Question 1

SEC Rule 144 A does which of the following?

Accepted Answer

A) Allows privately placed investments to be traded on a limited basis. 
B) Allows bond issuers to call their bonds when desired. 
C) Determines the limits of responsibility of bond covenants. 
D) Requires that bonds traded on the NYSE bond market utilize the ABS system. 
E) None of these choices are correct. 
A) Allows privately placed investments to be traded on a limited basis. 
B) Allows bond issuers to call their bonds when desired. 
C) Determines the limits of responsibility of bond covenants. 
D) Requires that bonds traded on the NYSE bond market utilize the ABS system. 
E) None of these choices are correct. A

Question 2

Debt securities with maturities of 1-year or less are traded in capital markets.

Accepted Answer

A) True 
 B)False  False

Question 3

The largest type of municipal bonds outstanding is ________.

Accepted Answer

A) revenue bonds 
B) industrial development bonds 
C) Treasury STRIPS 
D) convertible bonds 
E) general obligation bonds 
A) revenue bonds 
B) industrial development bonds 
C) Treasury STRIPS 
D) convertible bonds 
E) general obligation bonds A

Question 4

An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.

Accepted Answer

A) True 
 B)False

Question 5

Standard revenue bonds are

Accepted Answer

A) backed by the full taxing authority of the municipality. 
B) collateralized by the earnings from a specific project. 
C) bonds backed by mortgages. 
D) backed by the U.S. Treasury. 
E) always offered with a best efforts offering. 
A) backed by the full taxing authority of the municipality. 
B) collateralized by the earnings from a specific project. 
C) bonds backed by mortgages. 
D) backed by the U.S. Treasury. 
E) always offered with a best efforts offering.

Question 6

Capital markets are markets where securities are traded.

Accepted Answer

A) True 
 B)False

Question 7

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

Accepted Answer

A) True 
 B)False

Question 8

Callable bonds have lower required yields than similar convertible bonds,ceteris paribus.

Accepted Answer

A) True 
 B)False

Question 9

On September 1,2012,an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is

Accepted Answer

A) $9,295.45. 
B) $9,300.55. 
C) $9,313.75. 
D) $9,321.82. 
E) $9,333.24. 
A) $9,295.45. 
B) $9,300.55. 
C) $9,313.75. 
D) $9,321.82. 
E) $9,333.24.

Question 10

A callable bond is one where the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principal is paid by final maturity.

Accepted Answer

A) True 
 B)False

Question 11

With TIPS,the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.

Accepted Answer

A) True 
 B)False

Question 12

Accrued interest owed to the bond seller increases as the next coupon payment date approaches.

Accepted Answer

A) True 
 B)False

Question 13

You are considering purchasing five-year corporate bonds as an investment. You have a choice of terms available. Which of the following terms would you find desirable,ceteris paribus? How does each feature affect the bond's required rate of return? Explain.
A) Call feature
B) Convertible feature
C) Warrants
D) Sinking fund
E) Debenture

Accepted Answer

a. The call feature favors the bond issu

Question 14

An 18-year T-bond can be stripped into how many separate securities?

Accepted Answer

A) 18 
B) 19 
C) 36 
D) 37 
E) 38 
A) 18 
B) 19 
C) 36 
D) 37 
E) 38

Question 15

Which one of the following bonds is likely to have the highest required rate of return,ceteris paribus?

Accepted Answer

A) AAA-rated non-callable corporate bond with a sinking fund 
B) AA-rated callable corporate bond with a sinking fund 
C) AAA-rated callable corporate bond with a sinking fund 
D) High-quality municipal bond 
E) AA-rated callable corporate bond without a sinking fund 
A) AAA-rated non-callable corporate bond with a sinking fund 
B) AA-rated callable corporate bond with a sinking fund 
C) AAA-rated callable corporate bond with a sinking fund 
D) High-quality municipal bond 
E) AA-rated callable corporate bond without a sinking fund

Question 16

A bondholder purchased a 9 percent coupon,$1,000 par three-year bond at a 9 percent yield. Interest rates then immediately fell to 7 percent and his bond was called at a price of $1,040. He reinvested his money and earned 7 percent on the $1,040 for three years. Did the call help or hurt the bondholder? What was his three-year rate of return on his original investment?

