Session 5 Quizzes

All of the following debt instruments pay interest semiannually EXCEPT A. Ginnie Mae pass-through certificates B. US Treasury notes C. US Treasury bonds D. TIPS

A.

In the event of a company's insolvency, which of the following has first claim on assets? A. bondholders B. preferred stockholders C. common stockholders D. members of the board of directors

A.

When a bond with 6% coupon is selling for 90 I. the current yield is approx. 6.67% II. the bond is selling at a discount III. the bondholder will receive two semi-annual interest payments of $27 IV. the yield to maturity is slightly less than the current yield A. I and II B. I, II and IV C. II and III D. III and IV

A.

When a corporate bond has a convertible feature, it means A. the owner of the bond may exchange it for pre-determined number of shares of the issuer's common stock B. the corporation may redeem the bond before its maturity date C. the owner of the bond may exchange it for a common stock of the issuer at a discount from the current market value D. the owner of the bond may exchange it for a bond paying a higher coupon rate

A.

Which of the following statements about zero-coupon bonds are TRUE? I. Zero-Coupon bonds are sold at a deep discount from face value. II. Zero-coupon bonds pay periodic interest payments III. the owner of a zero-coupon bond receives the face value only at maturity A. I and II B. I and III C. II and III D. I, II, and III

B.

A $1,000 bond with a nominal yield of 8% will pay how much interest each year? A. $40,000 B. $80,000 C. $160,000 D. there is no way to compute without knowing the current market price of the bond

B.

A corporate bond is currently selling in the market at a price of 120, The bond is convertible at $25. The parity price is (per share) A. $25 B. $30 C. $40 D. $48

B.

If your clients want to set aside $40,000 for when their child starts college, but do not want to endanger the principal, you should recommend A. corporate bonds with high rates of interest B. zero-coupon bonds backed by the US treasury C. general obligation municipal bonds for their tax benefits D. Common stock

B.

An investor in the 25% federal income tax bracket purchasing an unrated public works revenue bonds issued by State A that carries a 3% coupon would have a tax equivalent yield of A. 2.25% B. 3% C. 4% D. non of these because it is unlikely that an unrated bond will be able to make timely interest payments

C.

Corporate bonds are considered safer than common stock issued by the same company because A. the par value of bonds is generally higher than that of stock B. bonds and similar fixed-rate securities are guaranteed by SIPC C. bonds place the issuer under an obligation but stock does not D. if there is a shortage of cash, dividends are paid before interest

C.

Each of the following debt securities would be considered investment grade EXCEPT A. corporate subordinated junior unsecured debentures with an A rating B. municipal water authority revenue bonds with a Baa rating C. corporate first lien mortgage bonds with a BB rating D. US treasury bills

C.

What would likely happen to the market value of existing bonds during an inflationary period coupled with rising interest rates? A. The nominal yield of the bonds would decrease B. the price of bonds would increase C. the price of bonds would decrease D. the price of the bonds would stay the same

C.

Which of the following statements about municipal bonds is NOT true? A. the interest on municipal bonds is usually not subject to federal income tax B. Municipal bonds are bonds issued by governmental units at levels other than the federal C. Municipal bonds are generally considered riskier than corporate bonds D. Municipal bonds generally carry lower coupon rate than corporate bonds of the same quality

C.

An investor purchasing 5 bonds priced at 102 each would expect to pay a total of (disregard commissions) A. $102 B. $510 C.$1,020 D. $5,100

D.

Which of the following statements is TRUE of a corporate bond with a call feature? A. the owner of the bond may demand that the issuing corporation redeem the bond before it matures B. the issuing corporation may change the coupon rate at any time by giving the owner of the bond written notice C. the owner of the bond may exchange it for shares of stock D. the issuing corporation has the option to redeem the bond before it matrues

D.

True or False? A resident of France purchasing Eurodollar bonds does not incur currency risk.

False

True or False? In most cases, convertible securities sell right at their parity price.

False

True or False? One of the benefits of holding convertible debenture is the option to convert into the corporation's common or preferred stock.

False

True or False? A country wishing to restructure its debt using Brady bonds would do so to save on debt servicing costs.

True

True or False? Call protection is of the greatest benefit when interest rates are falling.

True