ch 7 fin

Jason's Paints just issued 20-year, 7.25 percent, unsecured bonds at par. These bonds fit the definition of which one of the following terms? A. Note. B. Discounted. C. Zero-coupon. D. Callable. E. Debenture.

E. Debenture.

The pure time value of money is known as the: A. Liquidity effect. B. Fisher effect. C. Term structure of interest rates. D. Inflation factor. E. Interest rate factor.

C. Term structure of interest rates.

Real rates are defined as nominal rates that have been adjusted for which of the following? A. Inflation. B. Default risk. C. Accrued interest. D. Interest rate risk. E. Both inflation and interest rate risk.

A. Inflation.

1. Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment? A. Coupon. B. Face value. C. Discount. D. Call premium. E. Yield.

A. Coupon.

Which one of the following premiums is compensation for the possibility that a bond issuer may not pay a bond's interest or principal payments as expected? A. Default risk. B. Taxability. C. Liquidity. D. Inflation. E. Interest rate risk.

A. Default risk.

19. Which one of the following is the price at which a dealer will sell a bond? A. Call price B. Asked price C. Bid price D. Bid-ask spread E. Par value

B. Asked price

The interest rate risk premium is the: A. Additional compensation paid to investors to offset rising prices. B. Compensation investors demand for accepting interest rate risk. C. Difference between the yield to maturity and the current yield. D. Difference between the market interest rate and the coupon rate. E. Difference between the coupon rate and the current yield.

B. Compensation investors demand for accepting interest rate risk.

A sinking fund is managed by a trustee for which one of the following purposes? A. Paying bond interest payments. B. Early bond redemption. C. Converting bonds into equity securities. D. Paying preferred dividends. . E. Reducing bond coupon rates.

B. Early bond redemption.

2. Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal payment at maturity. What is the $1,000 called? A. Coupon. B. Face value. C. Discount. D. Yield. E. Dirty price.

B. Face value.

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds are sent directly to each of the individual bondholders. These direct payments are a clear indication that the bonds can accurately be defined as being issued: A. At par. B. In registered form. C. In street form. D. As debentures. E. As callable bonds.

B. In registered form.

A bond that is payable to whomever has physical possession of the bond is said to be in: A. New-issue condition. B. Registered form. C. Bearer form. D. Debenture status. E. Collateral status.

C. Bearer form.

20. If you sell a 6 percent bond to a dealer when the market rate is 7 percent, which one of the following prices will you receive? A. Call price. B. Par value. C. Bid price. D. Asked price. E. Bid-ask spread.

C. Bid price.

14. A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued interest. The additional $30 is called the: A. Dirty price. B. Redemption value. C. Call premium. D. Original-issue discount. E. Redemption discount.

C. Call premium.

22. A bond is quoted at a price of $1,011. This price is referred to as the: A. Call price. B. Face value. C. Clean price. D. Dirty price. E. Maturity price.

C. Clean price.

A bond's coupon rate is equal to the annual interest divided by which one of the following? A. Call price. B. Current price. C. Face value. D. Clean price. E. Dirty price.

C. Face value.

Which one of these is most apt to be included in a bond's indenture one year after the bond has been issued? A. Current yield. B. Written record of all the current bond holders. . C. List of collateral used as bond security. D. Current market price. E. Price at which a bondholder can resell the bond to another bondholder

C. List of collateral used as bond security.

The current yield is defined as the annual interest on a bond divided by which one of the following? A. Coupon rate. B. Face value. C. Market price. D. Call price. E. Par value.

C. Market price.

The bond principal is repaid on which one of these dates? A. Coupon date. B. Yield date. C. Maturity date. D. Dirty date. E. Clean date.

C. Maturity date.

A note is generally defined as: A. A secured bond with an initial maturity of 10 years or more. B. A secured bond that initially matures in less than 10 years. C. Any bond secured by a blanket mortgage. D. An unsecured bond with an initial maturity of 10 years or less. E. Any bond maturing in 10 years or more.

D. An unsecured bond with an initial maturity of 10 years or less.

Rosita paid a total of $1,189 to purchase a bond that has 7 of its initial 20 years left until maturity. This price is referred to as the: A. Quoted price. B. Spread price. C. Clean price. D. Dirty price. E. Call price.

D. Dirty price.

A deferred call provision is which one of the following? A. Requirement that a bond issuer pay the current market price, plus accrued interest, should the firm decide to call a bond. B. Ability of a bond issuer to delay repaying a bond until after the maturity date should the issuer so opt. C. Prohibition placed on an issuer which prevents that issuer from ever redeeming bonds prior to maturity. D. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date. E. Requirement that a bond issuer pay a call premium that is equal to or greater than one year's coupon should that issuer decide to call a bond.

D. Prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date.

The Fisher effect is defined as the relationship between which of the following variables? A. Default risk premium, inflation risk premium, and real rates B. Nominal rates, real rates, and interest rate risk premium C. Interest rate risk premium, real rates, and default risk premium D. Real rates, inflation rates, and nominal rates E. Real rates, interest rate risk premium, and nominal rates

D. Real rates, inflation rates, and nominal rates

The bond market requires a return of 9.8 percent on the five-year bonds issued by JW Industries. The 9.8 percent is referred to as which one of the following? A. Coupon rate. B. Face rate. C. Call rate. D. Yield to maturity. E. Current yield.

D. Yield to maturity.

A call-protected bond is a bond that: A. Is guaranteed to be called. B. Can never be called. C. Is currently being called. D. Is callable at any time. E. Cannot be called at this point in time.

E. Cannot be called at this point in time.

A Treasury yield curve plots Treasury interest rates relative to which one of the following? A. Market rates. B. Comparable corporate bond rates. C. The risk-free rate. D. Inflation. E. Maturity.

E. Maturity.

Interest rates that include an inflation premium are referred to as: A. Annual percentage rates. B. Stripped rates. C. Effective annual rates. D. Real rates. E. Nominal rates.

E. Nominal rates.

The items included in an indenture that limit certain actions of the issuer in order to protect a bondholder's interests are referred to as the: A. Trustee relationships. B. Bylaws. C. Legal bounds. D. Trust deed. E. Protective covenants.

E. Protective covenants.

A bond that has only one payment, which occurs at maturity, defines which one of these types of bonds A. Debenture. B. Callable. C. Floating-rate. D. Junk. E. Zero coupon.

E. Zero coupon.