HDFS 482 ch 7

A convertible bond has a par value of $1,000, but its current market price is $750. The current price of the issuing company's stock is $17 and the conversion ratio is 30 shares. The bond's conversion premium is closest to: A)$44.12. B)$25.00. C)$240.00. D)$490.00.

$240.00.

Which of the following best describes the clean price of a corporate bond quoted at 98.03? A)$98.03. B)$98.09. C)$980.30. D)$980.94.

$980.30.

The issuing corporation has the option of retiring the bond, at a predetermined price, prior to the maturity date of the bond. What is this type of bond called? A)A callable bond. B)A convertible bond. C)A debenture bond. D)An retiring bond.

A callable bond.

Which of the following types of municipal bonds has the highest credit risk? A)A general obligation bond. B)An insured general obligation bond. C)A revenue bond. D)An insured revenue bond.

A revenue bond.

Which of the following is not correct concerning Bankers Acceptances? A)Bankers Acceptances have similar tax treatment to Jumbo CDs. B)Bankers Acceptances are subject to capital gains tax since they are negotiable. C)Bankers Acceptances are typically used in connection with foreign commerce. D)Bankers Acceptances are typically issued by banks on behalf of smaller companies that have weaker credit on their own.

Bankers Acceptances are typically issued by banks on behalf of smaller companies that have weaker credit on their own.

Elmira is single and in the 37% federal and 4% state tax brackets, and she is subject to the federal 3.8% Net Investment Income Tax. She is considering the purchase of a municipal bond, issued in her state of residence, with a YTM of 7%. What is Elmira's tax equivalent yield on the bond? A)7.29%. B)11.11%. C)11.86%. D)12.68%.

D)12.68%.

Thirty-year Treasury bonds are not subject to which of the following risks? A)Purchasing power risk. B)Interest rate risk. C)Reinvestment rate risk. D)Default risk.

Default risk.

Which of the following statements is false? A)Every bond has a maturity value. B)Every bond has a maturity date. C)Every bond has a YTM. D)Every bond has coupon payments.

Every bond has coupon payments.

Money market securities are least likely to: A)Be readily marketable. B)Have low volatility. C)Be highly liquid. D)Have long maturities.

Have long maturities.

Commercial paper is most likely issued by: A)The Federal Reserve bank. B)Commercial banks. C)Large, well-known companies. D)A securities exchange.

Large, well-known companies.

The primary difference between Treasury notes and bonds is: A)Maturity. B)Default risk. C)Liquidity. D)Taxability.

Maturity.

A Treasury bond has an ask price of 107.04 and a bid price of 107.00. What is the dollar price a buyer expects to pay? A)$1,070.000. B)$1,070.040. C)$1,070.125. D)$1,071.500.

$1,070.125.

Which of the following is correct concerning bonds? A)A callable bond may be redeemed by the issuer within the terms of the indenture agreement. B)A putable bond may be redeemed by the issuer within the terms of the indenture agreement. C)A putable bond is likely to be redeemed when interest rates have declined since issuance. D)A callable bond is likely to be redeemed when interest rates have risen since issuance.

A callable bond may be redeemed by the issuer within the terms of the indenture agreement.

Which of the following is correct concerning CDs? A)CDs and Jumbo CDs are used only by small investors since larger investors can earn a higher yield. B)Jumbo CDs are non-negotiable. C)Jumbo CDs are not eligible for FDIC insurance. D)All CDs issued by federally insured banks are eligible for FDIC coverage up to the coverage limit.

All CDs issued by federally insured banks are eligible for FDIC coverage up to the coverage limit.

Which of the following statements regarding collateralized mortgage obligations (CMOs) is correct? A)All tranches receive principal payments throughout the term. B)All tranches receive interest payments throughout the term. C)Tranches with shorter maturities are not subject to prepayment risk. D)Tranches with longer maturities are not subject to default risk.

All tranches receive interest payments throughout the term.

Convertible bonds typically have which of the following characteristics? A)Allow stockholders to convert their shares into bonds at a stated ratio. B)Allow bondholders to convert their bonds into shares at a stated ratio. C)Are more likely to be converted when a company's stock underperforms. D)Are likely to pay a higher yield than comparable non-convertible bonds.

