Bonds
When quoting bonds on a Yield basis the difference between a bond priced at a yield of 5.45 and a bond priced at a yield of 5.55 is? 1 basis point 10 basis points 100 basis points 1000 basis Points?
10 Basis Points
A customer buys 1 PDQ 10% 1000 Par debenture, M'34 at 115. The interest payment dates are Jan 1st and July 1st. The nominal yield on the bond is:
100 / 1000 = 10%
In 2019, a customer buys 5 GE 10% debentures, M '39 at 90. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2024 at 107. The current yield on the bonds is: 10.00 % 11.11 % 11.76 % 12.43 %
11.11%
A 30 Year Bond is issued in 2019 Redeption Date: 2034 How many years of call protection?
15
A customer has purchased three different bonds, each yielding 9%, with 5 year, 10 year, and 15 year maturities. If prevailing interest rates drop by 20 basis points, which will show the greatest percentage price change?
15 Year Maturity
A corporate bond was issued on Jan 1, 2010, that matures on Jan 1, 2030. The trust indenture allows the corporation to call the bond starting in 2020 at a price equaling 100 1/2 plus an additional 1/4 point premium for every 6 month period remaining until maturity. If the bond is called on Jan 1, 2026, the redemption price will be: A. 102 1/2 B. 102 C. 101 1/2 D. 100 1/2
A. 102 1/2
All of the following affect the marketability of corporate bonds EXCEPT: A. Bond denominations B. Block size C. Maturity D. Bond rating
A. Bond denominations
An investor who purchases a bond with a tender option at par is best protected from which of the following risks? A. Market risk B. Credit risk C. Legislative risk D. Call risk
A. Market risk
Which statement is TRUE about bond price changes that result from interest rate movements? A. Short term bond prices move slower than long term bond prices B. Long term bond prices move slower than short term bond prices C. Both short term and long term prices move at equivalent rates D. No relationship exists between short term and long term bond price movements
A. Short term bond prices move slower than long term bond prices.
In 2019, a customer buys 5 GE 10% debentures, M '29, at 85. The interest payment dates are Feb 1st and Aug 1st. The bonds are callable as of 2020 at 103. If the bonds are called prior to maturity, which statement is TRUE? A. The yield to call will be higher than the yield to maturity B. The yield to call will be lower than the yield to maturity C. The yield to call will be the same as the yield to maturity D. The yield to call will depend on the current market price of the bond at the time of the call
A. The yield to call will be higher than the yield to maturity
Exchange rate risk exists when making an investment in a: A. foreign security when the U.S. dollar strengthens B. foreign security when the U.S. dollar weakens C. U.S. security when the U.S. dollar strengthens D. U.S. security when the U.S. dollar weakens
A. foreign security when the U.S. dollar strengthens
A bond which is guaranteed by another corporation is known as a: A. guaranteed corporate bond B. general obligation bond C. adjustment bond D. subordinated bond
A. guaranteed corporate bond
A customer wishes to maximize liquidity and minimize interest rate risk. The best recommendation is (are): A. short term maturities B. long term maturities C. callable bonds D. non callable bonds
A. short term maturities
A customer has bought a fully registered Exxon-Mobil debenture. The customer will receive interest payments: A. from the paying agent once a year B. from the paying agent twice a year C. by clipping coupons once a year D. by clipping coupons twice a year
B. from the paying agent twice a year
When a Bond increases in value due to market demand this is termed?
