Q&A Hero

Q: Bonds issued by ____ are backed by the federal government.​ a. ​the Treasury b. ​AAA-rated corporations c. ​state governments d. ​city governments

Q: 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 they will not receive the interest until maturity. c. The issuing firm is permitted to deduct the amortized discount as interest expense, even though it does not pay interest. d. Zero-coupon bonds pay dividends instead of coupons. e. All of these are correct.

Q: ____ bonds have the most active secondary market.​ a. ​Treasury b. ​Zero-coupon corporate c. ​Junk d. Municipal​

Q: Which of the following institutions is most likely to purchase a private bond placement?​ a. ​commercial bank b. ​finance company c. ​insurance company d. ​savings institution

Q: 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 these are correct.

Q: 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 these are true regarding STRIPS.

Q: A _____ has first claim on specified real property assets, while a _____ is a debenture that has claims against a firm's assets that are junior to the claims of mortgage bonds and regular debentures. a. first mortgage bond; second mortgage bond b. first mortgage bond; debenture c. first mortgage bond; subordinated debenture d. chattel mortgage bond; subordinated debenture e. None of these are correct.

Q: 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

Q: Assume that one year ago you purchased corporate bonds 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

Q: 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.

Q: 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 these are correct.

Q: 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.

Q: The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.​ a. ​50 b. ​70 c. ​10 d. ​5

Q: For bonds issued under a _______ arrangement, the underwriter guarantees the issuer that the bonds will be sold at a specified price.​ a. ​specific value b. ​fixed proceeds c. ​best efforts d. ​firm commitment

Q: Bonds that are not secured by specific property are called a. chattel mortgage bonds. b. open-end mortgage bonds. c. debentures. d. blanket mortgage bonds.

Q: ____ are not primary purchasers of bonds.​ a. ​Insurance companies b. ​Finance companies c. ​Mutual funds d. ​Pension funds

Q: For bonds issued under a _______ arrangement, the underwriter attempts to sell the bonds at a specified price but makes no guarantee to the issuer.​ a. ​floating value b. ​variable proceeds c. ​best efforts d. ​firm commitment

Q: The yield to investors on Treasury bonds reflects the risk-free rate because these bonds are virtually free from credit (default) risk.a. Trueb. False

Q: Most corporate bonds have a maturity between 2 and 7 years. a. True b. False

Q: All of the bonds issued by a particular company will have the same maturity, price, and credit rating. a. True b. False

Q: 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

Q: Rule 144A allows small individual investors to trade privately placed bonds with each other without requiring the firms that issued the securities to register them with the SEC. a. True b. False

Q: High-risk bonds are called trash bonds. a. True b. False

Q: The bond market is served by bond dealers, who can play a broker role by matching up buyers and sellers. a. True b. False

Q: 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

Q: Treasury bond auctions are normally conducted only at the beginning of each year. a. True b. False

Q: Corporate bonds can be placed with investors through a public offering or a private placement. a. True b. False

Q: 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

Q: During weak economic periods, newly issued junk bonds require lower risk premiums than in strong economic periods. a. True b. False

Q: Savings bonds are bonds issued by the Federal Reserve. a. True b. False

Q: 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

Q: Rule 144A creates liquidity for securities that are privately placed. a. True b. False

Q: The bond debenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders. a. True b. False

Q: Bond dealers specialize in small transactions (less than $100,000) in order to enable small investors to trade bonds. a. True b. False

Q: Structured notes are issued by firms to borrow funds, and the amount of interest and principal to be paid is based on specified market conditions. a. True b. False

Q: 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

Q: 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

Q: A private bond placement has to be registered with the SEC. a. True b. False

Q: Most newly issued municipal bonds are insured because investors are unwilling to purchase uninsured municipal bonds out of fear that the issuer may default. a. True b. False

Q: Bonds issued by large well-known corporations in large volume are illiquid because most buyers hold these bonds until maturity. a. True b. False

