Business finance Exam 2

debenture

an unsecured loan certificate issued by a company, backed by general credit rather than by specified assets.

Which one of the following is the price a dealer will pay to purchase a bond? A. call price B. asked price C. bid price D. bid-ask spread E. par value

bid price

The secondary market is best defined by which one of the following?

market where outstanding shares of stock are resold

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 coupon B. callable C. senior D. collateralized E. unsecured

callable

.Which of the following are characteristics of a premium bond? I. coupon rate < yield-to-maturity II. coupon rate > yield-to-maturity III. coupon rate < current yield IV. coupon rate > current yield A. I only B. I and III only C. I and IV only D. II and III only E. II and IV only

coupon rate>yield-to-maturity

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. note B. discounted C. zero-coupon D. callable E. debenture

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 this bond? A. increase the coupon rate B. decrease the coupon rate C. increase the market price D. decrease the market price E. increase the time period

decrease the market price

Which one of the following risk premiums compensates for the possibility of nonpayment by the bond issuer? A. default risk B. taxability C. liquidity D. inflation E. interest rate risk

default risk

A bond's coupon rate is equal to the annual interest divided by which one of the following? A. call price B. current price C. par value D. clean price E. dirty price

face value

A U.S. Treasury bond that is quoted at 100:11 is selling: A. for 11 percent more than par value. B. at an 11 percent discount. C. for 100.11 percent of face value. D. at par and pays an 11 percent coupon. E. for 100 and 11/32nds percent of face value

for 100 and 11/32nds percent of face value

Which of the following increase the price sensitivity of a bond to changes in interest rates? I. increase in time to maturity II. decrease in time to maturity III. increase in coupon rate IV. decrease in coupon rate A. II only B. I and III only C. I and IV only D. II and III only E. II and IV only

increase in time to maturity and decrease in coupon rate

A "fallen angel" is a bond that has moved from: A. being publicly traded to being privately traded. B. being a long-term obligation to being a short-term obligation. C. having a yield-to-maturity in excess of the coupon rate to having a yield-to- maturity that is less than the coupon rate. D. senior status to junior status for liquidation purposes. E. investment grade to speculative grade.

investment grade to speculative grade.

The current yield is defined as the annual interest on a bond divided by which one of the following? A. coupon B. face value C. market price D. call price E. dirty price

market price

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

nominal rates

Municipal bonds: A. are totally risk-free. B. generally have higher coupon rates than corporate bonds. C. pay interest that is federally tax-free. D. are rarely callable. E. are free of default-risk.

pay interest that is federally tax-free

. A bond has a market price that exceeds its face value. Which of the following features currently apply to this bond? I. discounted price II. premium price III. yield-to-maturity that exceeds the coupon rate IV. yield-to-maturity that is less than the coupon rate A. III only B. I and III only C. I and IV only D. II and III only E. II and IV only

premium price and yield-to-maturity that is less than the coupon rate

Which of the following defines a note? I. secured II. unsecured III. maturity less than 10 years IV. maturity in excess of 10 years A. III only B. I and III only C. I and IV only D. II and III only E. II and IV only

unsecured and maturity less

A bond that has only one payment, which occurs at maturity, defines which one of the following? A. debenture B. callable C. floating-rate D. junk E. zero coupon

zero coupon