Appreciation
A declining rate of inflation would lead to: A. higher bond prices and higher bond yields B. higher bond prices and lower bond yields C. lower bond prices and lower bond yields D. lower bond prices and higher bond yields
B. higher bond prices and lower bond yields
An investor seeking a high level of income and a moderate level of risk would buy: A. common stock B. mortgage bonds C. income bonds D. convertible bonds
B. mortgage bonds
A corporate bond was issued on Jan 1, 2010, that matures on Jan 1, 2030. The trust indenture allows the corporation to call the bond starting in 2020 at a price equaling 100 plus an additional 1/2 point premium for every 6 month period remaining until maturity. If the bond is called on Jan 1, 2028, the redemption price will be: A. 100 1/2 B. 102 C. 103 1/2 D. 104
B. 102
The City of Peoria, Illinois has outstanding $100,000,000 of 7% General Obligation bonds, M '39. The bonds are callable at 103, beginning 1/1/19. The bonds are currently trading at 104 ½. The call premium on the bonds is: A. 1 ½ points B. 3 points C. 4 ½ points D. 5 ½ points
B. 3 points
A customer has a discretionary account at a brokerage firm. The customer calls the registered representative handling the account and states "Buy $50,000 of lower medium investment grade corporate bonds" with at least 5 years to maturity and a minimum 8% yield. To comply with the customer's instructions, the registered representative must choose bonds that are rated, at a minimum: A. Aaa B. A C. Baa D. Ba
B. A
If a corporation reports a loss for a year, it is obligated to make interest payments on all of the following bonds EXCEPT: A. Reset bonds B. Adjustment bonds C. Convertible bonds D. Callable bonds
B. Adjustment bonds
All of the following statements are true regarding equipment trust certificates ("ETCs") EXCEPT: A. Equipment trust certificates are secured by specified corporate assets B. Default of ETCs is common during recessionary periods C. Equipment trust certificates are commonly issued by transportation companies D. Equipment trust certificates are issued in serial maturities
B. Default of ETCs is common during recessionary periods
Political risk is generally associated with: A. Corporate bond investments B. International bond investments C. Municipal bond investments D. Treasury bond investments
B. International bond investments
Two 20-year corporate bonds are issued at par, with stated interest rates of 10%. One issue is callable at par in 5 years, while the other is callable at par in 10 years. If interest rates drop by 200 basis points shortly after issuance, which statement is TRUE? A. The bond callable in 5 years will appreciate more than the bond callable in 10 years B. The bond callable in 10 years will appreciate more than the bond callable in 5 years C. Both bonds will appreciate by equal amounts D. The rate of appreciation depends on the credit rating of the bonds
B. The bond callable in 10 years will appreciate more than the bond callable in 5 years
For bonds trading at a premium, rank the yield measures from lowest to highest? A. Nominal; Current; Yield to Maturity; Yield to Call B. Yield to Call; Yield to Maturity; Current; Nominal C. Current; Nominal; Yield to Call; Yield to Maturity D. Yield to Maturity; Current; Yield to Call; Nominal
B. Yield to Call; Yield to Maturity; Current; Nominal
A bond call premium is the amount: A. below par at which the issuer has the right to call bonds B. above par at which the issuer has the right to call bonds C. above par at which a bond is currently trading D. at which the issuer would make money by calling in outstanding bonds
B. above par at which the issuer has the right to call bonds
Regarding bonds with put options, all of the following statements are true EXCEPT: A. exercise of the put is at the option of the bondholder B. once the option is exercisable, the bond's price will not fall below the option price if interest rates rise C. yields on bonds with put options are higher than similar bonds without this feature D. the put option represents a floor on the market price of the bond
C. yields on bonds with put options are higher than similar bonds without this feature
What is the Benefit of a Zero Coupon Bond?
