Debt Securitites

Which of the following is the implied credit rating on a Collateralized Mortgage Obligation (CMO) [A]AAA [B]AA [C]AA+ [D]A

[A]AAA

Which of the following bonds would pay interest that is exempt from federal income tax? [A]City of Boston bond [B]Treasury bond [C]California Power Company bond [D]HCO Gas Company convertible bond

[A]City of Boston bond

A customer receives an interest payment from a corporate bond with a coupon rate of 4.25%. The payment is only $21.25. How should this be explained to the customer? [A]Coupon rates tell the customer what they will receive on an annual basis, but interest payments on corporate bonds are paid semi-annually, leading to two payments of $21.25. [B]The customer should be informed that because they purchased the bond at a premium, interest payments tied to the coupon rate will be reduced. [C]The customer should be informed that because they purchased the bond at a discount, interest payments tied to the coupon rate will be reduced. [D]In this case, the company is likely in default and only made a partial coupon payment with the resources that are available.

[A]Coupon rates tell the customer what they will receive on an annual basis, but interest payments on corporate bonds are paid semi-annually, leading to two payments of $21.25.

Which of the following corporate bonds would be considered most secured? [A]Mortgage bonds [B]Debentures [C]Subordinated debentures [D]Income bonds

[A]Mortgage bonds

Junk bonds are also called [A]high yield bonds [B]low yield bonds [C]investment grade bonds [D]revenue bonds

[A]high yield bonds

As interest rates change, existing bond prices will [A]rise when interest rates decline and will decline when interest rates rise. [B]rise regardless of whether interest rates are increasing or decreasing. [C]decline when interest rates decline and will rise when interest rates rise. [D]decline regardless of whether interest rates are increasing or decreasing.

[A]rise when interest rates decline and will decline when interest rates rise.

An investor who wishes to minimize market risk should buy [A]short-term bonds. [B]high-yield bonds. [C]high-grade bonds. [D]discount bonds.

[A]short-term bonds.

General Motors Corporation 6 1/2's of '19 describe a bond with [A]$65 annual interest with a quote of 190 [B]$65 annual interest maturing in 2019 [C]$650 annual interest maturing in 2019 [D]$6.50 annual interest with a quote of 190

[B] $65 annual interest maturing in 2019

If the basis price of a bond is 5.25% and the coupon rate 4.75%, the bond is selling [A]At par [B]Below par [C]Above par [D]Cannot determine

[B]Below par

"Conversion" is best described by: [A]New bonds are exchanged for old bonds. [B]Bonds are tendered for equity securities. [C]Bonds are paid off by a corporation prior to maturity. [D]New bonds are sold and the proceeds used to redeem old bonds.

[B]Bonds are tendered for equity securities.

Interest from which of the following bonds is exempt from Federal tax? [A]Corporate bonds [B]Municipal bonds [C]U.S. Government bonds [D]Government Agency Bonds

[B]Municipal bonds

Which of the following statements related to Collateralized Mortgage Obligations (CMOs) is FALSE? [A]CMOs can be created from FHA mortgage loans and conventional mortgages. [B]Private mortgage issuers are prohibited from pooling and collateralizing mortgages to create CMOs. [C]Entities such as Ginnie Mae (GNMA) and Fannie Mae (FNMA) pool mortgages and create collateralized products. [D]Credit card debt and student loan debt is not included in CMO products.

[B]Private mortgage issuers are prohibited from pooling and collateralizing mortgages to create CMOs.

When an investment grade corporate bond is downgraded to a Junk bond, it is referred to as a: [A]sleeper [B]fallen angel [C]debenture [D]general obligation

[B]fallen angel

When a bond is trading at a discount, the current yield on the bond is: [A]unrelated to its yield to maturity [B]less than its yield to maturity [C]equal to its yield to maturity [D]more than its yield to maturity

[B]less than its yield to maturity

An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds: [A]Cannot be used to secure a later loan unless the later loan is lesser in claim. [B]Can be used to secure additional debt as long as the additional bonds are subordinated. [C]Can be used to secure additional bonds and all bonds rank equally. [D]Can be used to secure additional debt and in the event of bankruptcy bonds would be repaid by earliest maturities first.

[C] Can be used to secure additional bonds and all bonds rank equally.

A municipal general obligation bond has which of the following characteristics? [A]Revenues generated by the users of the project pay all expenses related to the bonds. [B]They trade on listed exchanges. [C]GO bonds are backed by the full faith and credit of the municipality issuing the bonds. [D]GO bonds can be exempt from federal taxation only.

[C] GO bonds are backed by the full faith and credit of the municipality issuing the bonds.

