FINA 362 Chapter 6

A note is: a. unsecured debt that is generally payable within the next ten years. b. a formal loan secured by real estate. c. long-term debt secured by part, or all, of the assets of the borrower. d. any liability classified as short-term debt on a financial statement. e. the formal agreement between a firm and its bondholders.

a

A real rate of return has been adjusted for: a. inflation. b. interest rate risk. c. taxes. d. market risk. e. default risk.

a

A sinking fund is an account managed by a bond trustee for the sole purpose of: a. paying interest payments on a semi-annual basis. b. redeeming a bonds early. c. repaying the face value at maturity. d. paying the expenses required to reissue outstanding bonds. e. paying the "balloon payment" at maturity.

a

The price at which an investor can purchase a bond from a dealer is called the _____ price. a. asked b. coupon c. call d. put e. bid

a

The principal amount of a bond that is repaid at the end of the loan term is called the: a. face value b. premium value. c. clean price. d. dirty price. e. compounded price

a

The written agreement between a corporation and its lender that spells out the terms of a bond issue is called the: a. indenture. b. debenture. c. private placement agreement. d. registration statement. e. issue paper.

a

Generally, bonds issued in the U.S. pay interest on a(n) _____ basis. a. annual b. semi-annual c. quarterly d. monthly e. daily

b

The 6 percent semiannual coupon bonds of IPO, Inc., are selling for $1,087. The bonds have a face value of $1,000 and mature in 11 years. What is the yield to maturity? a. 5.42 percent b. 4.96 percent c. 4.67 percent d. 3.68 percent e. 5.70 percent

b

The 6.5 percent bond of ABCO has a yield to maturity of 6.82 percent. The bond matures in seven years, has a face value of $1,000, and pays semiannual interest payments. What is the amount of each coupon payment? a. $30.00 b. $32.50 c. $68.20 d. $34.10 e. $65.00

b

A bond that pays no interest payments and sells at a deep discount is called a(n) _____ bond. a. callable bond b. income bond c. zero coupon bond d. convertible bond e. tax-free bond

c

A debenture is: a. long-term debt secured by fixed assets of the borrower. b. long-term debt secured by real estate. c. unsecured debt that generally matures in ten years or more. d. unsecured debt that generally matures in less than ten years. e. any type of debt that is short-term in nature.

c

Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk? a. taxability risk premium b. default risk premium c. interest rate risk premium d. real rate of return e. bond premium

c

The 4.5 percent bond of JL Motors has a face value of $1,000, a maturity of 7 years, semiannual interest payments, and a yield to maturity of 6.23 percent. What is the current market price of the bond? a. $945.08 b. $947.21 c. $903.05 d. $959.60 e. $912.40

c

The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities. a. face value b. par value c. maturity d. coupon rate e. issue date

c

The maturity date of a bond is defined as: a. the first date on which a bond can be called. b. twenty years after the issue date. c. the date on which the principal amount is paid. d. the date on which the next interest payment will be made. e. the original issue date

c

The yield to maturity on a bond is: a. equal to the coupon rate divided by the current market price. b. another name for the current yield. c. the current required market rate. d. equal to the annual interest divided by the face value. e. another name for the coupon rate.

c

A bond has a $1,000 face value, a market price of $1,045, and pays interest payments of $74.50 every year. What is the coupon rate? a. 6.76 percent b. 7.00 percent c. 7.12 percent d. 7.45 percent e. 8.14 percent

d

A call protected bond is a bond that: a. is guaranteed to be called within the next year. b. is expected to be called within the next year. c. can never be redeemed prior to maturity. d. cannot be currently redeemed by the issuer. e. cannot be called at any time prior to maturity.

d

A protective covenant: a. protects the borrower from unscrupulous practices by the lender. b. is designed to ensure a reasonable bid-ask spread for the bond dealer. c. prevents a bond from being called. d. limits the actions of the borrower. e. guarantees that bondholders will receive all the interest and principal payments that are due to them.

d

A six-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate? a. 4.50 percent b 4.60 percent c. 6.00 percent d. 9.00 percent e. 9.20 percent

d

Last year, you earned a rate of return of 6.42 percent on your bond investments. During that time, the inflation rate was 1.6 percent. What was your real rate of return? a. 4.69 percent b. 4.80 percent c. 4.83 percent d. 4.74 percent e. 4.71 percent

d

The annual interest on a bond divided by the bond's market price is called the: a. yield to maturity. b. yield to call. c. total yield. d. current yield. e. required yield

d

The call premium is the amount by which the: a. market price exceeds the par value. b. market price exceeds the call price. c. face value exceeds the market price. d. call price exceeds the par value. e. call price exceeds the market price.

d

Which one of the following is a form of bond issue wherein interest payments are made directly to the owners of record? a. bearer b. coupon c. street name d. registered e. secured

d

A call provision in a bond agreement grants the issuer the right to: a. call the bondholder to determine if he or she would like to extend the term of the bond agreement. b. replace the bonds with equity securities. c. change the coupon rate provided the bondholders are notified in advance. d. buy back the bonds on the open market prior to maturity. e. repurchase the bonds prior to maturity at a pre-specified price.

e

The coupon is the: a. amount of discount received when a bond is purchased. b. amount paid to a bond dealer when a bond is purchased. c. difference between the bid and ask price. d. annual interest divided by the current bond price .e. stated interest payment on a bond

e

The coupon rate for a bond is best defined as the: a. annual interest divided by the current market price. b. annual coupon divided by the dirty market price. c. annual interest divided by the clean market price. d. semi-annual interest divided by the par value. e. annual interest divided by the face value.

e

What is the price of a $1,000 face value bond if the quoted price is 102.1? a. $102.10 b. $1,002.10 c. $1,020.01 d. $1,020.10 e. $1,021.00

e

Which one of the following represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected? a. interest rate risk premium b. inflation premium c. liquidity premium d. taxability premium e. default risk premium

e