FIN 350 Week 5 Quiz – Strayer
Click on the Link Below to
Purchase A+ Graded Course Material
Week 5 Quiz 4 Chapter 7 and 8
Chapter
7—Bond Markets
1. ____
require the owner to clip coupons attached to the bonds and send them to the
issuer to receive coupon payments.
|
a.
|
Bearer
|
|
b.
|
Registered
|
|
c.
|
Treasury
|
|
d.
|
Corporate
|
2. The
yield to maturity is the annualized discount rate that equates the future
coupon and principal payments to the initial proceeds received from the bond
offering.
a.
True
b.
False
3. Note
maturities are usually ____, while bond maturities are ____.
|
a.
|
less than 10 years; 10 years or more
|
|
b.
|
10 years or more; less than 10 years
|
|
c.
|
less than 5 years; 5 years or more
|
|
d.
|
5 years or more; less than 5 years
|
4. Investors
in Treasury notes and bonds receive ____ interest payments from the Treasury.
|
a.
|
annual
|
|
b.
|
semiannual
|
|
c.
|
quarterly
|
|
d.
|
monthly
|
5. The
Treasury has relied heavily on ____-year bonds to finance the U.S. budget
deficit.
|
a.
|
50
|
|
b.
|
70
|
|
c.
|
10
|
|
d.
|
5
|
6. Interest
earned from Treasury bonds is
|
a.
|
exempt from all income tax.
|
|
b.
|
exempt from federal income tax.
|
|
c.
|
exempt from state and local taxes.
|
|
d.
|
subject to all income taxes.
|
7. Treasury
bond auctions are normally conducted only at the beginning of each year.
a.
True
b.
False
8. ____
bids for Treasury bonds specify a price that the bidder is willing to pay and a
dollar amount of securities to be purchased.
|
a.
|
Competitive
|
|
b.
|
Noncompetitive
|
|
c.
|
Negotiable
|
|
d.
|
Non-negotiable
|
9. Treasury
bond dealers
|
a.
|
quote an ask price for customers who want to sell existing
Treasury bonds to the dealers.
|
|
b.
|
profit from a very wide spread between bid and ask
prices in the Treasury securities market.
|
|
c.
|
may trade Treasury bonds among themselves.
|
|
d.
|
make a primary market for Treasury bonds.
|
10. Under
the STRIP program created by the Treasury, stripped securities are created and
sold by the Treasury.
a.
True
b.
False
11. A
ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate
of 5 percent. During the first six months since the bond was issued, the
inflation rate was 2 percent. Based on this information, the coupon payment
after six months will be $____.
|
a.
|
250
|
|
b.
|
255
|
|
c.
|
500
|
|
d.
|
510
|
12. Bonds
issued by ____ are backed by the federal government.
|
a.
|
the Treasury
|
|
b.
|
AAA-rated corporations
|
|
c.
|
state governments
|
|
d.
|
city governments
|
13. Municipal
general obligation bonds are ____. Municipal revenue bonds are ____.
|
a.
|
supported by the municipal government's ability to
tax; supported by the municipal government's ability to tax
|
|
b.
|
supported by the municipal government's ability to
tax; supported by revenue generated from the project
|
|
c.
|
always subject to federal taxes; always exempt
from state and local taxes
|
|
d.
|
typically zero-coupon bonds; typically zero-coupon
bonds
|
14. In
general, variable-rate municipal bonds are desirable to investors who expect
that interest rates will ____.
|
a.
|
remain unchanged
|
|
b.
|
fall
|
|
c.
|
rise
|
|
d.
|
none of the above
|
15. Which
of the following statements is not true regarding zero-coupon bonds?
|
a.
|
They are issued at a deep discount from par value.
|
|
b.
|
Investors are taxed on the total amount of
interest earned at maturity.
|
|
c.
|
The issuing firm is permitted to deduct the
amortized discount as interest expense for federal income tax purposes, even
though it does not pay interest until maturity.
|
|
d.
|
Zero-coupon bonds are purchased mainly for
tax-exempt investment accounts, such as pension funds and individual
retirement accounts.
|
|
e.
|
All of the above are true.
|
16. A
variable rate bond allows
|
a.
|
investors to benefit from declining rates over
time.
|
|
b.
|
issuers to benefit from rising market interest
rates over time.
|
|
c.
|
investors to benefit from rising market interest
rates over time.
|
|
d.
|
none of the above.
|
17. Corporate
bonds that receive a ____ rating from credit rating agencies are normally
placed at ____ yields.
|
a.
|
higher; lower
|
|
b.
|
lower; lower
|
|
c.
|
higher; higher
|
|
d.
|
none of the above
|
18. A
private bond placement has to be registered with the SEC.
a.
True
b.