Bob heard that municipal bonds are tax-free investments. He wants to reduce his tax burden associated with investments, so he thinks it would be a good idea to liquidate all of his US Government Securities positions and invest everything in a wide variety of municipal bonds. Which of the following would be important considerations for Bob's agent to discuss with him prior to the liquidation of other investments and full investment in municipal bonds? I Bob's agent should discuss the tax consequences of liquidating his positions as well as the transaction costs for re-distributing all of his funds. II Bob's agent should discuss the fact that only municipal bond interest is tax-free at the federal level and can be taxable at the state and local level, depending upon the situation. III Bob's agent should discuss the fact that he doesn't get as much in commissions and transaction costs associated with trades in municipal bonds. IV Bob's agent should discuss the fact that municipal bonds often carry more risk than US Government Securities. [A]I and II only [B]II and III only [C]I, II, and IV only [D]I, II, III, and IV

[C] I, II, and IV only

ABC 6.25s 2025 bonds are trading at 101.5. The bonds are trading at [A]a discount. [B]par. [C]a premium. [D]without accrued interest.

[C] a premium.

A decrease of 10 basis points for a $1,000 bond would represent which of the following decreases in the price of the bond? [A]$100.00 [B]$10.00 [C]$1.00 [D]$.10

[C]$1.00

A customer interested in call protection on a bond would NOT purchase which of the following? [A]A discount bond callable at a premium [B]A deep discount bond callable at par [C]A premium bond callable at par [D]A discount bond callable at par

[C]A premium bond callable at par

Which of the following statements is generally accurate regarding securities issued by agencies of the U.S. Government? [A]Though these securities pay interest, only the principal is considered to be safe and liquid. [B]They generally do not trade in the secondary market. [C]Both the principal and interest payments are considered to be safe. [D]The U.S. Government fully backs the issues of federal agencies.

[C]Both the principal and interest payments are considered to be safe.

Which of the following statements about call features found on securities such as preferred stock or bonds is CORRECT? [A]Call features should not be a consideration as they do not impact the security's return. [B]Call features are required on all long-term bonds. [C]Call features are beneficial to the issuer of the securities. [D]Call features are beneficial to the investor purchasing the securities.

[C]Call features are beneficial to the issuer of the securities.

Which of the following represents funded debt? [A]U.S. Treasury note [B]municipal bond [C]corporate mortgage bond [D]flower bond

[C]corporate mortgage bond

Place the following types of bonds in order of highest coupon rate to lowest coupon rate, assuming all mature at the same time. I U.S. Government Bonds II AAA Municipal Bonds III AAA Corporate Bonds [A]I, II, III [B]III, II, I [C]II, III, I [D]III, I, II

[D] III, I, II

A corporate bond is trading at 80 and has a 6% coupon. What is the bond's current yield? [A]2.4% [B]3.1% [C]4.8% [D]7.5%

[D]7.5%

The final tranche of a CMO is generally known as [A]A companion bond [B]PAC (Planned Amortization Class) [C]TAC (Targeted Amortization Class) [D]A Z-bond

[D]A Z-bond

A client is evaluating purchasing corporate bonds versus purchasing municipal bonds. In their evaluation, the client wishes to evaluate the equivalent yield required by a corporate to compensate for the tax benefits of the municipal bonds. Which of the following is the formula used to determine tax-equivalent yield? [A]The client should multiply the tax-exempt yield of the muni by their tax rate. [B]The client should divide the tax-exempt yield of the muni by their tax rate. [C]The client should multiply the tax-exempt yield of the muni by (100% - their tax rate). [D]The client should divide the tax-exempt yield of the muni by (100% - their tax rate).

[D]The client should divide the tax-exempt yield of the muni by (100% - their tax rate).

If yields on all marketable fixed income bonds increase approximately 1%, which of the following is correct concerning changes in bond prices? [A]There will be no changes in bond prices [B]The prices of short-term and long-term bonds will decrease by exactly the same amount [C]The prices of short-term bonds will decrease more than the prices of long-term bonds [D]The prices of long-term bonds will decrease more than the prices of short-term bonds

[D]The prices of long-term bonds will decrease more than the prices of short-term bonds

If an investor is primarily seeking capital gains, when would be the best time to buy bonds? [A]When the interest rates are stable and are expected to remain stable. [B]When interest rates are low and are expected to rise. [C]When bond prices are low and interest rates are expected to rise. [D]When interest rates are high and are expected to drop

[D]When interest rates are high and are expected to drop

The nominal yield of a bond: [A]is found by dividing the annual interest payout by the bond's current market price. [B]is found by factoring in the bond's purchase price, coupon rate, time to maturity, and redemption value. [C]is found by multiplying the bond's current market value by the bond's coupon rate. [D]is found by multiplying the bond's coupon rate by the bond's par value and is the same as the coupon rate printed on the bond.

[D]is found by multiplying the bond's coupon rate by the bond's par value and is the same as the coupon rate printed on the bond.