Fin 3320 - Chap 6

e. $939.53

Devine Divots issued a bond a few years ago. The bond has a face value equal to $1,000 and pays investors $30 interest every six months. The bond has eight years remaining until maturity. If an investor requires a 7 percent rate of return to invest in this bond, what is the maximum price the investor should be willing to pay to purchase the bond? a. $965.63 b. $761.15 c. $1,062.81 d. $940.29 e. $939.53

a. $927.68

Emily is contemplating the purchase of a 20-year bond that pays $50 interest every six months. The face value of the bond is $1,000. She plans to hold the bond for 10 years and sell it. She requires a 12 percent annual return but believes that the market will give only an 8 percent return when she sells the bond 10 years from now. Assuming she is a rational investor, how much should she be willing to pay for the bond today? a. $927.68 b. $737.50 c. $885.30 d. $856.91 e. $1,126.85

b. 10%

Tony's Pizzeria plans to issue bonds with a par value of $1,000 and 10 years to maturity. These bonds will pay $45 interest every 6 months. Current market conditions are such that the bonds will be sold at net $937.79. What is the yield to maturity (YTM) of the issue as a broker would quote it to an investor? a. 8% b. 10% c. 7% d. 11% e. 9%

c. The value of the bond at 7 percent is $508.34.

The interest rate on a 10 percent, 10-year zero-coupon bond with a $1,000 face value falls from 8 percent to 7 percent. Which of the following is true of the value of the bond? a. The value of the bond at 10 percent is $463.19. b. The maturity value of the bond at 7 percent is $508.34. c. The value of the bond at 7 percent is $508.34. d. The maturity value of the bond at 8 percent is $508.34. e. The value of the bond at 8 percent is $385.54.

d. 1 to 9 months

The maturity of commercial paper varies from _____. a. 10 to 15 months b. 2 to 3 years c. 3 to 5 years d. 1 to 9 months e. 15 to 18 months

e. must be repaid at some point during the life of the debt

The par value of debt _____. a. is added to the interest payments to get the maturity value of the debt b. always yields positive returns for investors c. is always half of the maturity value of the debt d. is equal to the market value of the debt e. must be repaid at some point during the life of the debt

d. bond will go into default

The quality rating assigned to a bond reflects the probability that the _____. a. company will earn extremely high returns on its bond's sinking fund investments b. bond's maturity value will become lower than its principal value c. bond's face value will increase above its market value d. bond will go into default e. firm will exercise a call provision on the bond

d. no precise formula

The ratings of a firm's bonds are based on _____. a. the dividends paid in the last year by the firm b. the firm's ratio of current liabilities to total assets c. the earnings per share of the shareholders of subsidiary firms d. no precise formula

b. 15.76%

Two years ago, Synergy Inc. issued a 15-year callable bond with a $1,000 face value and a 12 percent coupon rate of interest (paid semiannually). The bond cannot be called until five years after issue, at which time the call price will equal $1,120. Currently, the bond is selling for $989.What is the bond's yield to call (YTC). a. 12.45% b. 15.76% c. 7.88% d. 12.17% e. 12.56%

d. par value

When the market value of debt is the same as its face value, it is said to be selling at the _____. a. maturity value b. discounted value c. yield value d. par value e. premium value

e. selling at its face value

When the market value of debt is the same as its par value, it is _____. a. issued at a premium b. selling at a discount c. repaid at the maturity date d. refinanced at a lower interest rate e. selling at its face value

b. interest rate reinvestment risk

The risk that income from a bond portfolio will vary because cash flows must be reinvested at current market rates is called _____. a. capital gain yield risk b. interest rate reinvestment risk c. interest rate price risk d. yield to maturity risk e. market yield risk

e. revenue bonds and general obligation bonds

The two principal types of municipal bonds are _____. a. general obligation bonds and indexed bonds b. income bonds and putable bonds c. floating-rate bonds and indexed bonds d. floating-rate bonds and revenue bonds e. revenue bonds and general obligation bonds

c. $1,115.57

A $1,000 par value bond pays interest of $35 each quarter and will mature in 10 years. If an investor's simple annual required rate of return is 12 percent, how much should the investor be willing to pay for this bond? a. $1,113.00 b. $941.36 c. $1,115.57 d. $1,051.25 e. $1,391.00

