1. Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? A. couponB. face valueC. discountD. call premiumE. yield A. coupon
2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. couponB. face valueC. discountD. yieldE. dirty price B. face value
3. A bond’s coupon rate is equal to the annual interest divided by which one of the following? A. call priceB. current priceC. face valueD. clean priceE. dirty price C. face value
4. The specified date on which the principal amount of a bond is payable is referred to as which one of the following? A. coupon dateB. yield dateC. maturityD. dirty dateE. clean date C. maturity
5. Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston Industries. The 11.6 percent is referred to as which one of the following? A. coupon rateB. face rateC. call rateD. yield to maturityE. interest rate D. yield to maturity
6. The current yield is defined as the annual interest on a bond divided by which one of the following? A. couponB. face valueC. market priceD. call priceE. dirty price C. market price
7. An indenture is: A. another name for a bond’s coupon.B. the written record of all the holders of a bond issue.C. a bond that is past its maturity date but has yet to be repaid.D. a bond that is secured by the inventory held by the bond’s issuer.E. the legal agreement between the bond issuer and the bondholders. E. the legal agreement between the bond issuer and the bondholders.
8. Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. at par.B. in registered form.C. in street form.D. as debentures.E. as callable. B. in registered form.
9. A bond that is payable to whomever has physical possession of the bond is said to be in: A. new-issue condition.B. registered form.C. bearer form.D. debenture status.E. collateral status. C. bearer form.
10. The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. noteB. discountedC. zero-couponD. callableE. debenture E. debenture
11. Which of the following defines a note?I. securedII. unsecuredIII. maturity less than 10 yearsIV. maturity in excess of 10 years A. III onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only D. II and III only
12. A sinking fund is managed by a trustee for which one of the following purposes? A. paying interest paymentsB. early bond redemptionC. converting bonds into equity securitiesD. paying preferred dividendsE. reducing coupon rates B. early bond redemption
13. A bond that can be paid off early at the issuer’s discretion is referred to as being which one of the following? A. zero couponB. callableC. seniorD. collateralizedE. unsecured B. callable
14. A $1,000 face value bond can be redeemed early at the issuer’s discretion for $1,030, plus any accrued interest. The additional $30 is called which one of the following? A. dirty priceB. redemption valueC. call premiumD. original-issue discountE. redemption discount C. call premium
15. A deferred call provision is which one of the following? A. requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bondB. ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so optC. prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturityD. prohibition which prevents bond issuers from redeeming callable bonds prior to a specified dateE. requirement that a bond issuer pay a call premium which is equal to or greater than one year’s coupon should that issuer decide to call a bond D. prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
16. A call-protected bond is a bond that: A. is guaranteed to be called.B. can never be called.C. is currently being called.D. is callable at any time.E. cannot be called during a certain period of time. E. cannot be called during a certain period of time.
17. The items included in an indenture that limit certain actions of the issuer in order to protect bondholder’s interests are referred to as the: A. trustee relationships.B. bylaws.C. legal bounds.D. “plain vanilla” conditions.E. protective covenants. E. protective covenants.
18. A bond that has only one payment, which occurs at maturity, defines which one of the following? A. debentureB. callableC. floating-rateD. junkE. zero coupon E. zero coupon
19. Which one of the following is the price a dealer will pay to purchase a bond? A. call priceB. asked priceC. bid priceD. bid-ask spreadE. par value C. bid price
20. You want to buy a bond from a dealer. Which one of the following prices will you pay? A. call priceB. auction priceC. bid priceD. asked priceE. bid-ask spread D. asked price
21. The difference between the price that a dealer is willing to pay and the price at which he or she will sell is called the: A. equilibrium.B. premium.C. discount.D. call price.E. spread. E. spread.
22. A bond is quoted at a price of $989. This price is referred to as which one of the following? A. call priceB. face valueC. clean priceD. dirty priceE. wholesale price C. clean price
23. Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the: A. quoted price.B. spread price.C. clean price.D. dirty price.E. call price. D. dirty price.
24. Real rates are defined as nominal rates that have been adjusted for which of the following? A. inflationB. default riskC. accrued interestD. interest rate riskE. both inflation and interest rate risk A. inflation
25. Interest rates that include an inflation premium are referred to as: A. annual percentage rates.B. stripped rates.C. effective annual rates.D. real rates.E. nominal rates. E. nominal rates.
26. The Fisher effect is defined as the relationship between which of the following variables? A. default risk premium, inflation risk premium, and real ratesB. nominal rates, real rates, and interest rate risk premiumC. interest rate risk premium, real rates, and default risk premiumD. real rates, inflation rates, and nominal ratesE. real rates, interest rate risk premium, and nominal rates D. real rates, inflation rates, and nominal rates
27. The pure time value of money is known as the: A. liquidity effect.B. Fisher effect.C. term structure of interest rates.D. inflation factor.E. interest rate factor. C. term structure of interest rates.
