Finance 303 Ch6

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

d, asked

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 value d, call price exceeds the par value e, call price exceeds the market value

d, call price exceeds the par value

A call protected bond is a bond that a, is guaranteed to be called within the next year b, is expected ti 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, cannot be currently redeemed by the issuer

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, current ratio

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, limits the actions of the borrower

The rate of return you earn on an investment before adjusting for inflation is called the -----rate a, real b, premium c, coupon d,nominal e,discounted

d, nominal

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, registered

Which one of the following compensates bondholders when a bond has an unfavorable tax status? a,interest rate risk premium b,inflation premium c,liquidity premium d,taxability premium e,default risk premium

d, taxability premium

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, annual interest divided by the face value

The quoted price of a bond is referred to as a, par value b, discount price c, face price d, dirty price e, clean price

e, clean price

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, repurchase the bonds prior to maturity at a pre-specified price

The coupon rate is a, amount of discount received when 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, stated interest payment on a bond

The inflation premium: a,increases the real return. b,is equal to the term structure of interest rates for any given time to maturity. c,remains constant over time. d,rewards investors for accepting interest rate risk. e,compensates investors for expected price increases.

e,compensates investors for expected price increases.

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,default risk premium

Which one of the following statements is true? The coupon rate of a par value bond will exceed the bond's current yield. The yield to maturity on a premium bond exceeds the bond's coupon rate. The current yield on a discount bond is equal to the bond's coupon rate. A premium bond has a current yield that exceeds the bond's coupon rate. A discount bond has a coupon rate that is less than the bond's yield to maturity.

A discount bond has a coupon rate that is less than the bond's yield to maturity.

The yield to maturity on a par value bond: I. is equal to the current yield. II. is equal to the coupon rate. III. is greater than the required market return. IV. is less than the required market return. I and III only II and IV only III and IV only I and II only II and III only

I and II only

Which of the following can generally be found in a bond's indenture agreement? I. description of any loan collateral II. call provisions III. total amount of the bond issue IV. protective covenants I and II only II and III only I, III, and IV only II, III, and IV only I, II, III, and IV only

I, II, III, and IV only

The value of a bond is dependent upon which of the following? I. market rate of interest II. coupon rate III. current yield IV. time to maturity I and III only II and IV only I and IV only I, II, and IV only I, II, III, and IV

I, II, and IV only

A bond's sensitivity to changes in market interest rates decreases when the: I. time to maturity increases. II. time to maturity decreases. III. coupon rate increases. IV. coupon rate decreases. I only I and III only I and IV only II and III only II and IV only

II and III only

An unexpected increase in market interest rates will cause: I. bond prices to increase. II. bond prices to decrease. III. yields to maturity to increase. IV. yields to maturity to decrease. I only I and III only I and IV only II and III only II and IV only

II and III only

A premium bond has a: I. market price equal to the face value. II. market price that exceeds the face value. III. yield to maturity that exceeds the coupon rate. IV. yield to maturity that is less than the coupon rate. I only I and III only II and III only I and IV only II and IV only

II and IV only

The term structure of interest rates: I. represents the real rates of return on risk-free securities with varying maturities. II. represents the pure time value of money. III. illustrates the differences in returns between risk-free and risky bonds. IV. is based on the nominal rates of return on default-free, pure discount bonds. I and III only II and IV only I and IV only II, III, and IV only I, II, and III only

II and IV only

Which one of the following statements is correct? Bonds are generally called at par value. Bond issuers maintain a listing of bondholders when bonds are issued in bearer form. An indenture is a contract between a corporation and its shareholders. Collateralized bonds are called debentures. The description of any property used to secure a bond issue is included in the bond indenture.

The description of any property used to secure a bond issue is included in the bond indenture.

Amy founded a bond laying in a street. She picked it up, detached the appropriate bond coupon, and collected the current interest payment. Which type of bond did Amy find? a, bearer b, coupon c, street d, registered e, secure

a, bearer

The Turner Co. has one bond issue outstanding. An indenture provision prohibits the firm from redeeming the bonds during the first tow years. This provision is refereed to as a ----- provision. a, deferred call b,market c,liquidity d,debenture e,sinking fund

a, deferred call

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, face value

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

a, inflation

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, unsecured debt that is generally payable within the next ten years

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

b, indenture

The Fisher effect expresses the relationship between a, coupon and real rates b, real and nominal rates c, nominal and coupon rates d, the yield to call and the yield to maturity e, the current yield and the yield to call

b, real and nominal rates

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

b, redeeming bonds early

Which one of the following represents the profit of a bond dealer? a, market yield b, bid price c,bid-ask spread d, current yield e, bond premium

c, bid-ask spread

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, interest rate risk premium

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, maturity

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 coupon rate

c, the current required market rate

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 date on which the principal amount is paid

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 types of debt that is short-term in nature

c, unsecured debt that generally matures in ten years or more

A bond that pay no interest payment and sells at a deep discount is called a, callable b, income c, zero coupon d, convertible e, tax- free

c, zero coupon

The price at which a dealer will purchase a bond is called the ----price a, call b, face c, bid d,asked e,put

c,bid

The dirty price of a bond i, is the quoted price ii, is the invoice price iii, includes any accrued interest iv, is equal to the face value minus the accrued interest i and ii only iii and iv only ii and iii only ii, iii, and iv only i, iii, and iv only

ii and iii only

When a bond's yield to maturity is greater than the bond's coupon rate, the bond: will be called. is selling at a premium. has reached its maturity date. is priced at par. is selling at a discount.

is selling at a discount.

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

semi-annual

Which one of the following bonds is the most sensitive to interest rate movements? zero-coupon, 5 year 7 percent annual coupon, 5 year zero-coupon, 10 year 5 percent semi-annual coupon, 10 year 5 percent annual coupon, 10 year

zero-coupon 1o year