Allow bondholders to convert their bonds into shares at a stated ratio.

A coupon bond pays interest semi-annually and has an ask price of 107%. If the last interest payment was made two months ago and the coupon rate is 9%, what will the full "dirty" price of the bond be? A)$1,070. B)$1,085. C)$1,100. D)$1,115.

B)$1,085.

Which of the following is a disadvantage of bonds for the issuing corporation? A)Interest paid by the issuing corporation on bonds is a deductible expense for the corporation for federal income tax purposes. B)Bonds (debt) can increase the return on equity through favorable leverage. C)Bonds typically require payment of both periodic interest and maturity value. D)Bonds impact shareholder control.

Bonds typically require payment of both periodic interest and maturity value.

Which of the following is correct concerning T-bills? A)Non-competitive bids determine the yield at any given auction. B)Competitive bids determine the yield at any given auction. C)Non-competitive bidders are not guaranteed to have their orders filled up to the auction maximum. D)Competitive bidders are guaranteed to have their orders filled up to the auction maximum.

Competitive bids determine the yield at any given auction.

In a low interest rate environment, which of the following bonds are most likely to be called? A)Zero-coupon bonds. B)Coupon bonds selling at a discount. C)Coupon bonds selling at a premium. D)Floating rate bonds.

Coupon bonds selling at a premium.

Which of the following is true about I bonds? A)I bonds can be used to pay for qualified education expenses. B)I bonds pay interest monthly. C)I bonds are taxed the same as TIPS. D)I bonds are issued at a discount.

I bonds can be used to pay for qualified education expenses.

Which of the following statements is true regarding U.S. Government Agency bonds? A)GNMA bonds have low default risk. B)Mortgage backed securities have low prepayment risk. C)Interest income and capital gains are exempt from state and local taxes. D)Interest income and principal payments from the GNMA bonds are made monthly.

Interest income and principal payments from the GNMA bonds are made monthly.

Which of the following are the 3 largest segments of the U.S. bond market? A)Municipal, corporate and Treasury B)Mortgage, corporate and Treasury C)Mortgage, corporate and Money Market D)Mortgage, Federal Agency and Treasury

Mortgage, corporate and Treasury

Which of the following is not included in money market funds? A)Repurchase agreements. B)Eurodollars. C)Real estate investment trusts. D)Money market mutual funds.

Real estate investment trusts.

Which of the following statements is not correct? A)Yields on bankers acceptances are typically higher than commercial paper since there is additional risk. B)Negotiable CDs are deposits of $100,000 or more and are tradeable in the secondary market. C)Commercial paper is not considered default risk free. D)Repurchase agreements typically have maturities equal to that of commercial paper.

Repurchase agreements typically have maturities equal to that of commercial paper.

Which of the following best describes the difference between a serial bond and a bond with a sinking fund? A)Serial bonds require the company to periodically set aside funds into a trust to redeem the bonds at maturity. B)Sinking fund bonds require the company to periodically redeem a portion of the bond prior to maturity. C)Serial bonds require the company to periodically redeem a portion of the bond prior to maturity. D)Serial bonds that pay a coupon are not subject to OID, while sinking fund bonds that pay a coupon are subject to OID.

Serial bonds require the company to periodically redeem a portion of the bond prior to maturity.

The price of a bond that a buyer would pay is equal to: A)The asked price plus accrued interest. B)The asked price less accrued interest. C)The bid price plus accrued interest. D)The bid price less accrued interest.

The asked price plus accrued interest.

The yield to maturity on a bond is: A)Lower than the coupon rate when the bond sells at a discount, and equal to the coupon rate when the bond sells at a premium. B)The discount rate that will establish the present value of the payments equal to the current bond price. C)Based on the assumption that payments received are reinvested at the coupon rate of return. D)Always equal to the coupon rate when the bond sells at a discount.

The discount rate that will establish the present value of the payments equal to the current bond price.

Which of the following is not correct about TIPS? A)TIPS are issued directly from the U.S. Treasury. B)The interest rate for TIPS changes based on inflation. C)TIPS can be purchased on a competitive or noncompetitive basis. D)With deflation, the interest payments will decrease for TIPS.

The interest rate for TIPS changes based on inflation.