finance exam 3

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:

protective covenants

The Fisher effect is defined as the relationship between which f the following variables?

real rates, inflation rates, and nominal rates

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:

spread

The pure time value of money is known as the:

term structure of interest rates

The liquidity premium is compensation to investors for:

the lack of an active market wherein a bond can be sold for its actual value

Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?

coupon

the legal agreement between the bond issuer and the bondholders

indenture

Real rates are defined as nominal rates that have been adjusted for which of the following?

inflation

You want to buy a bond from a dealer. Which one of the following prices will you pay?

asked price

the legal agreement between the bond issuer and the bondholders

an indenture

A bond that is payable to whomever has physical possession of the bond is said to be in

bearer form

Which one of t he following is the price a dealer will pay to purchase a bond?

bid price

A $1,00 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called

call premium

A bond that can be paid off early at the issuer's discretion is referred to as being which one of the following?

callable

A bond is quoted at a price of $989. This price is referred to as which one of the following?

clean price

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?

debenture

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 the bond?

decrease the market price

Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer?

default risk

prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date

differed call provision

Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the :

dirty price

All else constant, a bond will sell at ____ when the coupon rate is ____ the yield to maturity.

discount, less than

A sinking fund is managed by a trustee for which of the following purposes?

early bond redemption

A bond's coupon rate is equal to the annual interest divided by which one of the following?

face value

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?

face value

Atlas Entertainment has a 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.

in registered form

The current yield is defined as the annual interest on a bond divided by which one of the following?

market price

A Treasury yield curve plots Treasury interest rates relative to which one of the following?

maturity

The specified date on which the principal amount of a bond is payable is referred to as which one of the following?

maturity

Interest rates that include an inflation premium are referred to as:

nominal rates

Decreasing the time to maturity increases the price of a discount bond, all else constant.

true

The taxability risk premium compensates bond holders for which one of the following?

unfavorable tax status

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?

yield to maturity

A bond that has only one payment, which occurs at maturity, defines which one of the following?

zero coupon