Investments Final

A ......................... is an unsecured bond, for which no specific pledge of property is made. a. subordinated bond b. bearer bond c. debenture d. indenture

debenture

Bonds are rated according to the likelihood of ................; high ratings indicate ................ probability of default. a. maturity date; low b. interest rate risk; low c. interest rate risk; high d. default; low

default; low

A bond selling for less than the face value is a ...................; and a bond with the yield to maturity higher than the coupon rate is .......................... a. discount bond; premium bond b. callable bond, discount bond c. discount bond; discount bond d. risk-free bond; premium bond

discount bond; discount bond

The duration of a 20-year zero-coupon bond is a. equal to 20. b. larger than 20. c. smaller than 20. d. equal to that of a 20-year 10% coupon bond. e. None of these is correct

equal to 20.

Face value and par value are synonymous terms. a. true b. false

true

A bond with 7.5 coupon rate has a yield to maturity of 8%, 25 years to maturity, a $1,000 face value, and pays interest semi-annually. What is the amount of each coupon payment? a. $ 80.00 b. $ 75.00 c. $ 40.00 d. $ 37.50

$ 37.50

A corporate bond with a $1,000 face value quoted as 102.78 sells for ................... and a $1,000 face value treasury bond quoted as 97:09 sells for: a. $102.78; $97.09 b. $1,027.80; $972.8125 c. $1,027.80; $97.28 d. $1,027.80; $970.90

$1,027.80; $972.8125

The duration of a bond with 7% annual coupon rate when the yield to maturity is 9% and three years left to maturity is: a. 2.75 years b. 2.80 years c. 2.85 years d. 2.90 years

2.80 years

A 7%, 14-year bond has a yield to maturity of 6% and duration of 7 years. If the market yield changes by 44 basis points, how much change will there be in the bond's price? a. 1.85% b. 2.91% c. 3.27% d. 6.44%

2.91%

A bond with a $1,000 face value is currently quoted as 98.42. The bond pays semi-annual payments of $45 and matures in 6 years. What is the coupon rate? a. 9 percent b. 4.5 percent c. 4.39 percent d. 9.13 percent

9 percent

Which of the following bonds has the longest duration? a. An 8-year maturity, 0% coupon bond. b. An 8-year maturity, 5% coupon bond. c. A 10-year maturity, 5% coupon bond. d. A 10-year maturity, 0% coupon bond. e. Cannot tell from the information given.

A 10-year maturity, 0% coupon bond

Holding other factors constant, the interest-rate risk of a coupon bond is lower when the bond's: a. term-to-maturity is lower. b. coupon rate is higher. c. yield to maturity is higher. d. term-to-maturity is lower and coupon rate is higher. e. All of these are correct

All of these are correct

The duration of a bond is a function of the bond's a. coupon rate. b. yield to maturity. c. time to maturity. d. All of these are correct. e. None of these is correct

All of these are correct

Which of the following two bonds is more price sensitive to changes in interest rates? 1) A par value bond, X, with a 5-year-to-maturity and a 10% coupon rate. 2) A zero-coupon bond, Y, with a 5-year-to-maturity and a 10% yield-to-maturity. a. Bond X because of the higher yield to maturity. b. Bond X because of the longer time to maturity. c. Bond Y because of the longer duration. d. Both have the same sensitivity because both have the same yield to maturity. e. None of these is correct

Bond Y because of the longer duration

Which one of the following statements are correct about bond market? I- bond market is less transparent that stock market II- Bonds are generally bought from and sold to electronically-connected dealers III- Getting up-to-date prices on individual bonds is often difficult a. I only b. I and II c. II and III d. I , II and III

I , II and III

The dirty price of a bond includes which of the following? I- quoted price II- bid price III- accrued interest a. I only b. I and II c. II and III d. I and III

I and III

par value bond is a bond having the following features: I- yield to maturity equals the coupon rate II- market price lower than the face value III- market price equal to the face value a. I only b. I and II only c. I and III only d. All of them

I and III only

When interest rates decline, the duration of a 10-year bond selling at a premium a. increases. b. decreases. c. remains the same. d. increases at first, then declines. e. decreases at first, then increases

Increases

Among the following bonds, which one has a price that is most sensitive to changes in interest rate. a. a 30-year, zero coupon b. a 30-year, 5 percent coupon bond c. a 10-year, 15 percent coupon bond d. a 5-year callable bond

a 30-year, zero coupon

If YTM = coupon rate then,

bond = face value

if YTM > coupon rate: Discount or Premium?

bond price < face value: discount

if YTM < coupon rate: discount or premium?

