Exam 6: Bond Markets

Convertible bonds are I. options attached to bonds that give the bondholder the right to purchase stock at a preset price without giving up the bond. II. bonds in which the issue matures (converts)a little each year. III. bonds collateralized with certain types of automobiles. IV. bonds that may be converted to a certain number of shares of stock determined by the conversion ratio.

Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue.

You find the following quote for a corporate bond ($1,000 par,paying interest semiannually): A) What was the range of the price for the given day? B) How many dollars would you receive from each coupon payment? C) Approximately what risk level is implied by the bond rating? D) What would have been the Last Price on the day before?

TIPS are a Treasury offering that protects investors from unexpected increases in inflation.

A municipal bondholder buys a 5 percent coupon annual payment muni bond at a price of $4,900. The bond has a $5,000 face value. In one year she sells the bond for $4,975. The appropriate capital gains tax rate is 15 percent and her ordinary income tax rate is 28 percent. What is her after-tax rate of return?

A holder of Rainbow Funds convertible bonds with a $1,000 par and a $1,100 price can convert the bond to 25 shares of common stock. The stock is currently priced at $36 per share. By what percent does the stock price have to rise to make conversion potentially attractive?

The dirty price plus accrued interest is called the clean price of the security.

Sovereign bonds are long-term debt issued by governments of foreign countries.

Treasury notes and bonds and municipal bonds are default risk free.

Eurobonds are bonds denominated in the issuer's home currency,but are issued outside their home country.

The quoted ask yield on a 14-year $1,000 par T-bond with a 7 percent semiannual payment coupon and a price quote of 98-15 is

Which of the following is/are true about callable bonds? I. Must always be called at par II. Will normally be called after interest rates drop III. Can be called by either the bondholder or the bond issuer IV. Have higher required returns than non-callable bonds

What is the difference between General Obligation and Revenue bonds?

T-notes and T-bonds are issued in minimum denominations of $100,or multiples of $100.

You buy a principal STRIP maturing in five years. The price quote per hundred of par for the STRIP is 75.75 percent. Using semiannual compounding,what is the promised yield to maturity on the STRIP?

Which of the following situations would require an increase in the coupon rate for a bond selling at par?

Which of the following statements about Eurobonds is/are true? I. The issuer chooses the currency of denomination. II. Spreads on firm commitment offers are lower for Eurobonds than for U.S. bonds. III. Eurobonds typically have denomination of $5,000 and $10,000. IV. Eurobonds are bearer bonds.

When an investment banker purchases an offering from a bond issuer and then resells it to the public,this is known as a

A T-bond with a $1,000 par is quoted at a bid of 105-7 and an ask of 105-9. If you sell the bond,you will receive

Sovereign bonds have high risk because the repayment cannot be forced by creditors.