a. 11.26%

A $1,000 par value bond sells for $1,216. It matures in 20 years, has a 14 percent coupon, pays interest semiannually, and can be called in 5 years at a price of $1,100. Calculate the bond's yield to maturity. a. 11.26% b. 8.59% c. 6.05% d. 10.06% e. 10.00%

b. trustee

A _____ is assigned to represent the bondholders and to guarantee that the terms of the indenture are carried out. a. federal government agent b. trustee c. rating agency d. liquidator e. negotiator

d. retire a portion of the bond issue each year

A bond sinking fund provision requires a firm to _____. a. issue bonds every year to finance interest payment on bonds b. gradually reduce the face value of debt to the level of market value of debt c. use annual interest payments for the repayment of bonds d. retire a portion of the bond issue each year e. increase the coupon rate by one percent every year

e. putable bond

A bond that can be redeemed for cash at the bondholder's option when certain circumstances exist is called a(n) _____. a. convertible bond b. callable bond c. debenture d. income bond e. putable bond

e. income bond

A bond that pays interest only when a firm has sufficient earnings to cover the interest payments is called a(n) _____. a. indexed bond b. convertible bond c. putable bond d. callable bond e. income bond

c. zero coupon bond

A bond that pays no annual interest but is sold at a discount below its par value is called a _____. a. callable bond b. convertible bond c. zero coupon bond d. putable bond e. mortgage bond

a. allows the firm to refinance debt

A call provision for the redemption of a bond _____. a. allows the firm to refinance debt b. requires the redemption of the bonds at their market price c. allows the firm to call the bonds for redemption at any time after the bond has been issued d. requires bondholders to convert their bonds into lower coupon rate bonds e. requires an advance payment of all of the interest that would be paid from the call date until the maturity of the bond

a. savings time deposit at a bank or other financial intermediary

A certificate of deposit represents a _____. a. savings time deposit at a bank or other financial intermediary b. promissory note of payment by the issuing institution to the investor c. deposit in a checking account in a bank d. savings time deposit of a state government with the federal government e. promissory note of payment by a bank that borrows reserves from another bank

e. yield to maturity

A change in market conditions causes the market price of a bond to change because of changes in the bond's _____. a. principal value b. maturity value c. coupon rate d. current (interest) yield e. yield to maturity

a. market value is equal to the face value of the debt

A debt is said to be selling at par when the _____. a. market value is equal to the face value of the debt b. borrower pays the interest at the maturity of the debt c. current market price of the debt is more than the face value of the debt d. investors' required rate of return from debt is greater than the coupon rate e. market rate of return is more than the coupon rate of return

a. does not require the company to pay a call premium

A sinking fund call on a bond _____. a. does not require the company to pay a call premium b. requires the company to claim back all the interest payments from the bondholders c. requires the company to pay an early-payment penalty to investors d. requires the company to redeem bonds at market price e. does not require the company to pay a small percentage of the issue every year

a. convertible

A(n) _____ bond can be exchanged for shares of equity at the owner's (bondholder's) discretion. a. convertible b. callable c. putable d. indenture e. debenture

c. sinking fund

A(n) _____ is a provision that facilitates the orderly retirement of a bond issue. a. amortization fund b. redemption fund c. sinking fund d. depreciation fund e. conversion fund

a. $875.38

An investor just purchased a 10-year, $1,000 par value bond. The coupon rate on this bond is 8 percent annually, with interest being paid every six months. If the investor expects to earn a 10 percent simple rate of return on this bond, how much should the investor pay for it? a. $875.38 b. $1,003.42 c. $950.75 d. $877.11 e. $1,122.87

b. $1,207.57

Assume that a 15-year, $1,000 face value bond pays interest of $37.50 every 3 months. If an investor requires a simple annual rate of return of 12 percent with quarterly compounding, how much should the investor be willing to pay for this bond? a. $1,204.33 b. $1,207.57 c. $986.43 d. $1,089.53 e. $438.10

d. $828

Assume that an investor wishes to purchase a 20-year bond with a maturity value of $1,000 and semiannual interest payments of $40. If the investor requires a 10 percent simple yield to maturity on this investment, what is the maximum price she should be willing to pay for the bond? a. $830 b. $674 c. $761 d. $828 e. $902

e. The change in the price of a bond due to a change in the interest rate is more significant in bonds with longer maturity periods.

