the full faith and credit of the issuer. 
B)  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 7

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 the above statements are true. 
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 the above statements are true.

Question 8

Exhibit 11-2
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S)
XLR Corporation just issued a $1,000 par value bond with a 7% yield to maturity, twenty years to maturity, with an 8% semi-annual coupon rate.
-Refer to Exhibit 11-2. What is the price of the XLR Corporate bond?

Accepted Answer

A)  $901.04 
B)  $932.04 
C)  $1,102.62 
D)  $1,105.94 
E)  $1,106.78 
A)  $901.04 
B)  $932.04 
C)  $1,102.62 
D)  $1,105.94 
E)  $1,106.78

Question 9

Exhibit 11-1
USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S) $\begin{array}{ccccccccc}
& & & &&&&& \text { Est } \$ \
& & & & \text { Last } & \text { Last } & \text { EST } && \mathrm{Vol} \
\text { Company } & \text { Ticker } & \text { Coupon } & \text { Maturity } & \text { Price } & \text { Yield } & \text { Spread } & \text { UST } & (000 ' s) \
\hline \text { Gen Elec } & f^{\prime} E^{\prime} & 475 & 9 / 15 / 2014 & 99544 & 4808 &62&10& 158736
\end{array}$
-Refer to Exhibit 11-1. What is the estimated yield on Treasury securities?

Accepted Answer

A)  4.188% 
B)  5.428% 
C)  5.371% 
D)  4.132% 
E)  4.753% 
A)  4.188% 
B)  5.428% 
C)  5.371% 
D)  4.132% 
E)  4.753%

Question 10

The legal document setting forth the obligations of a bond's issuer is called

Accepted Answer

A)  A debenture. 
B)  A warrant. 
C)  An indenture. 
D)  A rights certificate. 
E)  A trustee deed. 
A)  A debenture. 
B)  A warrant. 
C)  An indenture. 
D)  A rights certificate. 
E)  A trustee deed.

Question 11

An 8.5% coupon bond issued by the provincial government of Nova Scotia sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the tax-free municipal bond if the investor is in the 25% marginal tax bracket?

Accepted Answer

A)  2.13% 
B)  12.25% 
C)  11.33% 
D)  13.53% 
E)  34.71% 
A)  2.13% 
B)  12.25% 
C)  11.33% 
D)  13.53% 
E)  34.71%

Question 12

Institutional investors typically account for about

Accepted Answer

A)  90 to 95% of bond market trading. 
B)  40 to 50% of bond market trading. 
C)  10 to 15% of bond market trading. 
D)  Less than 5% of bond market trading. 
E)  None of the above. 
A)  90 to 95% of bond market trading. 
B)  40 to 50% of bond market trading. 
C)  10 to 15% of bond market trading. 
D)  Less than 5% of bond market trading. 
E)  None of the above.

Question 13

A nonrefunding provision prohibits a call and premature retirement of an issue from the proceeds of a lower-coupon refunding bond.

Accepted Answer

A) True 
 B)False

Question 14

Inflation-indexed bonds are Canadian Treasury securities where the coupon rate is

Accepted Answer

A)  Zero 
B)  Indexed to the rate of inflation. 
C)  Indexed to the discount rate. 
D)  Indexed to the prime rate. 
E)  None of the above. 
A)  Zero 
B)  Indexed to the rate of inflation. 
C)  Indexed to the discount rate. 
D)  Indexed to the prime rate. 
E)  None of the above.

Question 15

The corporate bond market in Japan

Accepted Answer

A)  Consists of three components. 
B)  Is largely unregulated. 
C)  Has always been rated like the U.S. bond market. 
D)  Is regulated by the Kisaikai. 
E)  Is regulated by the Nikkei Exchange. 
A)  Consists of three components. 
B)  Is largely unregulated. 
C)  Has always been rated like the U.S. bond market. 
D)  Is regulated by the Kisaikai. 
E)  Is regulated by the Nikkei Exchange.