28. Which one of the following premiums is compensation for expected future inflation? A. default riskB. taxabilityC. liquidityD. inflationE. interest rate risk D. inflation
29. The interest rate risk premium is the: A. additional compensation paid to investors to offset rising prices.B. compensation investors demand for accepting interest rate risk.C. difference between the yield to maturity and the current yield.D. difference between the market interest rate and the coupon rate.E. difference between the coupon rate and the current yield. B. compensation investors demand for accepting interest rate risk.
30. A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. market ratesB. comparable corporate bond ratesC. the risk-free rateD. inflationE. maturity E. maturity
31. Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer? A. default riskB. taxabilityC. liquidityD. inflationE. interest rate risk A. default risk
32. The taxability risk premium compensates bond holders for which one of the following? A. yield decreases in response to market changesB. lack of coupon paymentsC. possibility of defaultD. a bond’s unfavorable tax statusE. decrease in a municipality’s credit rating D. a bond’s unfavorable tax status
33. The liquidity premium is compensation to investors for: A. purchasing a bond in the secondary market.B. the lack of an active market wherein a bond can be sold for its actual value.C. acquiring a bond with an unfavorable tax status.D. redeeming a bond prior to maturity.E. purchasing a bond that has defaulted on its coupon payments. B. the lack of an active market wherein a bond can be sold for its actual value.
34. An 8 percent corporate bond that pays interest semi-annually was issued last year. Which two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent?I. a structure as an interest-only loanII. a current yield that equals the coupon rateIII. a yield-to-maturity equal to the coupon rateIV. a market price that differs from the face value A. I and III onlyB. I and IV onlyC. II and III onlyD. II and IV onlyE. III and IV only B. I and IV only
35. A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond?I. discounted priceII. premium priceIII. yield-to-maturity that exceeds the coupon rateIV. yield-to-maturity that is less than the coupon rate A. III onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only E. II and IV only
36. All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to maturity. A. a premium; less thanB. a premium; equal toC. a discount; less thanD. a discount; higher thanE. par; less than C. a discount; less than
37. The Walthers Company has a semi-annual coupon bond outstanding. An increase in the market rate of interest will have which one of the following effects on this bond? A. increase the coupon rateB. decrease the coupon rateC. increase the market priceD. decrease the market priceE. increase the time period D. decrease the market price
38. Which of the following are characteristics of a premium bond?I. coupon rate yield-to-maturityIII. coupon rate current yield A. I onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only E. II and IV only
39. Which of the following relationships apply to a par value bond?I. coupon rate < yield-to-maturityII. current yield = yield-to-maturityIII. market price = call priceIV. market price = face value A. I and II onlyB. I and III onlyC. II and IV onlyD. I, II, and III onlyE. II, III, and IV only C. II and IV only
40. Which one of the following relationships is stated correctly? A. The coupon rate exceeds the current yield when a bond sells at a discount.B. The call price must equal the par value.C. An increase in market rates increases the market price of a bond.D. Decreasing the time to maturity increases the price of a discount bond, all else constant.E. Increasing the coupon rate decreases the current yield, all else constant. D. Decreasing the time to maturity increases the price of a discount bond, all else constant.
41. Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which one of the following statements is correct? A. The bonds will become discount bonds if the market rate of interest declines.B. The bonds will pay 10 interest payments of $60 each.C. The bonds will sell at a premium if the market rate is 5.5 percent.D. The bonds will initially sell for $1,030 each.E. The final payment will be in the amount of $1,060. C. The bonds will sell at a premium if the market rate is 5.5 percent.
42. A newly issued bond has a 7 percent coupon with semiannual interest payments. The bonds are currently priced at par value. The effective annual rate provided by these bonds must be: A. 3.5 percent.B. greater than 3.5 percent but less than 7 percent.C. 7 percent.D. greater than 7 percent.E. Answer cannot be determined from the information provided. D. greater than 7 percent.
43. Which of the following increase the price sensitivity of a bond to changes in interest rates?I. increase in time to maturityII. decrease in time to maturityIII. increase in coupon rateIV. decrease in coupon rate A. II onlyB. I and III onlyC. I and IV onlyD. II and III onlyE. II and IV only C. I and IV only
44. Which one of the following bonds is the least sensitive to interest rate risk? A. 3-year; 4 percent couponB. 3-year; 6 percent couponC. 5-year; 6 percent couponD. 7-year; 6 percent couponE. 7-year; 4 percent coupon B. 3-year; 6 percent coupon
45. As a bond’s time to maturity increases, the bond’s sensitivity to interest rate risk: A. increases at an increasing rate.B. increases at a decreasing rate.C. increases at a constant rate.D. decreases at an increasing rate.E. decreases at a decreasing rate. B. increases at a decreasing rate.
46. You own a bond that has a 6 percent annual coupon and matures 5 years from now. You purchased this 10-year bond at par value when it was originally issued. Which one of the following statements applies to this bond if the relevant market interest rate is now 5.8 percent? A. The current yield-to-maturity is greater than 6 percent.B. The current yield is 6 percent.C. The next interest payment will be $30.D. The bond is currently valued at one-half of its issue price.E. You will realize a capital gain on the bond if you sell it today. E. You will realize a capital gain on the bond if you sell it today.

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