Assuming other things are held constant, which of the following is correct? a. A 20-year bond has more interest rate reinvestment risk than a two-year bond. b.For a bond of any maturity, a given percentage point increase in the interest rate causes a larger dollar capital gain than the capital loss stemming from an identical decrease in the interest rate. c.For any given maturity, a percentage point decrease in the interest rate causes a smaller dollar capital loss than the capital gain stemming from an identical increase in the interest rate. d.In the year of purchase of bonds, an investor gets a deduction for the difference in the market value of bonds purchased at a premium and the face value of the bonds. e. The change in the price of a bond due to a change in the interest rate is more significant in bonds with longer maturity periods.

c. adjust their reserves

Banks generally use the federal funds market to _____. a. make security deposits with other banks b. repay loans to investors c. adjust their reserves d. repay loans to the federal government e. make interest payments on loans

c. borrow from banks with excess reserves

Banks that need additional funds to meet the reserve requirements of the Federal Reserve _____. a. borrow from the state government of the state where their headquarters are located b. exercise the call option on the loans extended to small businesses c. borrow from banks with excess reserves d. issue treasury bills to investors e. decrease the coupon interest rate on the bonds issued to raise funds

c. cost of using such debt and thus the bond's interest rate

Because a bond's rating serves as an indicator of its default risk, the rating has a direct, measurable influence on the firm's _____. a. earnings per share and thus the dividends it pays each year b. current assets and the bond's maturity value c. cost of using such debt and thus the bond's interest rate d. tax liability to the federal government e. ability to procure raw material for production

e. borrow long-term capital as well as the cost of such funds

Changes in a firm's bond rating affect its ability to _____. a. increase the coupon rate on bonds issued to investors b. procure raw material in sufficient quantity for manufacturing processes c. exercise a call provision on its bonds d. claim deductions in tax liability computation e. borrow long-term capital as well as the cost of such funds

c. 4%

Cold Boxes Corporation has 100 bonds outstanding with a maturity value of $1,000. The required rate of return on these bonds is currently 10 percent, and interest is paid semiannually. The bonds mature in 5 years, and their current market value is $768 per bond. Which of the following is the annual coupon interest rate? a. 6% b. 0% c. 4% d. 8% e. 2%

c. promissory note

Commercial paper is a type of _____. a. T-bill b. bond indenture c. promissory note d. credit note e. debit note

b. $100,000 or more

Commercial paper is issued in denominations of _____. a. $1,000 only b. $100,000 or more c. $10 only d. $1,000,000 only e. $100 or less

e. loans from one bank to another bank

Federal funds represent _____. a. loans from the federal government to banks b. funds held at banks for the repayment of loans to the federal government c. funds collected from federal tax payment by banks d. funds collected from investors for investment in federal securities e. loans from one bank to another bank

a. last installment repayment of the principal amount is due

For installment loans, the maturity date is the date on which the _____. a. last installment repayment of the principal amount is due b. market interest rate rises above the coupon rate c. coupon rate rises above the market interest rate d. first installment payment is due e. last coupon interest payment is made to the bondholders

a. $43,796

GP&L sold $1,000,000 of 12 percent, 30-year, semiannual payment bonds with a face value of $1,000, 15 years ago. The bonds are not callable, but they do have a sinking fund, which requires GP&L to redeem 5 percent of the original face value of the issue each year ($50,000), beginning in Year 11. To date, 25 percent of the issue has been retired. The company can either call bonds at par for sinking fund purposes or purchase bonds in the open market, spending sufficient money to redeem 5 percent of the original face value each year. If the current market yield of the bonds is 14 percent, what is the least amount of money GP&L must put in to satisfy the sinking fund provision for the next redemption? a. $43,796 b. $43,858 c. $39,422 d. $37,532 e. $50,127

b. government's ability to tax its citizens

General obligation bonds are backed by the _____. a. revenue generated from the project in which the bond proceeds are invested b. government's ability to tax its citizens c. penalty collected from the earlier repayment of a certificate of deposit d. additional principal received from exchange rate fluctuations e. increase in the coupon rate due to inflation adjustment

c. firm will find it difficult to find potential investors when issuing new bonds

