Chapter 3 Assessment Exam

A bond is quoted at 99 1/8. From this quote, which of the following can be reasonably concluded? I. The bond is a corporate bond II. The bond is a government bond III. An investor would pay $991.25 to purchase the bond at the current market price IV. An investor would pay $99.125 to purchase the bond at the current market price A) I and IV B) II and IV C) II and III D) I and III

D

All of the following are provisions of the Trust Indenture Act of 1939 EXCEPT A) If a bond issuer becomes insolvent, the appointed trustee may be given the right to seize the bond issuer's assets and sell them in order to recoup the bondholders' investments B) Issuers are required to create a written document that discloses the terms and conditions under which the securities are issued, including legal obligations and any restrictions C) Issuers must name a trust corporation to carry out the terms of the indenture D) It applies to issues of corporate debt securities in excess of $1 million

D

All of the following statements about corporate bonds are true EXCEPT A) They typically are issued with par value of $1,000 B) They generally yield more than U.S. government and U.S. Agency securities C) Most bonds pay interest every 6 months D) Interest is typically exempt from taxation at the state and local level

D

All of the following statements about municipal revenue bonds are TRUE EXCEPT: A) They can be issued by states, political subdivisions, interstate authorities, and intrastate authorities. B) The interest and principal are paid from the revenue received from the facility. C) They are not subject to debt limitations established by the issuer. D) The maturity of the revenue bond usually coincides with the useful life of the facility being built.

D

All of the following statements are true of the municipal securities market EXCEPT A) The MSRB is responsible for improving municipal market transparency and efficiency B) Dealers must register as market makers to participate in trading municipal securities trading with other firms C) The number of municipal securities that trade is far larger than the number of equity securities that are listed on U.S. exchanges D) Most municipal securities are readily available in the secondary market

D

An investor who lives in the state of Minnesota purchases municipal bonds that are issued in the state of Wisconsin. The interest on the bonds A) Will be tax exempt at the federal and state level. B) Will cause the bond to trade at a premium if it is lower than new and comparable bonds issued by the same issuer. C) Will fluctuate based on the market value of the bonds. D) Will probably be more than the investor would have received from an investment in US government bonds.

D

Analysis of the tax collections of a municipality are most relevant to A) U.S. Treasury bonds. B) revenue bonds. C) municipal fund securities. D) GO bonds.

D

Asset Backed Securities could be backed by all of the following EXCEPT A) student loans B) auto loans C) credit card receivables D) corporate equipment

D

TANS, RANS, and BANS are issued by municipalities for A) Federally subsidized financing B) Pass through financing C) Private purpose non-essential services funding D) Short term financing

D

Unsecured bonds are typically backed by the A) Future sales of the company's products B) CEO affirmation C) Cash flows of the business D) Good faith of the business

D

When a bond is secured, investors A) Are guaranteed a minimum return B) Bear no risk when market interest rates change C) Will always have their principal repaid D) Have rights to collateral pledged by the company

D

All of the following securities pay interest that is taxable at the federal level and exempt from state taxation EXCEPT A) Federal Home Loan Mortgage corporation notes B) Treasury Bills C) TIPS D) Federal Farm Credit Bank bonds

A

All of the following statements are true about convertible bonds EXCEPT A) a bond cannot be both callable and convertible. B) the bond indenture explains the terms under which conversion can occur. C) convertible bonds help issuers achieve lower fixed costs for borrowing. D) the conversion ratio specifies

A

An infrastructure project that is free to the public is most likely backed by which of the following? A) A general obligation bond B) Special assessment bond C) A double barreled bond D) An industrial revenue bond

A

Characteristics of commercial paper include all of the following EXCEPT A) Issued only by banks and other financial institutions B) Unsecured obligation of the issuer C) Usually matures within 270 days or less D) Highly liquid

A

Investors that purchase Ginnie Mae, Fannie Mae or Freddie Mac mortgage-backed securities will benefit from which of the following? A) Income that is slightly higher than income from U.S. Treasury securities B) Full backing by the U.S. Government C) Exemptions from interest taxation at the federal, state and local levels D) Interest payments every six months

A

The maximum maturity allowed for commercial paper is A) 270 days B) 364 days C) 180 days D) 90 days

A

All of the following types of U.S. Treasuries pay interest through periodic coupons except A) Floating Rate Notes B) T-bills C) T-bonds D) TIPS

B

As compared to U.S. Treasury securities, U.S. Agency securities A) trade actively in the secondary market B) have slightly higher yields C) pay interest to investors less frequently D) benefit from tax exemptions on interest payments

B

Which of the following securities carries the greatest amount of credit risk? A) Common stock B) Debenture C) Treasury Bond D) Preferred stock

B

Which of the following securities is quoted on a discounted yield basis? A) Treasury bond B) Treasury bill C) Treasury note D) CMO

B

Commercial paper, bankers acceptances and large time deposits are part of what segment of the fixed income market? A) Asset-backed B) Corporate bonds C) Money market instruments D) Municipal

C

Company A and Company B are multinational corporations whose typical business interests are in the import/export fields. The international transactions in which these businesses engage might be financed through the use of A) Negotiable CDs B) ADRs C) BAs D) T Bills

C

Interest rates are rising, causing the speed of prepayments to decline. To an MBS investor, this is an example of A) Prepayment risk B) Inflation risk C) Extension risk D) Interest rate risk

C

You purchase ten 8% T notes at 101-16. What is the dollar amount of this purchase? A) $1,001.50 B) $1,011.60 C) $10,150.00 D) $10,812.00

C