Unit 2 Part 4.5

An investor owns a bond with a 3.5% nominal yield making semiannual interest payments. On each interest payable date, the investor can expect to receive how much?

$17.50 = [(1,000 x 3.5) / 2 ]

A bond with a 3% stated yield and a $1,000 par value would pay how much in annual interest?

$30

Regarding different types of debt security maturities available to issuers, which of the following is accurate?

A balloon maturity uses elements of both serial and term maturities.

A company reorganizing with the intent to emerge from a bankruptcy is likely to issue which of the following type of bonds to accomplish that goal?

Adjustment bonds

Your client is about to retire and wants to rearrange his portfolio in order to have predictable income. Which of the following would not be a good investment vehicle?

Adjustment bonds

Which of the following statements regarding bond interest is true?

Bond prices have an inverse relationship to interest rates. (If interest rates go up, bond prices for those bonds trading in the secondary markets will go down. Conversely, if interest rates decline, bond prices rise. Par value is a fixed number for the life of the bond)

The risk of being the last to get paid in a corporate liquidation is characteristic of which of the following?

Common stock

A court has ordered a corporation to liquidate all assets under a federal bankruptcy proceeding. Which of the following is true?

Debtholders are paid before stockholders.

Which of the following statements regarding Treasury receipts are true? I. Interest is paid annually. II. Interest is paid at maturity III. They are sold at a discount. IV. They are sold at par.

I & III

Which of the following bonds trade flat (without interest) unless interest payments are declared by the board of directors (BOD)?

Income Bonds

For revenue bonds issued by a state or municipality, which of the following is true?

Interest will be paid only if the enterprise owned and operated by the state or municipality has sufficient earnings to cover the interest payments or the debt service reserve.

Water and sewer facilities are most likely to use what kind of debt financing to fund expansion plans?

Municipal revenue bonds

Regarding municipal general obligation (GO) bonds, which of the following is true?

The lower the statutory debt limit, the safer for bondholders.

Which of the following regarding federal funds is true?

These funds may be loaned from one Federal Reserve Board (FRB) member bank to another.

When purchasing a bond, the investor is taking on

a creditor position.

An investor purchases a bond in the secondary market at $950. Assuming $1,000 par value, this bond is trading at

a discount.

Treasury bills pay

all interest at maturity.

An investor holding a corporate-issued mortgage bond is holding a debt security that is

backed by real estate and therefore considered secured.

An issuer of bonds can be

corporate and both the federal and municipal governments

When an investor purchases a corporate bond, the investor is

lending money to and becoming a creditor of the corporation.

An investor holds a 6% callable bond purchased at 105. If the issuer calls the bond before maturity, the yield to call (YTC) realized by the investor would be

less than the coupon.

Municipal revenue bonds are

not subject to statutory debt limits and do not require voter approval

The coupon for a bond is calculated as a percentage of

par value, usually $1,000 for a bond.

Treasury bonds pay interest

semiannually and mature at par value

An investor holds a Treasury note with a stated interest of 6%. The investor will receive

two $30 interest payments per year [(0.06 x 1000) / 2]