Question 1

A bond's maturity is affected by: call features, non-refunding provisions, and sinking fund provisions.

Accepted Answer

A) True 
 B)False

Question 2

A bond that only pays a principal payment at maturity date is known as a:

Accepted Answer

A)  Blank bond. 
B)  Maturity bond. 
C)  Interest free bond. 
D)  Mini-coupon bond. 
E)  Zero coupon bond. 
A)  Blank bond. 
B)  Maturity bond. 
C)  Interest free bond. 
D)  Mini-coupon bond. 
E)  Zero coupon bond.

Question 3

If the yield to maturity for a par value inflation-indexed bond with 8 years to maturity is 3%, and the yield to maturity of a Canadian Treasury note with 8 years is 4.25%, this implies that

Accepted Answer

A)  The expected annual rate of inflation over the next 8 years is -1.25%. 
B)  The expected annual rate of inflation over the next 8 years is 1.25%. 
C)  The expected annual rate of inflation over the next 8 years is -2.25% 
D)  The expected annual rate of inflation over the next 8 years is 2.25% 
E)  None of the above. 
A)  The expected annual rate of inflation over the next 8 years is -1.25%. 
B)  The expected annual rate of inflation over the next 8 years is 1.25%. 
C)  The expected annual rate of inflation over the next 8 years is -2.25% 
D)  The expected annual rate of inflation over the next 8 years is 2.25% 
E)  None of the above.

Question 4

Most U.S. municipal bonds are serial issues which are subject to state and local taxes when they are issued in the investor's home state.

Accepted Answer

A) True 
 B)False

Question 5

When a bond issue is secured by a legal claim on equipment it is known as a

Accepted Answer

A)  Junior bond. 
B)  Income bond. 
C)  Bearer bond. 
D)  Trust certificate. 
E)  Perpetuity. 
A)  Junior bond. 
B)  Income bond. 
C)  Bearer bond. 
D)  Trust certificate. 
E)  Perpetuity.

Question 6

High-yield bonds are considered "investment" grade.

Accepted Answer

A) True 
 B)False

Question 7

A security that has a coupon that is periodically adjusted is a

Accepted Answer

A)  Variable note. 
B)  Variation note. 
C)  Adjustable coupon note.+D941:E965 
D)  Money market certificate. 
E)  Deep discount bond. 
A)  Variable note. 
B)  Variation note. 
C)  Adjustable coupon note.+D941:E965 
D)  Money market certificate. 
E)  Deep discount bond.

Question 8

At what point would an investor be indifferent between a Drifton corporate bond yielding 12.5% and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25%?

Accepted Answer

A)  6.05% 
B)  7.10% 
C)  8.15% 
D)  9.38% 
E)  16.27% 
A)  6.05% 
B)  7.10% 
C)  8.15% 
D)  9.38% 
E)  16.27%

Question 9

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

Accepted Answer

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

Question 10

The secondary bond market is significantly more active than the stock market.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is not true regarding bond ratings?

Accepted Answer

A)  The ratings assigned are meant to indicate the probability of default for the bond issuer. 
B)  The bonds assigned one of the top four rating classes are considered investment grade bonds. 
C)  Once a rating is assigned to an issue it cannot be changed for the first two years after which it is reviewed on a regular basis. 
D)  Bonds rated BB and below are referred to as high yield or "junk" bonds. 
E)  The rating agencies modify the ratings with + and - signs or numbers after the letters. 
A)  The ratings assigned are meant to indicate the probability of default for the bond issuer. 
B)  The bonds assigned one of the top four rating classes are considered investment grade bonds. 
C)  Once a rating is assigned to an issue it cannot be changed for the first two years after which it is reviewed on a regular basis. 
D)  Bonds rated BB and below are referred to as high yield or "junk" bonds. 
E)  The rating agencies modify the ratings with + and - signs or numbers after the letters.

Question 12

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 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

Question 13

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. If market interest rates are constant, what will the price of the XLR Corporate bond be in three years?