If Standard & Poor's ratings of a firm's bonds is below BBB, the _____. a. default risk premium associated with the bonds will be less than the risk premium associated with bonds rated AAA b. default risk associated with the bonds is less than that of bonds that are rated AAA c. firm will find it difficult to find potential investors when issuing new bonds d. firm will immediately have to exercise the call provision and issue new bonds e. firm will easily find investors when issuing new bonds because bonds with high yields have no risk associated with them

b. price must be less than its par value

If a bond's yield to maturity exceeds its coupon rate, the bond's _____. a. current yield is equal to the capital gain on the maturity of the bond b. price must be less than its par value c. maturity value is more than its face value d. current yield is equal to the coupon rate e. maturity value is less than the bond's market value

d. yield to maturity

If an investor buys a bond and holds it until it matures, the average rate of return the investor will earn per year is called the bond's _____. a. yield to call b. capital gains yield c. coupon rate d. yield to maturity e. current yield

e. selling at a premium; i.e., the bond's market price should be greater than its face value

If the yield to maturity (the market rate of return) of a bond is less than its coupon rate, the bond should be _____. a. an indexed bond that adjusts interest payments on the basis of an inflation index b. selling at par; i.e., the bond's market price should be the same as its face value c. selling at a discount; i.e., the bond's market price should be less than its face (maturity) value d. a floating-rate bond yielding market adjusted interest e. selling at a premium; i.e., the bond's market price should be greater than its face value

c. 2,596

JRJ Corporation issued 10-year bonds at a price of $1,000. These bonds pay $60 interest every six months. Their price has remained the same since they were issued; that is, the bonds still sell for $1,000. Due to additional financing needs, the firm wishes to issue new bonds that would have a maturity of 10 years and a par value of $1,000 and pay $40 interest every six months. If both bonds have the same yield, how many new bonds must JRJ issue to raise additional capital of $2 million? Fractions of bonds cannot be issued. (Round the number of bonds to the nearest whole number.) a. 4,275 b. 2,404 c. 2,596 d. 3,073 e. 5,282

b. risks are higher

Lower-rated bonds offer higher returns than higher-grade bonds because their _____. a. maturity values are higher than their market values b. risks are higher c. coupon interest rates steadily increase throughout their lives d. returns are tax free e. returns are attractive to risk-averse investors

b. maturity date

The date on which the principal amount of a debt is due is the _____. a. reinvestment date b. maturity date c. repurchase date d. issue date e. priority date

d. lower than

Other things held constant, if a bond indenture contains a call provision, the yield to maturity (YTM) on the bond that would exist without such a call provision will be _____ the YTM with the call provision. a. unrelated to b. moving with c. the same as d. lower than e. higher than

d. investment grade with medium investment risk

Per Standard & Poor's Corporation (S&P), a bond whose rating is BBB is considered _____. a. a junk bond with low investment risk b. speculative with extremely high investment risk c. high quality with zero investment risk d. investment grade with medium investment risk e. substandard with high investment risk

c. $362.44

Recently, Ohio Hospitals Inc. filed for bankruptcy. The firm was reorganized as American Hospitals Inc., and the court permitted a new indenture on an outstanding bond issue of face value $1,000 to be put into effect. The issue has 10 years to maturity and a coupon rate of 10 percent, paid annually. The new agreement allows the firm to pay no interest for five years. Then, interest payments will be resumed for the next five years. Finally, at maturity (Year 10), the principal plus the interest that was not paid during the first five years will be paid. However, no interest will be paid on the deferred interest. If the required return is 20 percent, what should the bonds sell for in the market today? a. $242.26 b. $813.69 c. $362.44 d. $578.31 e. $281.69

c. for projects that generate revenues that will contribute to payment of interest and the repayment of debt

Revenue bonds are used to raise funds _____. a. for projects that require additional funding by increasing tax rates b. to pay interest on T-bills issued by the state government c. for projects that generate revenues that will contribute to payment of interest and the repayment of debt d. to repay loans borrowed from the federal government e. to repay the interest and principal on loans borrowed from the local government

b. for projects that generate revenues that will contribute to payment of interest and the repayment of debt

