Chapter 6
Which of the following can generally be found in a bond's indenture agreement?
. I, III, and IV only
Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?
. Liquidity premium
Which one of the following bonds is the least sensitive to changes in market interest rates?
8 percent annual coupon, 4 year
Which one of the following statements is true?
A discount bond has a coupon rate that is less than the bond's yield to maturity.
Which one of the following statements is correct?
An indenture is a contract between a bond's issuer and its holders.
When you refer to a bond's coupon, you are referring to which one of the following?
Annual interest payment
This morning, Jeff found a bond certificate lying on the floor of a bank. He picked it up and noticed that the bond matured today. He presented the bond to the bank teller and received both the principal and interest payment. The bond that Jeff found must have been which one of the following?
Bearer form bond
Which one of the following is the quoted price of a bond?
Clean price
The current yield on a bond is equal to the annual interest divided by which one of the following?
Current market price
Which one of the following terms denotes for certain that a bond is unsecured?
Debenture
Which of the following combinations is assured to decrease the interest rate sensitivity of a bond?
Decrease in the time to maturity and an increase in the coupon rate
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?
Default risk premium
What is the principal amount of a bond that is repaid at the end of the loan term called?
Face value
Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now been downgraded to junk status. Which one of the following terms applies to this situation?
Fallen angel
Which one of the following refers to the relationship between nominal returns, real returns, and inflation?
Fisher effect
Which of the following characteristics are most commonly associated with corporate bonds issued in the U.S.?
I and IV only
A real rate of return is defined as a rate that has been adjusted for which one of the following?
Inflation
Changes in interest rates affect bond prices. Which one of the following compensates bond investors for this risk?
Interest rate risk premium
Which one of the following might be included in a bond's list of negative covenants?
Limiting cash dividends to $1 per share or less
On which one of the following dates is the principal amount of a bond repaid?
Maturity date
Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation?
Nominal rate
The term structure of interest rates represents the relationship between which of the following?
Nominal rates on default-free, pure discount bonds and time to maturity
What term is used to describe an account that a bond trustee manages for the sole purpose
Sinking fund
Which one of the following statements concerning sinking funds is correct
Sinking funds may be used to purchase bonds in the open market
Which one of the following premiums is paid on a corporate bond due to its tax status?
Taxability premium
Which one of the following terms refers to a bond's rate of return that is required by the market place?
Yield to maturity
Which one of the following terms applies to a bond that initially sells at a deep discount and pays no interest payments?
Zero coupon
. The price at which an investor can purchase a bond from a dealer is called the _____ price.
asked
The price at which a dealer will purchase a bond is called the _____ price.
bid
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the:
bid-ask spread.
The call premium is the amount by which the:
call price exceeds the par value.
Travis recently purchased a callable bond. However, that bond cannot be currently redeemed by the issuer. Thus, the bond must currently be:
call protected.
The inflation premium
compensates investors for expected price increases
An unexpected decrease in market interest rates will cause a:
coupon bond's yield-to-maturity to decrease
. The value of a bond is dependent upon the:
coupon rate and the yield to maturity.
The annual interest divided by the face value of a bond is referred to as the:
coupon rate.
A bond for which no specific property has been pledged as security is classified as a
debenture.
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that this debt can be described as a:
debenture.
Dexter, Inc. has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years. This provision is referred to as the _____ provision
deferred call
Which one of the following is the price that an investor pays to purchase an outstanding bond?
dirty price
The written agreement that contains the specific details related to a bond issue is called the bond:
indenture
The yield to maturity on a discount bond is:
is greater than both the current yield and the coupon rate.
When a bond's yield to maturity is less than the bond's coupon rate, the bond:
is selling at a premium.
A protective covenant:
limits the actions of the borrower.
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities
maturity
A callable bond
may be structured to pay bondholders the current value of the bond on the date of call.
A call provision grants the bond issuer the:
option of repurchasing the bonds prior to maturity at a pre-specified price.
A registered form bond is defined as a bond that:
pays coupon payments directly to the owner of record.
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis
semi-annual
A note is:
unsecured debt that is generally payable within the next 10 years