False
19. Which
of the following institutions is most likely to purchase a private bond
placement?
|
a.
|
commercial bank
|
|
b.
|
mutual fund
|
|
c.
|
insurance company
|
|
d.
|
savings institution
|
20. A protective
covenant may
|
a.
|
specify all the rights and obligations of the
issuing firm and the bondholders.
|
|
b.
|
require the firm to retire a certain amount of the
bond issue each year.
|
|
c.
|
restrict the amount of additional debt the firm
can issue.
|
|
d.
|
none of the above
|
21. A
call provision on bonds normally
|
a.
|
allows the firm to sell new bonds at par value.
|
|
b.
|
gives the firm to sell new bonds above market
value.
|
|
c.
|
allows the firm to sell bonds to the Treasury.
|
|
d.
|
allows the firm to buy back bonds that it
previously issued.
|
22. When
would a firm most likely call bonds?
|
a.
|
after interest rates have declined
|
|
b.
|
if interest rates do not change
|
|
c.
|
after interest rates increase
|
|
d.
|
just before the time at which interest rates are expected
to decline
|
23. Assume
U.S. interest rates are significantly higher than German rates. A U.S. firm
with a German subsidiary could achieve a lower financing rate, without exchange
rate risk by denominating the bonds in
|
a.
|
dollars.
|
|
b.
|
euros and making payments from U.S. headquarters.
|
|
c.
|
euros and making payments from its German
subsidiary.
|
|
d.
|
dollars and making payments from its German
subsidiary.
|
24. Many
bonds have different call prices: a higher price for calling the bonds to meet
sinking-fund requirements and a lower price if the bonds are called for any
other reason.
a.
True
b.
False
25. Bonds
that are not secured by specific property are called
|
a.
|
a chattel mortgage.
|
|
b.
|
open-end mortgage bonds.
|
|
c.
|
debentures.
|
|
d.
|
blanket mortgage bonds.
|
26. Bonds
that are secured by personal property are called
|
a.
|
chattel mortgage bonds.
|
|
b.
|
first mortgage bonds.
|
|
c.
|
second mortgage bonds.
|
|
d.
|
debentures.
|
27. The
coupon rate of most variable-rate bonds is tied to
|
a.
|
the prime rate.
|
|
b.
|
the discount rate.
|
|
c.
|
LIBOR.
|
|
d.
|
the federal funds rate.
|
28. Assume
that you purchased corporate bonds one year ago that have no protective
covenants. Today, it is announced that the firm that issued the bonds plans a
leveraged buyout. The market value of your bonds will likely ____ as a result.
|
a.
|
rise
|
|
b.
|
decline
|
|
c.
|
be zero
|
|
d.
|
be unaffected
|
29. During
weak economic periods, newly issued junk bonds require lower risk premiums than
in strong economic periods.
a.
True
b.
False
30. ____
bonds have the most active secondary market.
|
a.
|
Treasury
|
|
b.
|
Zero-coupon corporate
|
|
c.
|
Junk
|
|
d.
|
Municipal
|
31. Some
bonds are "stripped," which means that
|
a.
|
they have defaulted.
|
|
b.
|
the call provision has been eliminated.
|
|
c.
|
they are transferred into principal-only and
interest-only securities.
|
|
d.
|
their maturities have been reduced.
|
32. ____
are not primary purchasers of bonds.
|
a.
|
Insurance companies
|
|
b.
|
Finance companies
|
|
c.
|
Mutual funds
|
|
d.
|
Pension funds
|
33. Leveraged
buyouts are commonly financed by the issuance of:
|
a.
|
money market securities.
|
|
b.
|
Treasury bonds.
|
|
c.
|
corporate bonds.
|
|
d.
|
municipal bonds.
|
34. When
firms issue ____, the amount of interest and principal to be paid is based on
specified market conditions. The amount of the repayment may be tied to a
Treasury bond price index or even to a stock index.
|
a.
|
auction-rate securities
|
|
b.
|
structured notes
|
|
c.
|
leveraged notes
|
|
d.
|
stripped securities
|
35. Which
of the following statements is true regarding STRIPS?
|
a.
|
they are issued by the Treasury
|
|
b.
|
they are created and sold by various financial
institutions
|
|
c.
|
they are not backed by the U.S. government
|
|
d.
|
they have to be held until maturity
|
|
e.
|
all of the above are true regarding STRIPS
|
36. (Financial
calculator required.) Lisa can purchase bonds with 15 years until maturity, a
par value of $1,000, and a 9 percent annualized coupon rate for $1,100. Lisa's
yield to maturity is ____ percent.
|
a.
|
9.33
|
|
b.
|
7.84
|
|
c.
|
9.00
|
|
d.
|
none of the above
|
37. (Financial
calculator required.) Erin is, a private investor, who can purchase $1,000 par
value bonds for $980. The bonds have a 10 percent coupon rate, pay interest
annually, and have 20 years remaining until maturity. Erin's yield to maturity
is ____ percent.
|
a.
|
9.96
|
|
b.
|
10.00
|
|
c.
|
10.33
|
|
d.