bond value > face value: Premium

....................... is the right of the bond's issuer to repurchase the bond at a predetermined price prior to maturity. However, the ...................... is the provision prohibiting the company from redeeming the bond prior to a certain date. a. call provision; deferred call provision b. call premium; call protection c. bond indenture; call provision d. protective covenant; sinking fund

call provision; deferred call provision

A ........................... allows the issuer to repurchase the bond debt issue prior to maturity. In most cases, the call price will be equal to the ..............................of the bond plus a ............................ a. put provision; face value; call premium b. put provision; repurchase value; call premium c. call provision; face value; plus value d. call provision; face value; call premium

call provision; face value; call premium

The price of a bond quoted net of accrued interest is the ................... price; the price which includes accrued interest (and which the buyer actually pays) is the.................. price: a. clean; dirty b. dirty; clean c. market; clean d. quoted; market

clean; dirty

A bond coupon payments are calculated based on the ..................... when the bond is issued. However, bond valuation requires that we determine the ......................, which is the market required rate of return on that bond at the time of the valuation. a. coupon rate; required rate b. coupon rate; yield to maturity c. default risk; coupon rate d. nominal rate; real rate

coupon rate; yield to maturity

Holding other factors constant, the interest-rate risk of a coupon bond is lower when the bond's: a. term-to-maturity is lower. b. coupon rate is higher. c. yield to maturity is lower. d. term-to-maturity is lower and coupon rate is higher. e. All of these are correct

d. term-to-maturity is lower and coupon rate is higher.

All other things being equal, the longer the time to maturity, the............... interest rate risk, and the lower the coupon rate, the ...................... the interest rate risk. a. lower; lower b. lower; greater c. greater; lower d. greater; greater

greater; greater

A premium bond is a bond that: a. is selling for less than par value b. has a par value smaller than the face value c. is a bond that will mature in less than 12 months d. has a market value greater than the par value

has a market value greater than the par value

The written agreement between the corporation and the lender detailing the terms of the debt issue is called the bond: a. security agreement b. bond mortgage c. indenture d. debenture

indenture

A ............................. bond is a bond that pays fixed coupon payments at regular period of time. A ........................ bond is a bond that is sold at a deep discount and it makes only one payment at maturity. a. floating-rate; level-coupon b. zero-coupon; floating-rate c. level-coupon; floating-rate d. level-coupon; zero-coupon

level-coupon; zero-coupon

The yield to maturity of a bond is also the bond: a. coupon rate b. real rate c. current yield d. nominal rate

nominal rate

.................. is an unsecured debt that generally matures in less than ten years; a .......................... is an unsecured debt that generally matures in ten years or more. a. perpetuity; note b. note; debenture c. debenture; bond d. debenture; note

note; debenture

The value of a bond equals to the sum of the .......................... of both the future................ and the ........................ a. present value; coupon rate; face value b. future value; coupon payments; par value c. future value; coupon payments; face value d. present value; coupon payments; face value

present value; coupon payments; face value

A .................. restricts actions of the bond issuer. A ...................... restricts the issuer actions, where as a .................. requires that certain actions be taken by the corporation. a. debenture; call protection; protective covenant b. protective covenant; negative covenant; positive covenant c. protective covenant; subordination covenant; seniority d. registered bearer; protective covenant; indenture

protective covenant; negative covenant; positive covenant

The yield to maturity for a bond is the bond's .................. When the market value of the bond is equal to its face value, the yield to maturity should be equal to the ................. a. coupon rate; rate of return b. rate of return; coupon rate c. default rate; rate of return d. rate of return; coupon payment

rate of return; coupon rate

The account managed by the bond trustee for the purpose of the early bond redemption is the: a. debenture b. bond covenant c. indenture d. sinking fund

sinking fund

The observed relationship between short-term and long-term interest rates is known as the .....................; it is depicted graphically as the ....................... a. term structure of interest rates; yield curve b. long-term structure; interest curve c. yield to maturity; interest rate yield d. fisher effect; yield curve

term structure of interest rates; yield curve

The current yield on a bond is defined as: a. the bond annual coupon divided by the current price b. the bond interest rate times the yield to maturity c. the bond yield to maturity d. the bond annual coupon divided by the face value

the bond annual coupon divided by the current price

Ceteris paribus, the duration of a bond is positively correlated with the bond's a. time to maturity. b. coupon rate. c. yield to maturity. d. All of these are correct. e. None of these is correct

time to maturity

A ..................... bond have no default risk. A .................. bond carries some default risk and is exempt from federal income taxation. a. zero-coupon; federal b. convertible; municipal c. treasury; municipal d. level-coupon; call-protected bond

treasury; municipal

To determine the value of a bond at a particular point in time we use the yield to maturity, which is the market interest rate at that time for bonds with similar features. a. true b. false

true

Duration measures a. weighted average time until a bond's half-life. b. weighted average time until cash flow payment. c. the time required to make excessive profit from the investment. d. weighted average time until a bond's half-life and the time required to make excessive profit from the investment. e. weighted average time until cash flow payment and the time required to make excessive profit from the investment

weighted average time until cash flow payment

Holding other factors constant, the interest-rate risk of a coupon bond is higher when the bond's: a. term-to-maturity is lower. b. coupon rate is higher. c. yield to maturity is lower. d. current yield is higher. e. None of these is correct

yield to maturity is lower

A ....................... bond makes no coupon payments, and is initially priced at a deep discount from par value. A......................... bond has adjustable coupon payments, which are tied to a specific index. a. level-coupon; zero-coupon b. zero-coupon; floating-rate c. floating-rate; level-coupon d. zero-coupon; level-coupon

zero-coupon; floating-rate