SIE Chapter 3 missed checkpoint questions

Your customer, Eleanor, purchased an InDebt, Inc., 5% debenture at a price of 94. It matures in 12 years. What is the yield to maturity? A) 5.73 B) 5 C) 5.32 D) 4.69

A) 5.73 recall the bond inverse relationship chart. The bond is trading at a discount so the YTM must be higher than the coupon of 5%

Which of the following is a money market security? A) A 30-year T-bond issued by the Treasury 29 years ago B) A newly issued T-note C) A short-term T-bond mutual fund D) A TAN maturing in 14 months

A) A 30-year T-bond issued by the Treasury 29 years ago A money market security is a high quality and highly liquid security with one year, or less, left to maturity.

If a customer is interested in monthly income, which of the following securities would meet that need? A) Government National Mortgage Association certificates (GNMA) B) Municipal revenue bonds C) Federal National Mortgage Association (FNMA) bonds D) Treasury notes

A) Government National Mortgage Association certificates (GNMA) GNMA certificates provide a monthly interest and principal payment

A financial institution, in order to raise cash on a short-term basis, sells some of the securities it owns, with an agreement to buy them back at a later date at a slightly higher price. This is known as A) a repurchase agreement. B) a reverse transaction. C) a banker's acceptance. D) a promissory note.

A) a repurchase agreement (REPO)

When a corporation issues a mortgage bond, the issue's total value A) should be less than that of the real estate it is backed by. B) is unrelated to the value of the real estate because it is an unsecured debt instrument. C) should be greater than that of the real estate it is backed by. D) must equal the value of the real estate by which it is backed.

A) should be less than that of the real estate it is backed by.

All of the following characteristics are true of securities issued by the Government National Mortgage Association except A) they generate tax-free interest. B) they pay monthly. C) they are backed by the federal government. D) they are called pass-through securities because the payments are made up of both interest and principal.

A) they generate tax-free interest. GNMA is fully taxable

A maturity schedule that has relatively equal portion of the issue maturing at regular intervals over a multiyear period most likely has which type of bond? A) Serial bond B) Series bond C) Term bond D) Balloon bondA

A) Serial bond

Municipal bonds are issued by all of the following government entities except A) agencies. B) territories. C) states. D) districts.

A) agencies Municipal bonds can be issued by any government entity except the federal government.

A convertible feature for a corporate bond allows A) a bondholder the opportunity to exchange a debt instrument for another debt instrument with shorter maturity. B) a bondholder to convert a debt instrument into securities that give the investor ownership rights. C) an issuer the ability to convert its debt obligations over to voting stockholders who would then hold the debt paper. D) an issuer to convert its debt securities to those offered by another issuer.

B) a bondholder to convert a debt instrument into securities that give the investor ownership rights.

An issuer has issued bonds with a call feature. It is likely that these bonds have A) a lower coupon than similar bonds without the feature. B) a higher coupon than similar bonds without the feature. C) a coupon that will be called away by the issuer before maturity. D) a coupon that need not reflect the impact of the call feature.

B) a higher coupon than similar bonds without the feature. When bonds are issued with features that benefit the issuer, such as a call feature, the issuer generally will need to pay a slightly higher coupon rate of interest to make the bond attractive to new investors.

An investor has purchased bonds having a put feature attached. With this put feature, it is likely that these bonds were issued with A) a higher coupon than similar bonds without the feature. B) a lower coupon than similar bonds without the feature. C) a coupon that will be called away by the issuer before maturity. D) a coupon that need not reflect the impact of the call feature.

B) a lower coupon than similar bonds without the feature. When bonds are issued with features that benefit the bondholder, such as a put feature, the issuer can generally pay a slightly lower coupon rate of interest. This is because the put feature compensates the holder in another way, aside from the coupon rate.

Which of the following is the highest noninvestment grade debt rating? A) B B) Ba C) BBB D) C

B) Ba BB (Ba) is the highest noninvestment grade rating. B and C are lower ratings. BBB is an investment grade rating.

Which of the following bonds would be considered a high-yield bond? A) 6% BBB-rated corporate bond maturing in 10 years B) 4% A-rated bond maturing in 30 years C) 4% BB-rated corporate bond maturing in 10 years D) 2% Treasury bond maturing in 12 years

C) 4% BB-rated corporate bond maturing in 10 years go by the bond rating, not the coupon rate treasury bond is never high yield

Which of these statements regarding Treasury bills is correct? A) They have the highest interest rate risk of all Treasury securities. B) They are usually issued at a slight premium to par value. C) Treasury bills are the only type of Treasury security issued without a stated interest rate. D) They are issued with initial maturities of 3, 12, 24, and 50 weeks.

C) Treasury bills are the only type of Treasury security issued without a stated interest rate. Treasury bills are always issued at a discount, without a stated interest rate

A CMO consists of A) bonds and money market instruments. B) various government backed mortgages. C) an FNMA, FHLMC, and other mortgage backed securities. D) different sorts of nonmortgage debt.

C) an FNMA, FHLMC, and other mortgage backed securities. A Collateralized Mortgage Obligation is made up of different mortgage backed securities (including FNMA and FHLMC), not the mortgages directly.

The City of Philadelphia issued $100 million in GO debt three years ago. The bonds were issued with a 20-year maturity and carry a 5% coupon. Your client, who purchased one of these bonds on the initial offering, calls you to get a current quote. You respond that the bonds are selling at a slight premium. This means that A) the yield to maturity is higher than the current yield. B) the current yield is higher than the nominal yield. C) the nominal yield is higher than the yield to maturity. D) the yield to maturity is equal to the current yield.

C) the nominal yield is higher than the yield to maturity.

Your customer is a resident of a state with no income tax. They want an income-producing investment that produces tax-free income for them. Which of the following meets the customer's needs? A) A GNMA certificate B) Only a municipal bond issued by the customer's home state C) A Treasury bond D) A municipal bond issued from any state

D) A municipal bond issued from any state the customer's state of residence has no income tax, so any municipal bond would meet the customer's need.

Which of the following statements regarding a bond issued with a 6% coupon and now trading in the secondary market is true? A) If interest rates fall, the bond's current yield will rise. B) If interest rates rise, the bond's price also rises in the secondary market. C) If the bond falls in price, the current yield will fall also. D) If interest rates rise, the coupon will remain at 6%.

D) If interest rates rise, the coupon will remain at 6%

Your customer is a resident of the state of Utah. They would pay tax on interest produced by all of the following securities except A) a Treasury STRIP maturing in five years. B) a San Bernardino County, California, general obligation bond. C) a Richfield Oil Company collateral trust bond. D) a Richfield, Utah, general obligation bond.

D) a Richfield, Utah, general obligation bond. Municipal bond interest is tax free at the federal level and tax free at the state level if the bondholder is a resident of the same state as the issuer.

Treasury bills A) can be issued with initial maturities of 3, 12, 24, and 50 weeks. B) have the highest interest-rate risk of all Treasury securities. C) are always issued at a slight premium to par value. D) are issued at a discount without a stated interest rate.

D) are issued at a discount without a stated interest rate. Treasury bills are always issued at a discount, without a stated interest rate.

Your customer asks to buy a bond that carries a very attractive yield. When checking the bond, you see that it has a B rating from the major credit rating agencies. When communicating such information to a customer, all of the following terms are commonly used in describing a B-rated bond except A) junk bond. B) high-yield. C) noninvestment grade. D) lower grade.

D) lower grade. not a term used in the industry