FINA 4400 Multiple Choice Review: Bonds

d. Each is a short term instrument and does not pay a coupon.

How is commercial paper similar to a Treasury Bill? a. Each is a long term instrument and pays coupons. b. Each is a short term instrument and pays coupons. d. Each is a long term instrument and does not pay a coupon. d. Each is a short term instrument and does not pay a coupon.

d. Yes, but the Bill must sell for a premium.

Suppose the discount yield on a Treasury Bill exceeds the bond-equivalent yield. Is this even theoretically possible? a. No, the algebra of the yield calculations will not allow this to happen. b. Yes, but the Bill must sell for a discount. c. Yes, but the Bill sell exactly at par. d. Yes, but the Bill must sell for a premium.

a. The yield to maturity exceeds the coupon rate.

What do you know about a coupon bond if the bond sells at a discount? a. The yield to maturity exceeds the coupon rate. b. The yield to maturity equals the coupon rate. c. The yield to maturity is less than the coupon rate. d. We cannot compare the yield to the coupon rate unless we know the duration.

b. As a Treasury Note.

A new issued Treasury security has a maturity of 5 years. How is it classified? a. As a Treasury Bill. b. As a Treasury Note. c. As a Treasury Bond. d. As an inflation-protected security.

a. As a Treasury Bill.

A new issued Treasury security has a maturity of 6 months. How is it classified? a. As a Treasury Bill. b. As a Treasury Note. c. As a Treasury Bond. d. As an inflation-protected security.

d. We know the current yield is greater than 6 per cent.

A Treasury bond has a 6 per cent annual coupon (paid semi-annually), has a current price of $ 96.00, and a par value of $ 100.00. What do we know about the current yield on this bond? a. We would have to know the maturity of the bond to say anything at all about the current yield. b. We know the current yield is less than 6 per cent. c. We know the current yield is exactly 6 per cent. d. We know the current yield is greater than 6 per cent.

c. It could be a Note or a Bond, but not a Bill.

A United States Treasury security has an original maturity greater than one year. Is it a Bill, Note, or Bond? a. It could be a Bill or a Note, but not a Bond. b. It could be a Bill or a Bond, but not a Note. c. It could be a Note or a Bond, but not a Bill. We can't narrow the choices until we know whether it has a coupon.

c. A little more than ten per cent.

A day Treasury Bill with 74 days to maturity sells for 98 per cent of par. What is the bond equivalent yield? a. A little more than one tenth of one per cent. b. A little more than one per cent. c. A little more than ten per cent. d. A little more than one hundred per cent.

c. As a Treasury Bond.

A new issued Treasury security has a maturity of 20 years. How is it classified? a. As a Treasury Bill. b. As a Treasury Note. c. As a Treasury Bond. d. As an inflation-protected security.

b. The coupon rate exceeds 3.5 per cent.

The yield to maturity on a Treasury Bond with 10 years remaining maturity is 3.5 per cent. This Bond sells for $ 102 per $ 100 of par and pays coupons semi-annually. What do you know about the coupon rate on this bond? a. The coupon rate is 3.5 per cent. b. The coupon rate exceeds 3.5 per cent. c. The rate is less than 3.5 per cent. d. It's a trick question: the price of a Treasury bond can never exceed the par value.

c. The one with the higher coupon will sell for the higher price.

Two Treasury Notes have the same par, the same remaining maturity and the same yield to maturity. Which one sells for the higher price? a. It's a trick question. Since Treasury Notes do not have coupons, they would have to sell for the same price. b. Any two Treasury Notes with the same par, maturity, and yield will sell for the same price, regardless of coupon rates. c. The one with the higher coupon will sell for the higher price. d. The one with the lower coupon will sell for the higher price.

c. The yield to maturity is less than the coupon rate.

What do you know about a coupon bond if the bond sells for a premium? a. The yield to maturity exceeds the coupon rate. b. The yield to maturity equals the coupon rate. c. The yield to maturity is less than the coupon rate. d. We cannot compare the yield to the coupon rate unless we know the duration.

a. The yield to maturity is equal to the coupon rate.

What do you know about a coupon bond if the bond sells for par? a. The yield to maturity is equal to the coupon rate. b. The yield to maturity is less than the coupon rate. c. The yield to maturity is greater than the coupon rate. d. The yield does not include an inflation premium.

c. The bond is sells at par.

What do you know about a coupon bond if the coupon rate is equal to the yield to maturity? a. The bond sells for a premium. b. The bond sells for a discount. c. The bond is sells at par. d. The bond is a callable bond.

a. The bond sells for a premium.

What do you know about a coupon bond if the coupon rate is greater than the yield to maturity? a. The bond sells for a premium. b. The bond sells for a discount. c. The bond is sells at par. d. The bond is a callable bond.

d. These are two terms for the same thing.

What is the difference between "junk" and "high-yield" bonds? a. Junk bonds are BB or B; high-yield are CCC or below. b. High-yield bonds are BB or B; junk bonds are CCC or below. c. All junk bonds are high-yield, but not all high-yield bonds are junk. d. These are two terms for the same thing.

d. Bonds and Notes have coupons; Bills do not

What is the relationship among coupon rates for Treasury Bills, Notes and Bonds? a. Bills have coupons; Notes and Bonds do not. b. Bonds have higher coupons than Notes and Notes have higher coupons than Bills. c. Bills have higher coupons than Notes and Notes have higher coupons than Bonds. d. Bonds and Notes have coupons; Bills do not

c. Bonds have longer maturities than Notes and Notes have longer maturities than Bills.

What is the relationship among the maturities of Treasury Bills, Notes, and Bonds? a. Bills have longer maturities than Notes and Notes have longer maturities than Bonds. b. Notes have longer maturities than Bonds and Bonds have longer maturities than Bills. c. Bonds have longer maturities than Notes and Notes have longer maturities than Bills. d. Bonds and Notes have longer maturities than Bills, and Bonds can have maturities longer or shorter than Notes.

c. There is always an inverse relationship between bond prices and yields.

What is the relationship between bond prices and bond yields? a. They move in the same direction for investment grade bonds, but they move in opposite directions for junk bonds. b. They move in the opposite direction for investment grade bonds, but they move in the same direction for junk bonds. c. There is always an inverse relationship between bond prices and yields. d. Bond prices and yields always move in the same direction.

a. All fallen angels are high yield bonds, but not all high yield bonds are fallen angels.

What is the relationship between high yield bonds and fallen angels? a. All fallen angels are high yield bonds, but not all high yield bonds are fallen angels. b. All high yield bonds are fallen angels, but not all fallen angels are high yield. c. Fallen angels are BB or B; high yield bonds are CCC or below. d. These are two terms for the same thing.

a. The current yield.

What is the term for the annual dollar coupon on a bond divided by the bond's current price? a. The current yield. b. The discount yield. c. The effective annual yield. d. The bond equivalent yield.

Never. A Treasury security is a Note, Bill, or Bond when it is issued and the designation never changes.

When is Treasury Note reclassified as a Treasury Bill? a. When the rating falls below A. b. When the ratings falls below BBB. c. When the remaining maturity is less than one year. d. Never. A Treasury security is a Note, Bill, or Bond when it is issued and the designation never changes.

d. What is described in the question can never happen.

You observe that the price of a Treasury security moves in the same direction as its yield. What can you conclude about this security? a. It is has to be a Treasury Bill; it cannot be a Note or a Bond. b. It can be a Note or a Bond but it cannot be a Bill. c. It has to be a Treasury Inflation Protected Security. d. What is described in the question can never happen.