Q: Zero-coupon bonds do not pay interest. Instead, they are issued at a discount from par value. a. True b. False

Q: Bonds are issued in the primary market through a telecommunications network. a. True b. False

Q: 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

Q: If interest rates suddenly decline, those existing bonds that have a call feature are less likely to be called. a. True b. False

Q: Under the STRIP program created by the Treasury, stripped securities are created and sold by the Treasury. a. True b. False

Q: Treasury bonds are issued by state and local governments. a. True b. False

Q: 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

Q: Many bonds are listed on the New York Stock Exchange (NYSE). a. True b. False

Q: Bond dealers do not have an inventory of bonds. a. True b. False

Q: Corporate bonds usually pay interest on an annual basis. a. True b. False

Q: Indicate whether the statement is true or false.Subordinated indentures have claims against the firm's assets that are junior to the claims of both mortgage bonds and regular indentures.a. Trueb. False

Q: Securities with maturities of one year or less are classified as a. capital market instruments. b. money market instruments. c. preferred stock. d. None of these are correct.

Q: Which of the following is NOT true about Eurodollar securities? a. Eurodollars are U.S. dollars deposited in the United States by European investors. b. The interest rate on Eurodollar floating-rate CDs adjusts periodically to the LIBOR. c. Eurodollar securities include Euronotes and Euro-commercial paper. d. The volume of Eurodollar CDs has grown because the U.S. dollar is used in a significant number of international transactions.

Q: The yields offered on asset-backed commercial paper are often ______ the yields offered on unsecured commercial paper. a. equal to b. lower than c. higher than d. more variable

Q: When an investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700, the Treasury bill discount is ____ percent. a. 5.93 b. 6.12 c. 6.20 d. 6.02 e. None of these are correct.

Q: Which of the following securities is most likely to be used in a repo transaction? a. commercial paper b. certificate of deposit c. Treasury bill d. common stock e. All of these are equally likely to be used in a repo transaction.

Q: A private investor purchases a six-month (182-day) T-bill with a $10,000 par value for $9,800. If she holds the Treasury bill to maturity, her annualized yield is ____ percent. a. 3.96 b. 4.54 c. 1.50 d. 4.09 e. None of these are correct.

Q: ​The rate on Eurodollar floating-rate CDs is based on a. ​a weighted average of European prime rates. b. ​the London Interbank Offer Rate. c. ​the U.S. prime rate. d. ​a weighted average of European discount rates.

Q: ​Large corporations typically make ____ bids for T-bills so they can purchase larger amounts. a. ​competitive b. ​noncompetitive c. ​very small d. ​none of the above

Q: ​____ are the most active participants in the federal funds market. a. ​Savings and loan associations b. ​Securities firms c. ​Credit unions d. ​Commercial banks

Q: Ignoring transaction costs, the cost of borrowing with commercial paper is equal to a. the yield on T-bills of the same maturity. b. the yield earned by investors holding the paper until maturity. c. the federal funds rate. d. the par value of the paper.

Q: ​A firm plans to issue 30-day commercial paper for $9,900,000. Par value is $10,000,000. What is the firm's cost of borrowing? a. ​12.12 percent b. ​11.11 percent c. ​13.00 percent d. ​14.08 percent e. ​15.25 percent

Q: If economic conditions cause investors to sell stocks because they want to invest in safer securities with much liquidity, this should cause a ____ demand for money market securities, which would place ____ pressure on the yields of money market securities. a. weak; downward b. weak; upward c. strong; upward d. None of these are correct.

Q: An investor purchased an NCD a year ago in the secondary market for $980,000. She redeems it today and receives $1,000,000. She also receives interest of $30,000. The investor's annualized yield on this investment is a. 2.0 percent. b. 5.10 percent. c. 5.00 percent. d. 2.04 percent.