Revenue bonds are used to raise funds _____. a. to repay the interest and principal on loans borrowed from the local government b. for projects that generate revenues that will contribute to payment of interest and the repayment of debt c. to pay interest on T-bills issued by the state government d. for projects that require additional funding by increasing tax rates e. to repay loans borrowed from the federal government

a. $841.15

Rick bought a bond when it was issued by Macroflex Corporation 14 years ago. The bond, which has a $1,000 face value and a coupon rate equal to 10 percent, matures in six years. Interest is paid every six months; the next interest payment is scheduled for six months from today. Assuming the yield on similar risk investments is 14 percent, calculate the current market value (price) of the bond. a. $841.15 b. $904.67 c. $757.26 d. $1,238.28 e. $844.45

c. negative because she purchased the bond at a premium and the bond price will approach its face value as it nears its maturity

Stephanie purchased a corporate bond that matures in three years. The bond has a coupon interest rate of 9 percent and its yield to maturity is 6 percent. If market interest rates remain constant and Stephanie sells the bond in 12 months, her capital gain from holding the bond will be _____. a. positive because she purchased the bond at a discount and the bond price will approach its market price as it nears its maturity b. negative because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity c. negative because she purchased the bond at a premium and the bond price will approach its face value as it nears its maturity d. positive because she purchased the bond at a premium and the bond price will approach its market price as it nears its maturity e. positive because she purchased the bond at a discount and the bond price will approach its face value as it nears its maturity

c. market value

The _____ of a bond fluctuates continuously during its life. a. principal value b. maturity value c. market value d. face value e. coupon rate

c. yield to call

The average rate of return earned on a callable bond if it is held until the first call date is the _____. a. yield to principal price b. yield to market c. yield to call d. yield to maturity e. yield to issue price

c. bondholder to exchange his or her bonds for the company's common stock

The conversion feature of a bond permits a _____. a. company to convert a high coupon rate bond into a lower coupon rate bond b. company to convert the face value of the bond to the market price of the bond c. bondholder to exchange his or her bonds for the company's common stock d. bondholder to redeem a small percentage of the bond every year e. company to trade outstanding bonds with a term deposit in a financial institution

c. number of shares of stock that the bondholder receives upon conversion of a bond

The conversion ratio is the _____. a. ratio of the bond's old face value to its new face value b. number of new lower coupon rate bonds that the bondholder receives when old bonds are converted into the newer bonds c. number of shares of stock that the bondholder receives upon conversion of a bond d. ratio of the face value of the bond to its market value e. number of bonds in the company's new project received upon expansion

e. earn a lower return on the reinvested cash flows

The current market interest rate declines from 10 percent to 8 percent. Due to interest rate reinvestment risk, the bondholders will _____. a. call back the bond before its maturity b. receive a higher principal at the maturity of the bond c. receive a lower coupon interest than mentioned in the bond indenture d. receive a lower market value for the bond e. earn a lower return on the reinvested cash flows

d. 17%

The current price of a 10-year, $1,000 par value bond is $1,158.91. Interest on this bond is paid every six months, and the simple annual yield is 14 percent. From the given information, calculate the annual coupon rate on the bond. a. 12% b. 10% c. 14% d. 17% e. 21%

c. Percentage rate of return on a bond = Current yield + Capital gains yield

Which of the following equations is used to compute the percentage rate of return on a bond? a. Percentage rate of return on a bond = Market return + Maturity value b. Percentage rate of return on a bond = Current yield + Coupon rate of interest c. Percentage rate of return on a bond = Current yield + Capital gains yield d. Percentage rate of return on a bond = Market yield + Current yield e. Percentage rate of return on a bond = Market yield + Capital gains yield

c. An increase in interest rates

Which of the following events would make it less likely for a company to choose to call its outstanding callable bonds? a. A decrease in interest rates b. A decrease in the call value c. An increase in interest rates d. A low call premium e. A decrease in the price of outstanding convertible bonds

c. Investors can choose to hold the company's bonds or convert the bonds into its common stock.

Which of the following is an advantage of convertible bonds? . Investors are paid a penalty on the conversion of the bonds. b. Investors are redeemed for the difference between the face value and the market price on redemption of the bonds. c. Investors can choose to hold the company's bonds or convert the bonds into its common stock. d. Investors can convert the bonds into higher coupon rate bonds. e. Investors can claim interest for the remaining life of the bonds on the bonds' early conversion.

b. Fixed bond terms after the bond has been issued

Which of the following is generally considered an advantage of term loans over corporate bonds? a. Regular interest and principal payments on specified dates b. Fixed bond terms after the bond has been issued c. Speed, or how long it takes to bring the issue to the market d. Standard terms of issue requiring no negotiation between the borrowing firm and the financial institution e. Higher flotation costs

e. Traditional CDs must be kept at the issuing institution for a specified time period.

