FI 301- Ch. 7

c) rise

In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will _______. A) remain unchanged B) fall C) rise D) do none of these

c) exempt from state and local taxes

Interest earned from Treasury bonds is: A) exempt from all income tax. B) exempt from federal income tax. C) exempt from state and local taxes. D) subject to all income taxes.

b) semiannual

Investors in Treasury notes and bonds receive _______ interest payments from the Treasury. A) annual B) semiannual C) quarterly D) monthly

b) 9

Jim Carrey, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Mr. Carrey will hold the bonds until maturity. Thus, he will earn a return of _______ percent. A) 12 B) 9 C) 10.5 D) More information is needed to answer this question.

c) restrict the amount of additional debt the firm can issue

A protective covenant may: A) specify all the rights and obligations of the issuing firm and the bondholders. B) require the firm to retire a certain amount of the bond issue each year. C) restrict the amount of additional debt the firm can issue. D) do none of these.

b) 255

A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the coupon payment after six months will be $_______. A) 250 B) 255 C) 500 D) 510

b) decline

Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely _______ as a result. A) rise B) decline C) be zero D) be unaffected

a) government national mortgage association (Ginnie Mae)

Bonds issued by the _______ are backed by the federal government. A) Government National Mortgage Association (Ginnie Mae) B) Federal Home Loan Mortgage Association (Freddie Mac) C) Federal National Mortgage Association (Fannie Mae) D) All of these are insured by the federal government.

a) chattel mortgage bonds

Bonds that are secured by personal property are called: A) chattel mortgage bonds. B) first mortgage bonds. C) second mortgage bonds. D) debentures.

b) 7.84

Financial calculator required.) Harry Potter can purchase bonds with 15 years until maturity, a par value of $1,000, and a 9 percent annualized coupon rate for $1,100. Mr. Potter's yield to maturity is _______ percent. A) 9.33 B) 7.84 C) 9.00 D) none of these

a) after interest rates have declined

When would a firm most likely call bonds? A) after interest rates have declined B) if interest rates do not change C) after interest rates increase D) just before the time at which interest rates are expected to decline

d) the appointment of a trustee in all bond indentures

Which of the following is not mentioned in the text as a protective covenant? A) a limit on the amount of dividends a firm can pay B) a limit on the corporate officers' salaries a firm can pay C) the amount of additional debt a firm can issue D) the appointment of a trustee in all bond indentures E) All of these are mentioned in the text as protective covenants.

b) the difference between the market value of the bond and the par value is called the premium

Which of the following is not true regarding the call provision? A) It typically requires a firm to pay a price above par value when it calls its bonds. B) The difference between the market value of the bond and the par value is called the call premium. C) A principal use of the call provision is to lower future interest payments. D) A principal use of the call provision is to retire bonds as required by a sinking-fund provision. E) A call provision is normally viewed as a disadvantage to bondholders.

finance companies

_______ are not primary purchasers of bonds. A) Insurance companies B) Finance companies C) Mutual funds D) Pension funds

a) competitive

_______ bids for Treasury bonds specify a price that the bidder is willing to pay and a dollar amount of securities to be purchased. A) Competitive B) Noncompetitive C) Negotiable D) Non-negotiable

a) treasury

_______ bonds have the most active secondary market. A) Treasury B) Zero-coupon corporate C) Junk D) Municipal