Q: An increase in an indicator of inflation such as the consumer price index may create expectations of ________ interest rates and place _______ pressure on the prices of money market securities. a. lower; downward b. lower; upward c. higher; downward d. higher; upward

Q: Assume investors require a 5 percent annualized return on a six-month T-bill with a par value of $10,000. The price investors would be willing to pay is $____. a. 10,000 b. 9,524 c. 9,756 d. None of these are correct.

Q: ​Which money market transaction is most likely to represent a loan from one commercial bank to another? a. ​banker's acceptance b. ​negotiable CD c. ​federal funds d. ​commercial paper

Q: LIBOR is a. the interest rate charged on international interbank loans. b. the average rate charged on commercial loans in Europe c. the rate charged by the Federal Reserve for loans to banks. d. the rate charged by the European Central Bank for loans to banks.

Q: The money market interest rate paid by corporations that borrow short-term funds in a particular country is typically a. equal to the rate paid by that countrys government. b. slightly higher than the rate paid by that countrys government. c. mostly influenced by the demand for and supply of long-term funds in that country. d. set by the countrys central bank.

Q: An investor, purchases a six-month (182-day) T-bill with a $10,000 par value for $9,700. If the Treasury bill is held to maturity, the annualized yield is ____ percent. a. 6.52 b. 1.54 c. 1.50 d. 6.20 e. None of these are correct.

Q: ​The yield on commercial paper is ____ the yield of Treasury bills of the same maturity. The difference between their yields would be especially large during a ____ period. a. ​higher than; recessionary b. ​higher than; boom economy c. ​less than; boom economy d. ​less than; recessionary

Q: The price that competitive and noncompetitive bidders will pay at a Treasury bill auction is the a. highest price entered by a competitive bidder. b. highest price entered by a noncompetitive bidder. c. lowest accepted bid price entered by a competitive bidder. d. equally weighted average price paid by all competitive bidders whose bids were accepted. e. None of these are correct.

Q: At a given point in time, the actual price paid for a three-month Treasury bill is a. usually equal to the par value. b. more than the price paid for a six-month Treasury bill. c. equal to the price paid for a six-month Treasury bill. d. None of these are correct.

Q: Freeman Corp., a large corporation, plans to issue 45-day commercial paper with a par value of $3,000,000. Freeman expects to sell the commercial paper for $2,947,000. Freeman's annualized cost of borrowing is estimated to be ____ percent. a. 14.39 b. 14.13 c. 14.59 d. 14.33 e. None of these are correct.

Q: ​____ is/are sold at an auction at a discount from par value. a. ​Treasury bills b. ​Repurchase agreements c. ​Banker's acceptances d. ​Commercial paper

Q: You purchase a six-month (182-day) T-bill with a $10,000 par value for $9,800. The Treasury bill discount is ____ percent. a. 3.96 b. 4.09 c. 6.20 d. 3.56 e. None of these are correct.

Q: T-bills and commercial paper are sold a. with a stated coupon rate. b. at a discount from par value. c. at a premium above par value. d. with a stated coupon rate AND at a premium above par value. e. None of these are correct.

Q: Jarrod King, a private investor, purchases a Treasury bill with a $10,000 par value for $9,645. One hundred days later, Jarrod sells the T-bill for $9,719. What is Jarrod's expected annualized yield from this transaction? a. 13.43 percent b. 2.25 percent c. 10.55 percent d. 2.80 percent e. None of these are correct.

Q: Credit guarantees for commercial paper a. ensure that the issuer of commercial paper will use the funds obtained to provide credit. b. are issued by the Federal Reserve Bank of New York. c. are only as good as the credit of the guarantor. d. ensure that the issuer of commercial paper will use the funds obtained to provide credit AND are only as good as the credit of the guarantor.

Q: ​A newly issued T-bill with a $10,000 par value sells for $9,750, and has a 90-day maturity. What is the discount? a. ​10.26 percent b. ​0.26 percent c. ​$2,500 d. ​10.00 percent e. ​11.00 percent