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Q: a) What is the approximate yield to maturity of a 10% coupon rate, $1,000 par value bond which is currently priced at $1,200 with 11 years to maturity? b) What would be the yield to call if the call can be made in 7 years at a price of $1,025?

Q: What is the approximate yield to maturity of an 8% coupon bond, with a par value of $1,000?

Q: What would be the current yield of a 6% coupon bond priced at $950?

Q: ABC Corp. issued a 12%, 20-year coupon rate bond 5 years ago. Interest rates are now 8%. Based on semi-annual analysis and using the table below, what is the current price of the bond?

Q: A 15-year, 7% coupon rate bond is selling for $771.82. What is the current yield of the bond?A.22.8%B.7.0%C.9.1%D.10.0%E.30.7%

Q: Short-term interest rates have _________ volatility in comparison to long-term interest rates. A.Much less B.More C.Equal D.Slightly less

Q: The most widely used theory to explain the term structure of interest rates is the: A.liquidity preference theory. B.market segmentation theory. C.expectations hypothesis. D.interest allocation theory.

Q: When the bond investor believes interest rates are going to fall, the best strategy would be to: A.take a bearish position in the market by selling long-term bonds. B.take a bullish position in the market by buying long-term bonds. C.move out of bonds completely. D.keep his portfolio unchanged.

Q: Yield to maturity takes into account everything except: A.annual interest received. B.the difference between the current bond price and its maturity value. C.the number of years to maturity. D.the number of years since the bond's purchase.

Q: As the economy recovers from a recession, what changes can be expected in the yield spread of corporate Baa bonds and U.S. government bonds? A.The yield on Baa bonds will approach that of government securities B.The yield spread between U.S. government bonds and BBB corporate bonds will stay the same C.The yield spread will increase D.Either A or B will occur

Q: The investor in deep-discount bonds generally accepts a lower yield because of: A.the unique conversion feature associated with deep discount bonds. B.the extremely low risk of a call. C.the fact that the return represents pure interest income. D.More than one of the above

Q: The impact of interest rate changes on bond prices can be magnified by: A.investing in speculative high-risk high-yield bonds. B.investing in higher-quality corporate bonds. C.investing in short-term bonds. D.More than one of the above

Q: A down-sloping yield curve indicates: A.investors' anticipation of lower interest rates. B.investors' anticipation of lower inflation. C.that institutional investors are selling long-term bonds. D.More than one of the above

Q: The market segmentation theory focuses on: A.the impact of institutional investors on the yield curve. B.the maturity preferences of banks and those of life insurance companies. C.phases of the business cycle. D.All of the above

Q: What is the dollar value of a U.S. government bond quoted at 98 8/32?

Q: Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months.a) How much interest would an investor receive?b) What will be the price of the Treasury bill?c) What will be the true rate of return?

Q: Assume a $1,000 Treasury bill is quoted to pay 9.5% interest over a six-month period.a) How much interest would an investor receive?b) What will be the price of the Treasury bill?c) What will be the true rate of return?

Q: 19% Feedback: Refer to Equation 11-1. Y = i/(l-t) = 11.19% required before-tax yield on corporate bond.

Q: If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%, what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

Q: Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the effective yield?A.6.09%B.6.38%C.3.05%D.25.53%E.1.53%

Q: Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the price of the Treasury bill?A.$940B.$970C.$980D.$985E.$990

Q: Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. How much interest would the investor receive?A.$10B.$15C.$20D.$30E.$60

Q: A corporate bond quoted at 108.25 is selling for:A.$108.25.B.$1,082.50.C.$10,825.D.None of the above

Q: Corporate bonds generally trade in units of:A.$100.B.$1,000.C.$5,000.D.$10,000.

Q: Major investors in municipal bonds include:A.banks.B.pension funds.C.wealthy individuals.D.A and C

Q: If inflation is higher than that expected at time of issue, inflation-indexed Treasury securities:A.provide a lower return than fixed-income securities.B.provide a higher return than fixed-income securities.C.do not adequately compensate the investor for loss of purchasing power.D.may be called in by the government.

Q: Inflation-indexed Treasury securities provide returns through:A.interest payments, plus a conversion privilege.B.interest payments, plus an increase in value due to inflation.C.tax-exempt interest payments.D.cumulative interest payments.

Q: The junk bond market includes all of the following except:A.fallen angels.B.profitable companies undergoing expansion.C.growth companies (small firms not that well established, making them unable to receive an investment quality rating).D.companies undergoing restructuring because of a leveraged buyout (LBO) or unfriendly takeover.

Q: The difference between a general obligation and a revenue bond is:A.the general obligation bond is backed by the full faith, credit, and "taxing power" of the governmental unit.B.that for a revenue bond, the repayment of the issue is fully dependent on the revenue-generating capability of a specific project or venture.C.that general obligation bonds are usually of high quality because of the taxing power behind most of them.D.All of the above

Q: An example of secured debt would be a:A.contract where two signatures specified how the contract would be paid.B.contract in which a court kept the contract in its possession to see that nothing would happen to it.C.contract in which real assets are pledged as security for a loan.D.debenture.