Capital Appreciation
A corporate bond was issued on Jan 1, 2010, that matures on Jan 1, 2030. The trust indenture allows the corporation to call the bond starting in 2020 at a price equaling 100 1/4 plus an additional 1/8 point premium for every 6 month period remaining until maturity. If the bond is called on Jan 1, 2025, the redemption price will be: A. 102 1/4 B. 102 C. 101 1/2 D. 100 1/2
C. 101 1/2
An outstanding bond issue which is currently trading at 103 1/4 is callable starting next year at 102 1/2. The call premium on the bond issue is: A. 3/4 points B. 1 3/4 points C. 2 1/2 points D. 3 1/4 points
C. 2 1/2 points
At which Standard and Poor's rating is a bond considered to be speculative ("junk bond")? A. AA B. BBB C. BB D. C
C. BB
All of the following are likely to purchase dealer commercial paper EXCEPT: A. Insurance Companies B. Trust Companies C. Individuals D. Open-end Investment Companies
C. Individuals
Which bond portfolio with a 20-year life would be expected to give the highest long-term return? A. Portfolio #1 with an expected rate of return of 6% and a default risk of 5% over the portfolio life B. Portfolio #2 with an expected rate of return of 8% and a default risk of 10% over the portfolio life C. Portfolio #3 with an expected rate of return of 10% and a default risk of 20% over the portfolio life D. Portfolio #4 with an expected rate of return of 12% and a default risk of 40% over the portfolio life
C. Portfolio #3 with an expected rate of return of 10% and a default risk of 20% over the portfolio life
A corporation has posted a large financial loss for this year. It has a legal obligation to pay interest on all of the following bonds EXCEPT: A. debentures B. subordinated debentures C. adjustment bonds D. equipment trust certificates
C. adjustment bonds
A 65-year old customer wishes to invest part of his retirement funds with the dual objectives of enhanced income and safety of principal. The customer notices that "C" rated corporate bonds yield significantly more than equivalent maturity Treasury issues and asks you, the registered representative, whether these would be an appropriate investment. The best response is to tell the customer that this is a: A. good idea since corporate bonds are extremely safe investments since they are guaranteed by the issuing corporation B. good idea because the yield spread between corporates and Treasuries guarantees a superior return C. bad idea because "C" rated corporate bonds have a much higher risk of default than Treasury issues D. bad idea because "C" rated corporate bonds are not permitted investment vehicles for retirement fund proceeds
C. bad idea because "C" rated corporate bonds have a much higher risk of default than Treasury issues
Who is considered to be a creditor or a corporation?
Convertible Bondholders
Which would be a quote for a manufacturing company bond? 99.50 99-16 99 1/2 99 8/16
Coporate bonds = Quoted in 1/8ths. 99 1/2
Which of the following affect the marketability of corporate bonds? I Bond rating II Maturity III Block size IV Bond denominations
I Bond rating II Maturity III Block size
Which of the following investments has the lowest level of reinvestment risk? A. Preferred Stock B. Municipal Bond C. Collateralized Mortgage Obligation D. Treasury Bill
D. Treasury Bill
A company that issued first mortgage bonds is in default. If mortgage bondholders' claims are not satisfied from the sale of the property backing the bonds, then the bondholders: A. have no recourse B. can claim other property to satisfy the outstanding loans C. can attempt to sell other assets to satisfy the outstanding loans D. become general creditors for the balance due
D. become general creditors for the balance due
Corporate debentures are backed by: A. real estate B. equipment C. portfolio of marketable securities D. full faith and credit
D. full faith and credit
All of the following are considered to be funded debts EXCEPT: A. mortgage bonds with 20 year maturities B. debentures with 10 year maturities C. collateral trust certificates with 15 year maturities D. promissory notes that need to be refinanced with long term debt
D. promissory notes that need to be refinanced with long term debt
If Market rates of interest increase, bonds issued at par would trade at a
Discount
Which of the following would be a quote for a U.S. Government bond? 105.625 105-20 105 5/8 105 10/16
Government bonds = Quoted in 32nd's 105-20
Which statements are TRUE about adjustment (income) bonds? I Any interest payment made is predictable in amount II Any interest payment made is not predictable in amount III Timing of interest payments made is predictable IV Timing of interest payments made is not predictable
I Any interest payment made is predictable in amount IV Timing of interest payments made is not predictable
Which statements are TRUE regarding market risk for bondholders? I As interest rates rise, the price of long term bonds falls faster than that of short term bonds II As interest rates rise, the price of short term bonds falls faster than that of long term bonds III To avoid market risk, a customer would invest in bonds with long term maturities IV To avoid market risk, a customer would invest in bonds with short term maturities
I As interest rates rise, the price of long term bonds falls faster than that of short term bonds IV To avoid market risk, a customer would invest in bonds with short term maturities
As interest rates rise, which of the following statements are TRUE? I Bonds trading at large discounts fall faster in price than bonds trading at small discounts. II Bonds trading at small discounts fall faster in price than bonds trading at large discounts. III Bonds trading at large premiums fall faster in price than bonds trading at small premiums. IV Bonds trading at small premiums fall faster in price than bonds trading at large premiums.