Which of the following is true of a traditional certificate of deposit (CD)? a. Traditional CDs pay no periodic interest. b. Traditional CDs are discounted when their market price is more than issue price. c. Traditional CDs are repaid in installments by the issuing bank. d. Traditional CDs have a floating rate of interest. e. Traditional CDs must be kept at the issuing institution for a specified time period.

d. Aaa

Which of the following ratings by Moody's is given to the bonds of companies that have the best credit risk?a. a. Ba b. A c. B d. Aaa e. Caa

b. CCC

Which of the following ratings by Standard & Poor's (S&P) is given to speculative bonds with extremely high credit risk? a. B b. CCC c. BBB d. BB e. A

c. The market price of the bond will increase and will approach its face value as the maturity date gets closer.

Which of the following statements about a bond that is selling at a discount is correct? a. Because the coupon rate remains constant, the market value of the bond also remains constant throughout its life. b. Both the market price of the bond and the interest received will increase as the maturity date nears. c. The market price of the bond will increase and will approach its face value as the maturity date gets closer. d. The market price of the bond will be greater than the bond's face value. e. The par value of the bond will increase with every increase in the market price of the bond until the maturity date is reached.

b. As long as market rates remain constant, the bond's capital gains yield will equal to zero.

Which of the following statements about a bond that sells for its par value is correct? a. The yield to maturity is comprised of a capital gains yield equal to the face value of the bond. b. As long as market rates remain constant, the bond's capital gains yield will equal to zero. c. The yield to maturity is comprised of an interest yield equal to the capital yield on the bond. d. The yield to maturity is equal to the future value of interest payments received from the bond. e. The yield to maturity is equal to the present value of interest payments received from the bond.

c. If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the bond will sell at a premium.

Which of the following statements is correct? a.If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the bond's maturity value would be more than its par value. b.If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the bond's coupon rate would decrease from 10 percent to 5 percent. c. If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the bond will sell at a premium. d.If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the bond will mature in 15 years and not in 10 years. e.If a 10-year, $1,000 par value bond is issued at a coupon rate of 10 percent and if its market yield is 5 percent, the issuer will purchase bonds in the financial markets because their prices will be less than the par value.

b. A zero coupon bond is issued at a substantial discount below its par value.

Which of the following statements is true about a zero coupon bond? a. The discount on the issue of a zero coupon bond is written off over its life in the investor's financial statement. b. A zero coupon bond is issued at a substantial discount below its par value. c. A zero coupon bond is taxed as a capital gain at the time the bond matures. d. The interest received every year on a zero coupon bond is taxed as interest income. e. A zero coupon bond is issued at a coupon rate that adjusts for inflation.

c. Commercial paper is issued at a discount.

Which of the following statements is true about commercial paper? a. Commercial paper pays annual interest. b. Commercial paper is issued by bankrupt firms. c. Commercial paper is issued at a discount. d. Commercial paper is issued in denominations of $100. e. Commercial paper always matures in two months.

b. Foreign bonds are bonds sold in a foreign country and are denominated in the currency of the country in which the issue is sold.

Which of the following statements is true about foreign bonds? a. The interest rate on foreign bonds is adjusted annually for exchange rate fluctuations. b. Foreign bonds are bonds sold in a foreign country and are denominated in the currency of the country in which the issue is sold. c. Foreign bonds are bonds sold by a foreign borrower but convertible to bonds issued in the foreign country. d. The interest rate on foreign bonds is adjusted annually for inflation. e. The term Eurodebt specifically applies to any foreign bonds denominated in U.S. dollars.

d. Tax-free institutional investors such as pension funds

Which of the following types of investors would be most likely to purchase zero coupon bonds? a. Retired individuals seeking income for current consumption b. Risk-averse individuals anticipating increases in interest rates c. Individuals in high tax brackets d. Tax-free institutional investors such as pension funds e. Individuals with no interest income

a. Junk

_____ bonds are high-risk, high-yield bonds that are often used to finance mergers, leveraged buyouts, and troubled companies. a. Junk b. Convertible c. Floating-rate d. Putable e. Callable

d. Callable

_____ bonds are often called by the firm prior to maturity. a. Corporate b. Mortgage c. Municipal d. Callable e. Floating rate