Question 1

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)  None of the above 
A)  $10,150.00 
B)  $10,000.00 
C)  $101.16 
D)  $10,160.00 
E)  None of the above

Question 2

Which of the following entities acquire mortgages and create mortgage backed securities?

Accepted Answer

A)  Federal National Mortgage Association (Fannie Mae) 
B)  Government National Mortgage Association (Ginnie Mae) 
C)  Federal Home Loan Mortgage Corporation (Freddie Mac) 
D)  All of the above. 
E)  None of the above. 
A)  Federal National Mortgage Association (Fannie Mae) 
B)  Government National Mortgage Association (Ginnie Mae) 
C)  Federal Home Loan Mortgage Corporation (Freddie Mac) 
D)  All of the above. 
E)  None of the above.

Question 3

Bonds can have different types of collateral and can be secured, unsecured or registered bonds.

Accepted Answer

A) True 
 B)False

Question 4

The bonds issued by the Bank of England are known as

Accepted Answer

A)  Gilts. 
B)  Bunds. 
C)  Limies. 
D)  Treasuries. 
E)  Benchmarks. 
A)  Gilts. 
B)  Bunds. 
C)  Limies. 
D)  Treasuries. 
E)  Benchmarks.

Question 5

A 7.0% coupon bond issued by the provincial government of Alberta 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 29% marginal tax bracket?

Accepted Answer

A)  7.59% 
B)  12.25% 
C)  9.86% 
D)  14.63% 
E)  30.71% 
A)  7.59% 
B)  12.25% 
C)  9.86% 
D)  14.63% 
E)  30.71%

Question 6

Collateralized Mortgage obligations are

Accepted Answer

A)  Mortgage pass-through securities. 
B)  Mortgage pass-through securities with varying maturities. 
C)  Mortgage pass-through securities with no default risk. 
D)  Mortgage pass-through securities with variable coupon rates. 
E)  None of the above. 
A)  Mortgage pass-through securities. 
B)  Mortgage pass-through securities with varying maturities. 
C)  Mortgage pass-through securities with no default risk. 
D)  Mortgage pass-through securities with variable coupon rates. 
E)  None of the above.

Question 7

In the Eurozone, the government sector is the largest bond market segment.

Accepted Answer

A) True 
 B)False

Question 8

You purchase a 10 3/8s 2009 Feb. $10,000 par Treasury Note at 103:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:13?

Accepted Answer

A)  8.14% 
B)  8.16% 
C)  8.22% 
D)  8.32% 
E)  8.47% 
A)  8.14% 
B)  8.16% 
C)  8.22% 
D)  8.32% 
E)  8.47%

Question 9

Calculate the yield to maturity of a zero coupon bond with a face value of $1000, maturing in 10 years and selling for a price of $529.30.

Accepted Answer

A)  6.57% 
B)  8.45% 
C)  4.16% 
D)  10.23% 
E)  12.17% 
A)  6.57% 
B)  8.45% 
C)  4.16% 
D)  10.23% 
E)  12.17%

Question 10

You purchase a 8 1/2s 2009 Feb. $10,000 par Treasury Note at 105:16 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 105:16?

Accepted Answer

A)  8.00% 
B)  8.06% 
C)  8.22% 
D)  8.50% 
E)  8.47% 
A)  8.00% 
B)  8.06% 
C)  8.22% 
D)  8.50% 
E)  8.47%

Question 11

At what point would an investor be indifferent between a Trifton corporate bond yielding 12.0% and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25%?

Accepted Answer

A)  6.00% 
B)  7.10% 
C)  9.00% 
D)  9.15% 
E)  14.00% 
A)  6.00% 
B)  7.10% 
C)  9.00% 
D)  9.15% 
E)  14.00%

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 is the current yield for this bond?

Accepted Answer

A)  4.18% 
B)  5.88% 
C)  4.77% 
D)  8.125% 
E)  4.063% 
A)  4.18% 
B)  5.88% 
C)  4.77% 
D)  8.125% 
E)  4.063%

Question 13

Calculate the price of a zero coupon bond with yield to maturity of 8.75%, a face value of $1000, and maturing in 5 years.