Question 16

Which of the following is not a major rating agency for bonds?

Accepted Answer

A)  Moody's 
B)  Standard & Poor's 
C)  Fitch Investor Services 
D)  Value Line 
E)  Dominion Bond Rating Service 
A)  Moody's 
B)  Standard & Poor's 
C)  Fitch Investor Services 
D)  Value Line 
E)  Dominion Bond Rating Service

Question 17

Alternative institutions favour different sectors of the bond market based on

Accepted Answer

A)  The level of interest rates. 
B)  The tax code applicable to the institution. 
C)  The nature of the institution's asset structure 
D)  Choices a and b. 
E)  Choices b and c. 
A)  The level of interest rates. 
B)  The tax code applicable to the institution. 
C)  The nature of the institution's asset structure 
D)  Choices a and b. 
E)  Choices b and c.

Question 18

Bond ratings are negatively related to

Accepted Answer

A)  Profitability. 
B)  Cash flow coverage. 
C)  Earnings instability. 
D)  All of the above. 
E)  None of the above. 
A)  Profitability. 
B)  Cash flow coverage. 
C)  Earnings instability. 
D)  All of the above. 
E)  None of the above.

Question 19

When a fixed income security is being traded at the price above its face value it is trading

Accepted Answer

A)  At a discount. 
B)  At par. 
C)  At a premium. 
D)  Flat. 
E)  No accrual. 
A)  At a discount. 
B)  At par. 
C)  At a premium. 
D)  Flat. 
E)  No accrual.

Question 20

The refunding provision of an indenture allows bonds to be retired unless

Accepted Answer

A)  They are replaced with a lower coupon bond issue. 
B)  The remaining time to maturity is less than five years. 
C)  The remaining time to maturity is greater than five years. 
D)  The stated time period in the indenture has not passed. 
E)  The stated time period in the indenture has passed. 
A)  They are replaced with a lower coupon bond issue. 
B)  The remaining time to maturity is less than five years. 
C)  The remaining time to maturity is greater than five years. 
D)  The stated time period in the indenture has not passed. 
E)  The stated time period in the indenture has passed.

Exam 11: Bond Fundamentals

The following are participating investors in bond markets.

General obligation bonds are

A major source of risk faced by CMO issues is

What was developed in the early 1980s to offset some of the problems with traditional mortgage pass-throughs.

When homeowners pay off mortgages when they sell their homes, or when homeowners refinance home mortgages, they effectively

Revenue bonds are

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

Exhibit 11-2 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S) XLR Corporation just issued a $1,000 par value bond with a 7% yield to maturity, twenty years to maturity, with an 8% semi-annual coupon rate. -Refer to Exhibit 11-2. What is the price of the XLR Corporate bond?

Exhibit 11-1 USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT PROBLEM(S) Est \ Last Last EST Company Ticker Coupon Maturity Price Yield Spread UST (00s) Gen Elec 475 9/15/2014 99544 4808 62 10 158736 -Refer to Exhibit 11-1. What is the estimated yield on Treasury securities?

The legal document setting forth the obligations of a bond's issuer is called

An 8.5% coupon bond issued by the provincial government of Nova Scotia sells for $1,000. What coupon rate on a corporate bond selling at $1,000 par value would produce the same after tax return to the investor as the tax-free municipal bond if the investor is in the 25% marginal tax bracket?

Institutional investors typically account for about

A nonrefunding provision prohibits a call and premature retirement of an issue from the proceeds of a lower-coupon refunding bond.

Inflation-indexed bonds are Canadian Treasury securities where the coupon rate is

The corporate bond market in Japan

Which of the following is not a major rating agency for bonds?

Alternative institutions favour different sectors of the bond market based on

Bond ratings are negatively related to

When a fixed income security is being traded at the price above its face value it is trading

The refunding provision of an indenture allows bonds to be retired unless

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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