Chapter 6 Pre-Work

Treasury bonds have original issue maturities from over _____ years. Multiple choice question. 20 50 30 10

10

Treasury notes have original issue maturities from over _____ to _____ years. Multiple choice question. 5; 10 1; 10 1; 5 2; 7

1; 10

If "T" is the marginal income tax rate of the bondholder, then the correct expression for the after-tax return Ra on a taxable bond with before tax yield Rb is _____. Multiple choice question. Rb = Ra(1 - T) Ra = Rb(1 - T) Ra = Rb/(1 - T) Rb = Ra/(1 - T)

Ra = Rb(1 - T)

True or false: Interest payments on municipal bonds are exempt from federal income taxes and most state and local income taxes. True false question. True False

True

With firm commitment underwriting, the _______ assumes the risk that the entire bond issue might not be sold.

underwriter

Debentures which are junior in their rights to both secured debt and regular debentures are called Multiple choice question. subordinated debentures. convertible debentures. secondary debentures. mortgage debentures.

subordinated debentures.

The _______ is the yield to maturity on the Treasury STRIP using the ________ in the calculation. Multiple choice question. asked yield; bid price change; ask price change; bid price asked yield; ask price

asked yield; ask price

The _______ is the yield to maturity on the Treasury note or bond using the ________ in the calculation. Multiple choice question. change; bid price change; ask price asked yield; bid price asked yield; ask priceasked yield; ask price

asked yield; ask price

The source of funds for repayment of municipal bonds is _______ or _______. Multiple choice question. tax receipts; project revenues tax receipts; library late fees tax receipts; tariffs and fees project revenues; tariffs and fees

tax receipts; project revenues

Treasury STRIPS allow investors to match their ______ with the ______ of the STRIP security. Multiple choice question. financial needs; face value time preference for funds; payment amount time preference for funds; maturity date investment horizon; face value

time preference for funds; maturity date

True or false: Yield changes of bond market securities were uncorrelated over the period from 1980 through 2019. True false question. True False

False

All other risks being equal, an investor with a marginal tax rate of "T" would be indifferent between a municipal bond that pays a return of Ra and a corporate bond that pays a return of ______. Multiple choice question. Ra/(1 - T) (1 - T)/Ra Ra(1 - T)(T) Ra(1 - T)

Ra/(1 - T)

If the terms of repayment are not met by the bond issuer (borrower), the bond holder (investor) has a claim on the ______ of the bond issuer. Multiple choice question. assets regular dividends preferred dividends net income

assets

Bearer bonds are owned by the _______ and have _______ attached to the bond so the bearer can collect interest payments. Multiple choice question. bearer; covenants buyer; corporate contact registered owner; coupons bearer; coupons

bearer; coupons

Changes in the value of bond indexes can be used by bond traders to evaluate __________ of investing in bonds of different types and maturities. Multiple choice question. the potential future risk the potential capital growth the potential future return changes in the attractiveness

changes in the attractiveness

The biggest issuers of debt in the global debt markets from 1996 through 2018 were Multiple choice question. corporations and financial institutions. international institutions. banks. the public sector.

corporations and financial institutions.

Select all that apply The major issuers of bond market securities (borrowers) are Multiple select question. corporations. nonprofit organizations. individuals. foreign banks. governments.

corporations. governments.

Individual rules and restrictions within the bond indenture are referred to as Multiple choice question. terms. conditions. covenants. clauses.

covenants.

Bonds backed solely by the general creditworthiness of the issuing firm, unsecured by specific assets or collateral, are called Multiple choice question. convertible bonds. debentures. mortgage bonds. notes.

debentures.

Bond ratings provide investors with a ranking of the ________ of a bond issue. Multiple choice question. default risk exchange rate risk liquidity risk interest rate risk

default risk

Treasury notes and bonds are backed by the full faith and credit of the U.S. government and are considered to be free from Multiple choice question. default risk. interest rate risk. liquidity risk. exchange rate risk.

default risk.

In most years, the currency in which the largest amount of fixed rate debt is issued is the Multiple choice question. euro. dollar. yen. pound.

dollar.

The majority of Eurobonds are issued in Multiple choice question. yen. euros. pounds. dollars.

dollars.