|
10.24
|
|
e.
|
none of the above
|
38. Devin
is, a private investor, purchases $1,000 par value bonds with a 12 percent
coupon rate and a 9 percent yield to maturity. Devin will hold the bonds until
maturity. Thus, he will earn a return of ____ percent.
|
a.
|
12
|
|
b.
|
9
|
|
c.
|
10.5
|
|
d.
|
more information is needed to answer this question
|
39. Which
of the following is not true regarding zero-coupon bonds?
|
a.
|
They are issued at a deep discount from par value.
|
|
b.
|
Investors are taxed annually on the amount of
interest earned, even though the interest will not be received until maturity.
|
|
c.
|
The issuing firm is permitted to deduct the
amortized discount as interest expense for federal income tax purposes, even
though it does not pay interest.
|
|
d.
|
Zero-coupon bonds are purchased mainly for
tax-exempt investment account, such as pension funds and individual
retirement accounts.
|
|
e.
|
all of the above are true
|
40. Which
of the following is not true regarding the call provision?
|
a.
|
It typically requires a firm to pay a price above
par value when it calls its bonds.
|
|
b.
|
The difference between the market value of the
bond and the par value is called the call premium.
|
|
c.
|
A principal use of the call provision is to lower
future interest payments.
|
|
d.
|
A principal use of the call provision is to retire
bonds as required by a sinking-fund provision.
|
|
e.
|
A call provision is normally viewed as a
disadvantage to bondholders.
|
41. If
interest rates suddenly ____, those existing bonds that have a call feature are
____ likely to be called.
|
a.
|
decline; more
|
|
b.
|
decline; less
|
|
c.
|
increase; more
|
|
d.
|
none of the above
|
42. Which
of the following would not be a likely example of a protective covenant
provision?
|
a.
|
a limit on the amount of dividends a firm can pay
|
|
b.
|
a limit on the corporate officers' salaries a firm
can pay
|
|
c.
|
the amount of additional debt a firm can issue
|
|
d.
|
a call feature
|
43. Bonds
are issued in the primary market through a telecommunications network.
a.
True
b.
False
44. Corporate
bonds can be placed with investors through a public offering or a private
placement.
a.
True
b.
False
45. When
a corporation issues bonds, it normally hires a securities firm that targets
large institutional investors such as pension funds, bond mutual funds, and
insurance companies.
a.
True
b.
False
46. Rule
144A, which allows small individual investors to trade privately-placed bonds
(and some other securities) with each other without requiring that the firms
that issued the securities to register them with the SEC.
a.
True
b.
False
47. Rule
144A creates liquidity for securities that are privately placed.
a.
True
b.
False
48. Corporate
bonds are more standardized than stocks.
a.
True
b.
False
49. Structured
notes are issued by firms to borrow funds, and the repayment of interest and
principal is based on specified market conditions.
a.
True
b.
False
50. Bonds
issued by large well-known corporations in large volume are illiquid because
most buyers hold these bonds until maturity.
a.
True
b.
False
51. The
bond market is served by bond dealers, who can play a broker role by matching
up buyers and sellers.
a.
True
b.
False
52. Bond
dealers do not have an inventory of bonds.
a.
True
b.
False
53. Bond
dealers specialize in small transactions (less than $100,000) in order to
enable small investors to trade bonds.
a.
True
b.
False
54. Many
bonds are listed on the New York Stock Exchange (NYSE).
a.
True
b.
False
55. The
primary investors in bond markets are institutional investors such as
commercial banks, bond mutual funds, pension funds, and insurance companies.
a.
True
b.
False
56. The
key difference between a note and a bond is that note maturities are usually
less than one year, while bond maturities are one year or more.
a.
True
b.
False
57. Treasury
bonds are issued by state and local governments.
a.
True
b.
False
58. Stripped
bonds are bonds whose cash flows have been transformed into a security
representing the principal payment only and a security representing interest
payments only.
a.
True
b.
False
59. Inflation-indexed
Treasury bonds are intended for investors who wish to ensure that the returns
on their investments keep up with the increase in prices over time.
a.
True
b.
False
60. Savings
bonds are bonds issued by the Federal Reserve.
a.
True
b.
False
61. Corporate
bonds usually pay interest on an annual basis.
a.
True
b.
False
62. The
bond debenture is a legal document specifying the rights and obligations of
both the issuing firm and the bondholders.
a.
True
b.
False
63. A
sinking-fund provision is a requirement that the issuing firm retire a certain
amount of the bond issue each year.
a.
True
b.
False
64. Subordinated
indentures are debentures that have claims against the firm's assets that are
junior to the claims of both mortgage bonds and regular debentures.
a.
True
b.
False
65. High-risk
bonds are called trash bonds.
a.
True
b.
False
66. Zero-coupon
bonds do not pay interest. Instead, they are issued at a discount from par
value.
a.
True
b.
False
No comments:
Post a Comment