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Multiple Choice Quiz
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1

Which of the following is correct? A zero coupon bond _________________.
A)typically pays coupons only during the first five years
B)sells for a price that is greater than the face value
C)has no interest payments and is thus non-taxable until maturity
D)is also known as a deep discount bond
E)provides no cash flow to the holder at maturity
2

Your neighbor is bragging that the coupon payment on the bonds he bought five years ago have increased in each of the last three years. You know he must own
A)a zero coupon bond
B)a LYON
C)a convertible bond
D)a put bond
E)a floating rate bond
3

You want to own equity in a Russian oil firm, but the firm does not have traded stock. If it had ___________ outstanding you could purchase them and then trade them in for shares of stock.
A)convertible bonds
B)put bonds
C)debentures
D)zero coupon bonds
E)subordinated debentures
4

A firm intends to take on a significant amount of new debt in order to fund the purchase of a close competitor. However the firm cannot complete the transaction unless it first calls one of its outstanding bond issues. It must be true that the called bonds
A)are backed by the corporation's fixed assets
B)have a higher interest rate than the new bonds will
C)have an inferior tax status than the new bonds will
D)can be called at a price that is very near par
E)have covenants which restrict such increase in debt
5

________ is an unsecured obligation of the issuing company.
A)A indenture
B)A debenture
C)A covenant
D)The deed of trust
E)Dedicated capital
6

__________ included in the bond indenture to protect bondholders from certain actions by the company.
A)Indentures are
B)Debentures are
C)Covenants are
D)Articles of incorporation are
E)A description of dedicated capital is
7

________________ is an account into which periodic payments are made for the purpose of retiring a bond issue.
A)An indenture
B)A debenture
C)A covenant
D)A call option
E)A sinking fund
8

__________ is the legal document that describes the mortgage on real property that acts as security on a bond issue.
A)A specific performance contract
B)A debenture
C)A restrictive covenant
D)A trust deed
E)An indenture
9

Which of the following risks do debt ratings specifically attempt to assess?
I. Interest rate risk
II. Default risk
III. The risk of a call being made
A)I only
B)II only
C)I and II only
D)II and III only
E)I, II, and III
10

Which of the following is NOT a duty of a trust company appointed when bonds are issued?
A)Make sure terms of the indenture are obeyed
B)Manage the sinking fund
C)Decide when the bonds should be called
D)Monitor the protective covenants for the bondholders
E)Represent the bondholders in default





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