The biggest issuers of both fixed rate and floating rate debt in most years are Multiple choice question. financial institutions corporations governments international institutions

financial institutions

Globally, there is far more _______ debt than ______ debt issued. Multiple choice question. short-term; long-term public sector; corporate floating rate; fixed rate fixed rate; floating rate

fixed rate; floating rate

Two types of municipal bonds exist: _______ and _______ bonds. Multiple choice question. revenue; coupon general obligation; special obligation general obligation; revenue general obligation; special dispensation

general obligation; revenue

Treasury STRIPS are created by and sold to investors through Multiple choice question. savings banks. the Federal Reserve Bank of New York. commercial banks. government securities brokers and dealers.

government securities brokers and dealers.

The major purchasers of bond market securities (investors) are

governments. foreign investors. corporations. households.

Bond insurance guarantees that payment will be made to investors in the event the issuer defaults. Bond insurers generally have a ______ credit rating than the bond ______. Multiple choice question. lower; issuer higher; investor higher; issuer lower; investor

higher; issuer

Relative changes in yield spreads can result when the default risk ___ (decreases/increases) for a firm that has one bond issue with a sinking fund provision and another issue without a sinking fund provision.

increases

Bonds backed by insurance will have the credit rating of the ______ and a substantially ______ interest rate than if uninsured. Multiple choice question. issuer; lower issuer; higher insurer; lower insurer; higher

insurer; lower

Certain institutional investors are prohibited by state and federal law from investing in bonds that are below ________, called _______ due to their risk. Multiple choice question. investment grade; low-yield bonds junk bonds; fallen angels prime grade; subprime bonds investment grade; junk bonds

investment grade; junk bonds

With best efforts underwriting, the _______ assumes the risk that the entire bond issue might not be sold. Multiple choice question. underwriter bond investors government issuing firm

issuing firm

Bonds are ________ debt obligations traded in _______ markets. Multiple choice question. long-term; capital short-term; capital long-term; money short-term; money

long-term; capital

Eurobonds are ______ bonds issued and sold outside of _______. Multiple choice question. long-term; the country of their currency short-term; Europe long-term; Europe short-term; the country of their currency

long-term; the country of their currency

Because Treasury notes and bonds are free from default risk, they pay relatively _______ rates of interest to investors. Multiple choice question. varying low high moderate

low

A bond index reflects both the _________ plus _________ on a particular type of bond. Multiple choice question. monthly capital loss; coupon interest paid monthly capital gain; coupon interest paid monthly capital gain; monthly capital loss monthly capital gain or loss; coupon interest paid

monthly capital gain or loss; coupon interest paid

Some corporate bonds and most ______ bonds are ______ bonds, meaning that the bond issue contains many maturity dates with a portion of the principal being paid off on each date. Multiple choice question. municipal; serial municipal; term corporate; serial Treasury; serial

municipal; serial

The price of a STRIP security is the ________ of the face value of the STRIP discounted using the _________ and ________. Multiple choice question. present value; discount rate; annual compounding present value; yield to maturity; semiannual compounding present value; yield to maturity; annual compounding present value; discount rate; semiannual compounding

present value; yield to maturity; semiannual compounding

With a _______ bond, the bond owner's identification information is maintained electronically by the issuer and _______ are mailed or wire transferred to the owner. Multiple choice question. registered; periodic announcements registered; coupon payments bearer; coupon payments bearer; principal repayments

registered; coupon payments

Bonds that are issued to finance a specific revenue-generating project and whose payments are made from those revenues are called _______ bonds. Multiple choice question. revenue special coupon highway general obligation

revenue

By legally documenting the rights and obligations of all parties involved in a bond issue; the bond indenture helps lower the ______ and ______ of the bond issue. Multiple choice question. risk; size principal; coupons risk; interest cost yield; size

risk; interest cost

Prices of Treasury STRIP securities are quoted as _______ of the ______ of the security. Multiple choice question. a multiple; coupon payment a percentage; face value a percentage; coupon payment a multiple; face value

a percentage; face value

Prices of Treasury notes and bonds are quoted as _______ of the ______ of the security. Multiple choice question. a multiple; face value a percentage; face value a percentage; coupon payment a multiple; coupon payment

a percentage; face value