Accepted Answer

$1,040 (1.07)3 = $1,274.04 $1,000 (1 + r

Question 17

You purchase a $1,000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

Accepted Answer

A) $4.50 
B) $5.26 
C) $6.50 
D) $7.10 
E) $7.25 
A) $4.50 
B) $5.26 
C) $6.50 
D) $7.10 
E) $7.25

Question 18

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

Accepted Answer

A) $10,213.00 
B) $10,869.28 
C) $11,822.25 
D) $11,843.37 
E) $12,201.11 
A) $10,213.00 
B) $10,869.28 
C) $11,822.25 
D) $11,843.37 
E) $12,201.11

Question 19

An investor is trying to decide between a muni paying 5.75 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?

Accepted Answer

A) 80.00 percent 
B) 20.00 percent 
C) 25.00 percent 
D) 66.67 percent 
E) 30.00 percent 
A) 80.00 percent 
B) 20.00 percent 
C) 25.00 percent 
D) 66.67 percent 
E) 30.00 percent

Question 20

Revenue bonds are backed by the full revenue of the municipality.

Accepted Answer

A) True 
 B)False

Exam 6: Bond Markets

SEC Rule 144 A does which of the following?

Debt securities with maturities of 1-year or less are traded in capital markets.

The largest type of municipal bonds outstanding is ________.

An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.

Standard revenue bonds are

Capital markets are markets where securities are traded.

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds.

Callable bonds have lower required yields than similar convertible bonds,ceteris paribus.

On September 1,2012,an investor purchases a $10,000 par T-bond that matures in 12 years. The coupon rate is 6 percent and the investor buys the bond 70 days after the last coupon payment (110 days before the next). The ask yield is 7 percent. The dirty price of the bond is

A callable bond is one where the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principal is paid by final maturity.

With TIPS,the security's coupon rate is changed every six months by the inflation rate as measured by the CPI.

Accrued interest owed to the bond seller increases as the next coupon payment date approaches.

An 18-year T-bond can be stripped into how many separate securities?

Which one of the following bonds is likely to have the highest required rate of return,ceteris paribus?

You purchase a $1,000 face value convertible bond for $975. The bond can be converted into 150 shares of stock. The stock is currently priced at $5.25. At what minimum stock price would you be willing to convert?

An investor buys a $10,000 par,4.25 percent annual coupon TIPS security with three years to maturity. If inflation every six months over the investor's holding period is 2.50 percent,what is the final payment the TIPS investor will receive?

An investor is trying to decide between a muni paying 5.75 percent or an equivalent taxable corporate paying 8.25 percent. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?

Revenue bonds are backed by the full revenue of the municipality.

Introduction

Determinants of Interest Rates

Interest Rates and Security Valuation

The Federal Reserve System, monetary Policy, and Interest Rates

Money Markets

Mortgage Markets

Stock Markets

Foreign Exchange Markets

Derivative Securities Markets

Commercial Banks: Industry Overview

Commercial Banks Financial Statements and Analysis

Regulation of Commercial Banks

Other Lending Institutions: Savings Institutions, credit Unions, and Finance Companies

Insurance Companies

Securities Firms and Investment Banks

Investment Companies

Pension Funds

Types of Risks Incurred by Financial Institutions

Managing Credit Risk on the Balance Sheet

Managing Liquidity Risk on the Balance Sheet

Managing Interest Rate Risk and Insolvency Risk on the Balance Sheet

Managing Risk Off the Balance Sheet With Derivative Securities

Managing Risk Off the Balance Sheet With Loan Sales and Securitization

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