Q: A provision in which semiannual or annual contributions are made by a corporation into a fund administered by a trustee for purposes of debt retirement is referred to as a:A.call provision.B.put provision.C.sinking-fund provision.D.serial payment.

Q: A call feature may be valuable to:A.investors.B.the issuing company.C.corporate employers.D.the IRS.

Q: A strong incentive to a corporation to meet preferred stock dividend payments is provided by the ___________ feature of some preferred stocks.A.CumulativeB.ConvertibleC.CallableD.All of the above

Q: Which of the following is NOT a characteristic of preferred stock as an investment?A.Preferred stockholders are entitled to receive their dividend prior to payment of dividends to common stockholdersB.Preferred stock dividends are taxed at the capital gains rate for individual investorsC.Preferred stock dividends may be omitted by the corporation under certain circumstancesD.It is a hybrid security of common stock and debt

Q: All of the following are available to individual investors except:A.commercial paper.B.bankers' acceptances.C.money market funds.D.All of the above are available to individual investors

Q: The primary difference between large (jumbo) and small Certificates of Deposit, besides dollar amount, is:A.that jumbo certificates have a variable interest rate.B.that small certificates are considered to be risk-free.C.that there is no secondary market for small certificates of deposit.D.None of the above

Q: There is customarily a small spread between bid and asked prices of Treasury notes and bonds, because:A.they are traded at a discount from par.B.there is competition from other markets.C.the market for Treasury issues is liquid.D.there are not many government securities dealers.

Q: For the major bond-rating agencies, the lowest level of an investment grade bond is:A.AA (investment grade includes AAA and AA).B.A (investment grade includes AAA, AA and A).C.BBB (investment grade includes AAA, AA, A, and BBB).D.B (investment grade includes AAA, AA, A, BBB, BB and B).

Q: Junk bonds normally provide:A.a higher yield than Treasury bonds.B.a lower yield than Treasury bonds.C.a lower yield than AA corporate bonds.D.More than one of the above is true

Q: A bond with a put provision allows the investor to:A.convert the bond to a specified number of shares of common stock.B.sell the bond back to the corporation at a small premium over par at a specified time period.C.sell the bond back to the corporation at par at a specified time period.D.receive additional interest payments if inflation goes above a specified level.

Q: The demand side of the bond market is dominated byA.the federal government.B.wealthy individual investors.C.institutional investors.D.None of the above

Q: Public utility issues have a greater yield than other corporate issues, primarily because:A.nuclear utility issues carry an extremely high risk premium.B.public utility issues generally have a longer maturity.C.investor demand for utility issues is greater than for other issues.D.utilities' demands for funds is greater than that of other segments.

Q: The largest segment of the corporate bond market consists ofA.public utilities.B.rails and transportation.C.financial issues.D.industrial issues.

Q: Municipal bonds normally pay:A.higher rates than taxable bonds.B.lower rates than taxable bonds.C.the same rate as taxable bonds.D.None of the above

Q: The most important feature of municipal bonds is:A.the wide range of denominations and maturities.B.that the interest is not taxable by the federal government.C.the risk-free nature of this investment.D.its appeal to investors needing growth.

Q: Securities issued by the Federal Farm Credit BankA.are essentially risk-free.B.carry a higher yield than U.S. Treasury securities.C.are fully taxable by federal, state, and local governments.D.All of the above

Q: Treasury strips provide return through:A.increase in value over their life.B.high-dividend yields.C.indexing for inflation.D.changing par value with the passage of time.

Q: Which of the following statements about U.S. Treasury securities is true?A.The interest earned on Treasury bills is fully taxable by statesB.All Treasury securities are considered to be risk-freeC.The maturities of Treasury bills, notes, and bonds tend to be differentD.More than one of the above is true

Q: A Treasury note normally has a maturity of:A.less than one year.B.1 to 5 years.C.1 to 10 years.D.10 to 30 years.E.30 to 100 years.

Q: Foreign bonds normally provide:A.higher yields than U.S. bonds.B.lower yields than U.S. bonds.C.diversification benefits.D.None of the above

Q: Which of the following types of bond issues is the most price-sensitive?A.Fixed-rate long-term bondsB.Floating-rate bondsC.Long-term zero-coupon bondsD.Fixed-rate short-term bondsE.Treasury bills

Q: A legal document which is administered by an independent trustee and spells out the major provisions of a bond agreement is called theA.bond contract.B.bond indenture.C.debenture.D.bond subordination.

Q: While Treasury bonds and bills are quoted on the basis of price, Treasury notes are quoted on the basis of yield.

Q: Yankee bonds are issued by foreign governments, corporations, or are traded in the U.S. and denominated (payable) in U.S. dollars.

Q: Foreign-pay bonds are issued in a foreign country and are payable in U.S. dollars.

Q: Money market funds represent a vehicle to buy short-term fixed-income securities through a mutual fund arrangement.

Q: In many respects, the bond market appears to demonstrate a high degree of rationality of risk and return.

Q: A corporation must generally pay taxes on only 30% of the dividends (preferred or common) that it receives from another corporation.

Q: Commercial paper represents a short-term credit instrument.

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