I Bonds trading at large discounts fall faster in price than bonds trading at small discounts. IV Bonds trading at small premiums fall faster in price than bonds trading at large premiums.
Which of the following statements are TRUE when comparing bonds and preferred stock? I Both bonds and preferred stock have a fixed payout rate II Bonds have a fixed payout rate; preferred stock does not III Both bonds and preferred stock can be convertible into shares of common stock IV Bonds can be convertible; preferred stock cannot
I Both bonds and preferred stock have a fixed payout rate III Both bonds and preferred stock can be convertible into shares of common stock
Which of the following corporate bonds are secured? I Collateral trust certificate II Subordinated debenture III Second mortgage bond IV Equipment trust certificate
I Collateral trust certificate III Second mortgage bond IV Equipment trust certificate
Regarding bonds with put options, which of the following statements are TRUE? I Exercise of the put is at the option of the bondholder II Once the option is exercisable, the bond's price will not fall below the option price if interest rates rise III Yields on bonds with put options are higher than similar bonds without this feature
I Exercise of the put is at the option of the bondholder II Once the option is exercisable, the bond's price will not fall below the option price if interest rates rise
The trust indenture of a bond would include which of the following information? I Interest rate II Maturity III Collateral backing the issue IV Call provisions A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
I Interest rate II Maturity III Collateral backing the issue IV Call provisions
Which of the following are required to calculate the yield to maturity of a bond? I Maturity Date II Coupon III Purchase Price IV Redemption Price (Par)
I Maturity Date II Coupon III Purchase Price IV Redemption Price (Par)
Which of the following statements are TRUE regarding mortgage bonds? I Mortgage bonds are issued in term maturities II Mortgage bonds are secured by real property III Default of mortgage bonds is common during recessionary periods IV Mortgage bonds are commonly issued by utilities
I Mortgage bonds are issued in term maturities II Mortgage bonds are secured by real property IV Mortgage bonds are commonly issued by utilities
For bonds trading at a discount, rank the yield measures from lowest to highest? I Nominal II Current III Basis
I Nominal II Current III Basis
Which characteristics make a security least subject to liquidity risk? I Short term maturity II Long term maturity III Low credit rating IV High credit rating
I Short term maturity IV High credit rating
Which of the following rate commercial paper? I Standard and Poor's II Fitch's III Best's IV Moody's
I Standard and Poors II Fitchs IV Moody's
Certificates maturing in 2030 2030 - 9.20% 2018 - 8.75% I The bond is offered at a discount II The bond is offered at a premium III The effective yield is lower than the coupon IV The effective yield is higher than the coupon
I The bond is offered at a discount IV The effective yield is higher than the coupon
A company that has issued first mortgage bonds is declared in default by the trustee. Which statements are TRUE? I The bondholders have legal claim to the property backing the bond II The bondholders do not have legal claim to the property backing the bond III The bondholders may sell the property to satisfy the unpaid obligation IV The bondholders may not sell that property to satisfy the unpaid obligation
I The bondholders have legal claim to the property backing the bond III The bondholders may sell the property to satisfy the unpaid obligation
When bonds are trading at a large discount, which of the following statements are TRUE? I The deeper the discount, the more volatile the bond's price movement in response to interest rate changes II The deeper the discount, the less volatile the bond's price movement in response to interest rate changes III Discount bonds with long maturities are more volatile than ones with short maturities IV Discount bonds with short maturities are more volatile than ones with long maturities
I The deeper the discount, the more volatile the bond's price movement in response to interest rate changes III Discount bonds with long maturities are more volatile than ones with short maturities
When comparing convertible to non-convertible corporate bonds, convertible bonds have: I lower yields II higher yields III price appreciation potential based on the market price of the common stock IV no price appreciation potential based upon the market price of the common stock
I lower yields III price appreciation potential based on the market price of the common stock
