Question 1

Which of the following has the highest seniority ranking?

Accepted Answer

A)  junior, subordinated debenture
B)  junior, unsubordinated debenture
C)  senior subordinated debenture
D)  senior, unsubordinated debenture D

Question 2

A call feature allows the issuing corporation to repay the bond prior to maturity if it so wishes.

Accepted Answer

A) True 
 B)False  True

Question 3

Which of the following is the credit contract governing the investor and issuing corporation of a bond?

Accepted Answer

A)  debenture
B)  indenture
C)  collateral
D)  sinking fund B

Question 4

Common stock has seniority relative to preferred stock.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following allows the investor to demand repayment for a bond prior to maturity?

Accepted Answer

A)  put feature
B)  call feature
C)  sinking fund feature
D)  cumulative feature

Question 6

The cumulative feature on preferred stock allows investors to accumulate more preferred stock at reduced prices.

Accepted Answer

A) True 
 B)False

Question 7

What is the yield to maturity on a $1,000 par value 93/4% bond purchased for $1,125? Assume the coupon is paid annually and the maturity is 12 years.

Accepted Answer

A)  8.16%
B)  -8.16%
C)  8.08%
D)  7.90%

Question 8

If a bond is not secured by collateral, it is called a debenture.

Accepted Answer

A) True 
 B)False

Question 9

The term "preferred" in preferred stock refers to which of the following?

Accepted Answer

A)  Preferred stock has a claim on the firm's assets prior to suppliers.
B)  Preferred stock has a claim on the firm's assets prior to debt bonds) .
C)  Preferred stock has a claim on the firm's assets prior to common stock.
D)  Preferred stock has a claim on the firm's assets prior to employees.

Question 10

Which of the following requires the issuing corporation to retire a portion of their bonds prior to maturity?

Accepted Answer

A)  cumulative feature
B)  call feature
C)  put feature
D)  sinking fund feature

Question 11

Corporate bonds are generally considered perpetual.

Accepted Answer

A) True 
 B)False

Question 12

What is the value of a share of Innskeepers A $2.16 preferred stock to an investor requiring a 9% rate of return? Assume dividends are paid annually.

Accepted Answer

A)  $25.50
B)  $21.60
C)  $27.00
D)  $24.00

Question 13

A 101/2% bond matures in 11 years. Assuming the coupon is paid semiannually and the par value is $1,000, what is the value of this bond to an investor requiring a 10% rate of return?

Accepted Answer

A)  $1,020.77
B)  $1,032.48
C)  $1,032.91
D)  $583.35

Question 14

Which of the following is not considered a fixed income security?

Accepted Answer

A)  bond
B)  common stock
C)  preferred stock
D)  all of the above

Question 15

The consequences to a corporation for failure to pay preferred dividends are more serious than for failure to pay interest on a bond.

Accepted Answer

A) True 
 B)False

Question 16

What is the yield to maturity for an investor buying a $1,000 par value zero-coupon bond maturing in 8 years for $500?

Accepted Answer

A)  7.18%
B)  10.41%
C)  8.01%
D)  9.05%

Question 17

A 95/8% bond matures in 12 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 7% rate of return?

Accepted Answer

A)  $885.91
B)  $1,208.50
C)  $891.61
D)  $1,198.57

Question 18

What is the yield to maturity on a $1,000 par value 81/4% bond purchased for $850? Assume the coupon is paid annually and the maturity is 13 years.

Accepted Answer

A)  10.41%
B)  10.51%
C)  10.32%
D)  10.63%

Question 19

What is the yield to maturity on a share of Hospitality Properties A $2.38 preferred stock to an investor who buys the preferred stock at $28.50? Assume dividends are paid annually.

Accepted Answer

A)  8.35%
B)  8.50%
C)  8.21%
D)  8.70%

Question 20

The Gizaw Corporation has a bond outstanding that matures in the year 2018. But the corporation can pay the bond back early at the corporation's option. What kind of feature is this option?

Accepted Answer

A)  put feature
B)  equity conversion feature
C)  call feature
D)  adjustable coupon rate feature

Exam 6: Fixed Income Securities: Bonds and Preferred Stock

Which of the following has the highest seniority ranking?

A call feature allows the issuing corporation to repay the bond prior to maturity if it so wishes.

Which of the following is the credit contract governing the investor and issuing corporation of a bond?

Common stock has seniority relative to preferred stock.

Which of the following allows the investor to demand repayment for a bond prior to maturity?

The cumulative feature on preferred stock allows investors to accumulate more preferred stock at reduced prices.

What is the yield to maturity on a $1,000 par value 93/4% bond purchased for $1,125? Assume the coupon is paid annually and the maturity is 12 years.

If a bond is not secured by collateral, it is called a debenture.

The term "preferred" in preferred stock refers to which of the following?

Which of the following requires the issuing corporation to retire a portion of their bonds prior to maturity?

Corporate bonds are generally considered perpetual.

What is the value of a share of Innskeepers A $2.16 preferred stock to an investor requiring a 9% rate of return? Assume dividends are paid annually.

A 101/2% bond matures in 11 years. Assuming the coupon is paid semiannually and the par value is $1,000, what is the value of this bond to an investor requiring a 10% rate of return?

Which of the following is not considered a fixed income security?

The consequences to a corporation for failure to pay preferred dividends are more serious than for failure to pay interest on a bond.

What is the yield to maturity for an investor buying a $1,000 par value zero-coupon bond maturing in 8 years for $500?

A 95/8% bond matures in 12 years. Assuming the coupon is paid annually and the par value is $1,000, what is the value of this bond to an investor requiring a 7% rate of return?

What is the yield to maturity on a $1,000 par value 81/4% bond purchased for $850? Assume the coupon is paid annually and the maturity is 13 years.

What is the yield to maturity on a share of Hospitality Properties A $2.38 preferred stock to an investor who buys the preferred stock at $28.50? Assume dividends are paid annually.

The Gizaw Corporation has a bond outstanding that matures in the year 2018. But the corporation can pay the bond back early at the corporation's option. What kind of feature is this option?