Accepted Answer

A)  $904.29 
B)  $1,097.63 
C)  $1,098.50 
D)  $1,102.85 
E)  $1,105.62 
A)  $904.29 
B)  $1,097.63 
C)  $1,098.50 
D)  $1,102.85 
E)  $1,105.62

Question 14

A bond denominated in Canadian dollars and sold in Japan to Japanese investors is called a

Accepted Answer

A)  Samurai bond. 
B)  Eurobond. 
C)  Yankee bond. 
D)  Euroyen bond 
E)  Foreign bond. 
A)  Samurai bond. 
B)  Eurobond. 
C)  Yankee bond. 
D)  Euroyen bond 
E)  Foreign bond.

Question 15

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. If market interest rates rise to 10%, what will the price of the XLR Corporate bond be in three years?

Accepted Answer

A)  $832.89 
B)  $838.07 
C)  $1097.63 
D)  $1,102.85 
E)  $1,191.43 
A)  $832.89 
B)  $838.07 
C)  $1097.63 
D)  $1,102.85 
E)  $1,191.43

Question 16

Which set of conditions will result in a bond with the greatest volatility?

Accepted Answer

A)  A high coupon and a short maturity 
B)  A high coupon and a long maturity 
C)  A low coupon and a short maturity 
D)  A low coupon and a long maturity 
E)  A deferred call feature and a sinking fund. 
A)  A high coupon and a short maturity 
B)  A high coupon and a long maturity 
C)  A low coupon and a short maturity 
D)  A low coupon and a long maturity 
E)  A deferred call feature and a sinking fund.

Question 17

Serial bonds

Accepted Answer

A)  Can be callable. 
B)  Can have sinking funds. 
C)  Have different maturity dates. 
D)  All of the above. 
E)  None of the above. 
A)  Can be callable. 
B)  Can have sinking funds. 
C)  Have different maturity dates. 
D)  All of the above. 
E)  None of the above.

Question 18

You purchase a 10 1/4s 2009 Feb. $10,000 par Treasury Note at 102:15 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 104:14?

Accepted Answer

A)  11.92% 
B)  8.16% 
C)  8.55% 
D)  8.61% 
E)  10.25 % 
A)  11.92% 
B)  8.16% 
C)  8.55% 
D)  8.61% 
E)  10.25 %

Question 19

High-yield bonds are considered "investment" grade.

Accepted Answer

A) True 
 B)False

Question 20

Bond ratings are positively related to

Accepted Answer

A)  Leverage. 
B)  Size. 
C)  Type of business. 
D)  All of the above. 
E)  None of the above. 
A)  Leverage. 
B)  Size. 
C)  Type of business. 
D)  All of the above. 
E)  None of the above.

Exam 11: Bond Fundamentals

A bond's maturity is affected by: call features, non-refunding provisions, and sinking fund provisions.

A bond that only pays a principal payment at maturity date is known as a:

If the yield to maturity for a par value inflation-indexed bond with 8 years to maturity is 3%, and the yield to maturity of a Canadian Treasury note with 8 years is 4.25%, this implies that

Most U.S. municipal bonds are serial issues which are subject to state and local taxes when they are issued in the investor's home state.

When a bond issue is secured by a legal claim on equipment it is known as a

High-yield bonds are considered "investment" grade.

A security that has a coupon that is periodically adjusted is a

At what point would an investor be indifferent between a Drifton corporate bond yielding 12.5% and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25%?

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

The secondary bond market is significantly more active than the stock market.

Which of the following statements is not true regarding bond ratings?

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 annual dollar coupon amount will investors receive?

A bond denominated in Canadian dollars and sold in Japan to Japanese investors is called a

Which set of conditions will result in a bond with the greatest volatility?

Serial bonds

You purchase a 10 1/4s 2009 Feb. $10,000 par Treasury Note at 102:15 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 104:14?

High-yield bonds are considered "investment" grade.

Bond ratings are positively related to

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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