Accepted Answer

A)  $1000 
B)  $756.43 
C)  $675.44 
D)  $435.12 
E)  $875.14 
A)  $1000 
B)  $756.43 
C)  $675.44 
D)  $435.12 
E)  $875.14

Question 14

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

Accepted Answer

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

Question 15

The following are participating issuers in bond markets

Accepted Answer

A)  Governments. 
B)  Municipalities. 
C)  Corporations 
D)  Choices a and c. 
E)  Choices a, b and c. 
A)  Governments. 
B)  Municipalities. 
C)  Corporations 
D)  Choices a and c. 
E)  Choices a, b and c.

Question 16

What is a bond guaranteed by a piece of property called?

Accepted Answer

A)  Collateral trust bond. 
B)  Mortgage bond. 
C)  Municipal bond. 
D)  Trust certificate. 
E)  Trust bond. 
A)  Collateral trust bond. 
B)  Mortgage bond. 
C)  Municipal bond. 
D)  Trust certificate. 
E)  Trust bond.

Question 17

Public bonds differ from other debt because they are sold to the public rather than to a single investor.

Accepted Answer

A) True 
 B)False

Question 18

When a borrower pledges financial assets as collateral for a bond it is called a(n)

Accepted Answer

A)  Mortgage bond. 
B)  Equipment trust certificate. 
C)  Mortgage pass-through security. 
D)  Collateral trust bond. 
E)  Collateralized mortgage obligation (CMO). 
A)  Mortgage bond. 
B)  Equipment trust certificate. 
C)  Mortgage pass-through security. 
D)  Collateral trust bond. 
E)  Collateralized mortgage obligation (CMO).

Question 19

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 price would you pay in dollars to purchase this bond?

Accepted Answer

A)  $62 
B)  $9.954 
C)  $48.08 
D)  $99.544 
E)  $995.44 
A)  $62 
B)  $9.954 
C)  $48.08 
D)  $99.544 
E)  $995.44

Question 20

Of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate?

Accepted Answer

A)  A call provision 
B)  No restrictive covenants 
C)  A sinking fund provision 
D)  Change in bond rating from Aaa to Aa 
E)  None of the above (that is, all will increase the coupon rate) 
A)  A call provision 
B)  No restrictive covenants 
C)  A sinking fund provision 
D)  Change in bond rating from Aaa to Aa 
E)  None of the above (that is, all will increase the coupon rate)

Exam 11: Bond Fundamentals

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

Which of the following entities acquire mortgages and create mortgage backed securities?

Bonds can have different types of collateral and can be secured, unsecured or registered bonds.

The bonds issued by the Bank of England are known as

A 7.0% coupon bond issued by the provincial government of Alberta 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 29% marginal tax bracket?

Collateralized Mortgage obligations are

In the Eurozone, the government sector is the largest bond market segment.

You purchase a 10 3/8s 2009 Feb. $10,000 par Treasury Note at 103:11 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 101:13?

Calculate the yield to maturity of a zero coupon bond with a face value of $1000, maturing in 10 years and selling for a price of $529.30.

You purchase a 8 1/2s 2009 Feb. $10,000 par Treasury Note at 105:16 and hold it for exactly one year at which time you sell it. What is your rate of return if your selling price is 105:16?

At what point would an investor be indifferent between a Trifton corporate bond yielding 12.0% and a tax-free municipal bond of equal financial strength if the investor's marginal tax rate is 25%?

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 current yield for this bond?

Calculate the price of a zero coupon bond with yield to maturity of 8.75%, a face value of $1000, and maturing in 5 years.

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

The following are participating issuers in bond markets

What is a bond guaranteed by a piece of property called?

Public bonds differ from other debt because they are sold to the public rather than to a single investor.

When a borrower pledges financial assets as collateral for a bond it is called a(n)

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 price would you pay in dollars to purchase this bond?

Of the following provisions that might be found in a bond indenture, which would tend to reduce the coupon interest rate?

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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