Which of the following ratings are considered to be "speculative"? I BBB II BB III B IV CCC
II BB III B IV CCC
Which statements are TRUE regarding the effect of interest rate movements on bond price volatility? I Bonds with the lowest price volatility will be ones with the lowest coupon rates II Bonds with the lowest price volatility will be ones with the highest coupon rates III Bonds with the highest price volatility will be ones with the lowest coupon rates IV Bonds with the highest price volatility will be ones with the highest coupon rates
II Bonds with the lowest price volatility will be ones with the highest coupon rates III Bonds with the highest price volatility will be ones with the lowest coupon rates
An investor is seeking a bond issue offering call protection. An issue having which features would NOT be an appropriate investment? I Low stated interest rates II High stated interest rates III Low stated call premiums IV High stated call premiums
II High stated interest rates III Low stated call premiums
Which of the following will increase the marketability risk of a bond? I Active trading in that security II Inactive trading in that security III Round lot size transaction amount IV Large block size transaction amount
II Inactive trading in that security IV Large block size transaction amount
Which statements are TRUE regarding bonds? I Short term bonds fluctuate more in value than long term bonds due to interest rate movements II Long term bonds fluctuate more in value than short term bonds due to interest rate movements III Short term maturities are more liquid than long term maturities IV Long term maturities are more liquid than short term maturities
II Long term bonds fluctuate more in value than short term bonds due to interest rate movements III Short term maturities are more liquid than long term maturities
The term "Funded Debt" refers to: I Short term debt II Long term debt III Corporate debt IV U.S. Government debt A. I and III B. I and IV C. II and III D. II and IV
II Long term debt III Corporate debt
When the price of a bond increases, which of the following statements regarding yields are TRUE? I Yield to call increases II Yield to call decreases III Yield to maturity increases IV Yield to maturity decreases
II Yield to call decreases IV Yield to maturity decreases
When interest rates have fallen, an issuer will: I call the outstanding low interest rate bonds II call the outstanding high interest rate bonds III issue new bonds with lower interest rates IV issue new bonds with higher interest rates
II call the outstanding high interest rate bonds III issue new bonds with lower interest rates
For bonds trading at a premium, rank the yield measures from lowest to highest? I Nominal II Current III Basis
III Basis II Current I Nominal
An investor who expects interest rates to drop would NOT invest in: I non-callable debt issues II puttable debt issues III callable debt issues IV debt issues with adjustable interest rates
III callable debt issues IV debt issues with adjustable interest rates
For bonds trading at a premium, rank the yield measures from lowest to highest? I Nominal II Current III Basis IV Yield to Call Basis
IV Yield to Call Basis III Basis II Current I Nominal
Nominal Yield of a bond 1. Increases as bond market prices decline 2. decreases as bond market prices increase 3. is unaffected by changes in market interest rates 4. will vary with the earnings of the issuer
Is unaffected by changes in market interest rates
Certificates maturing in 2018 8 3/4% 2018 8.25% Trading at? Premium Discount Par Discount Plus interest
Premium
Which of the following would be a rating for short term municipal debt? A. MIG 1 B. P 1 C. P 3 D. MUN 1
MIG1
Zero Coupon Bonds
Pay Interest at maturity
Zero Coupon Bonds Do what?
Pay Interest at maturity and are bought at a discount and mature at par.
Term Corporate Bonds are Quoted on a
Percentage of Par Basis
Which would be a quote for a railroad bond? 101.25 101-8 101 1/4 101 4/16
Railroad = Corporate Bond 101 1/4
The Nominal Yield of a bond will: 1. increase as bond prices fall 2. decrease as bond prices rise 3. Remain unchanged as bond prices fall 4. Remain unchanged as bond prices rise
Remain unchanged as Bond prices fall Remain unchanged as bond prices rise
Bonds Quoted on a yield to Maturity Basis are generally?
Serial Bonds
Nominal Yield on a bond is computed by:
Stated Interest Rate/Bond Par Value
The Current Yield on a Bond is?
Stated interest Rate/bond market value
A bond issue where every bond has the same issue date, interest rate, and maturity is a?
Term Bond
Municipal Dollar Bonds are Generally?
Term Bonds
How are Treasury Notes Quoted?
Whole and Fractional
Serial Bonds are quoted on a?
Yield to Maturity Basis