Fin 300 Exam 1 Ch. 6

Callable bonds have lower required yields than similar convertible bonds, ceteris paribus. True False

False

Revenue bonds are backed by the full revenue of the municipality. True False

False

The dirty price plus accrued interest is called the clean price of the security. True False

False

Treasury notes and bonds and municipal bonds are default risk free. True False

False

With TIPS, the security's coupon rate is changed every six months by the inflation rate as measured by the CPI. True False

False

An 18-year T-bond can be stripped into how many separate securities? 18 19 36 37 38

37

Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus? AAA-rated non-callable corporate bond with a sinking fund AA-rated callable corporate bond with a sinking fund AAA-rated callable corporate bond with a sinking fund High-quality municipal bond AA-rated callable corporate bond without a sinking fund

AA-rated callable corporate bond without a sinking fund

A callable bond is one where the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principal is paid by final maturity. True False

False

Which of the following is/are true about callable bonds? I. Must always be called at par II. Will normally be called after interest rates drop III. Can be called by either the bondholder or the bond issuer IV. Have higher required returns than non-callable bonds I and II only II and IV only II and III only I, II, and III only I, II, III, and IV are true

II and IV only

Convertible bonds are I. options attached to bonds that give the bondholder the right to purchase stock at a preset price without giving up the bond. II. bonds in which the issue matures (converts) a little each year. III. bonds collateralized with certain types of automobiles. IV. bonds that may be converted to a certain number of shares of stock determined by the conversion ratio. I only I and II only I, II, and III IV only I and III only

IV only

A Treasury security in which periodic coupon interest payments can be separated from each other and from the principal payment is called a STRIP. T-note. T-bond. G.O. bond. Revenue bond.

STRIP

"On the run" Treasury notes and bonds are newly issued securities and "off the run" Treasuries are securities that have been previously issued. True False

True

Accrued interest owed to the bond seller increases as the next coupon payment date approaches. True False

True

An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture. True False

True

Bond ratings use a classification system to give investors an idea of the amount of default rate risk associated with the bond issue. True False

True

Bonds rated below Baa by Moody's or BBB by S&P are junk bonds. True False

True

Eurobonds are bonds denominated in the issuer's home currency, but are issued outside their home country. True False

True

T-notes and T-bonds are issued in minimum denominations of $100, or multiples of $100. True False

True

TIPS are a Treasury offering that protects investors from unexpected increases in inflation. True False

True

Standard revenue bonds are backed by the full taxing authority of the municipality. collateralized by the earnings from a specific project. bonds backed by mortgages. backed by the U.S. Treasury. always offered with a best efforts offering.

collateralized by the earnings from a specific project.

When an investment banker purchases an offering from a bond issuer and then resells it to the public, this is known as a rights offering. private placement. firm commitment. best efforts. standby offering.

firm commitment

The largest type of municipal bonds outstanding is _______________. revenue bonds industrial development bonds Treasury STRIPS convertible bonds general obligation bonds

revenue bonds

Bearer bonds are bonds with coupons attached that are redeemable by whoever has the bond. where the registered owner automatically receives bond payments when scheduled. in which the issue matures on a series of dates. issued in another currency other than the bond issuer's home currency. issued in a different country other than the bond issuer's home country.

with coupons attached that are redeemable by whoever has the bond