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| 1 | |
A "callable" bond is one that: |
| | A) | has a high degree of default risk. |
| | B) | will typically be categorized as a "junk" bond. |
| | C) | can be repurchased by the issuer, prior to maturity. |
| | D) | can be converted into shares of the issuer's stock. |
| | E) | has "warrants" attached to it. |
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| 2 | |
A significant feature of municipal bonds is that: |
| | A) | they typically do not pay coupon interest. |
| | B) | they typically pay extraordinarily high interest rates. |
| | C) | they must have maturities of at least 10 years. |
| | D) | they pay interest to investors which is exempt from Federal income tax. |
| | E) | they must have maturities no greater than 5 years. |
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| 3 | |
Which of the following items make coupon interest payments? |
| | A) | U.S. Treasury bills |
| | B) | U.S. Treasury notes |
| | C) | U.S. Treasury bonds |
| | D) | all of the above |
| | E) | (b) and (c) |
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| 4 | |
Using Standard & Poor's ratings scheme, so-called "junk bonds" would be those with ratings of: |
| | A) | "BBB" or above |
| | B) | below "BBB" |
| | C) | "AA" or above |
| | D) | below "AAA" |
| | E) | "B" or above |
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| 5 | |
Consider a "STRIPS" security, having a face amount of $100,000 and 9 years to maturity. If its yield to maturity is 3.00%, what is its price? (Assume "semiannual" compounding, and answer to the nearest dollar.) |
| | A) | $ 76,790 |
| | B) | $ 79,370 |
| | C) | $130,734 |
| | D) | $114,339 |
| | E) | $ 76,491 |
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| 6 | |
_______________ is an unsecured bond, and one that's in a lower-priority position relative to other unsecured bonds issued by the same company. |
| | A) | A bearer bond |
| | B) | A convertible bond |
| | C) | An indenture |
| | D) | A subordinated debenture |
| | E) | A junk bond |
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| 7 | |
A group of investment banks is selling the new bonds of Protech Corp, but the bankers are not promising Protech a set dollar amount from the offering. From this, we know that this is a/an: |
| | A) | sinking fund bond |
| | B) | best efforts offering |
| | C) | general obligation bond |
| | D) | firm commitment underwriting. |
| | E) | private placement |
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| 8 | |
Municipal bonds are being issued by Sun City. The bond carries a coupon interest rate of 4.50%, sells at par, and has 15 years to maturity. What is the "taxable equivalent" interest rate on the Sun City bonds, if the investor's tax rate is 35%? |
| | A) | 4.50% |
| | B) | 5.29% |
| | C) | 6.92% |
| | D) | 2.93% |
| | E) | 12.86% |
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| 9 | |
A U.S. Treasury STRIP is currently showing an "asked" price of 72.25% of face value. It has exactly 7 years until maturity. What is its yield to maturity? (Nearest hundredth of a percent) |
| | A) | 2.35% |
| | B) | 4.80% |
| | C) | 3.96% |
| | D) | 4.70% |
| | E) | 5.49% |
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| 10 | |
When an investor buys a coupon-paying bond, and the purchase takes place between coupon payment times: |
| | A) | The bond's seller loses some interest that he/she had actually earned. |
| | B) | The upcoming coupon payment will be skipped. |
| | C) | The buyer must compensate the seller for accrued interest. |
| | D) | The seller must give up the most recent, or preceding, coupon payment. |
| | E) | (a) and (b) |
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| 11 | |
A/an__________________ is issued with a number of different maturity dates. A portion of the overall issue is scheduled to be repaid on each maturity date. |
| | A) | serial bond |
| | B) | indenture |
| | C) | debenture |
| | D) | convertible bond |
| | E) | term bond |
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| 12 | |
The ___________________ is the contract between the bond issuer and the bond investor |
| | A) | subordination agreement |
| | B) | indenture |
| | C) | registration statement |
| | D) | private placement |
| | E) | debenture |
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| 13 | |
A "revenue bond" is a: |
| | A) | corporate bond, designed to help the corporation in times of poor revenue generation. |
| | B) | U.S. Treasury security, designed to raise funds in times of dwindling tax revenues. |
| | C) | municipal bond, to be paid off with funds from general tax revenues. |
| | D) | "non-investment grade" bond. |
| | E) | municipal bond, to be paid off by cash generated from a particular project. |
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| 14 | |
As part of the auction process for U.S. Treasurys, some large purchasers will submit a quantity they want to buy, and a specific price they are willing to pay. But they may or may not actually receive any Treasurys. This happens: |
| | A) | only for purchases of STRIPs. |
| | B) | in the non-competitive part of the auction. |
| | C) | only when the Federal Reserve is buying the securities |
| | D) | in the competitive part of the auction. |
| | E) | in the municipal part of the auction. |
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| 15 | |
Consider the following Treasury bond data. (The data display is similar to that appearing in Table 6-1 of the text.) Coupon | Maturity | Bid | Asked | Asked yield | 4.75 | Nov 08 | 109:20 | 109:21 | 2.90 |
If an investor held $10,000 face value of this bond, what is the current asking price of the bond? (Nearest dollar) |
| | A) | $10,920 |
| | B) | $10,921 |
| | C) | $ 9,710 |
| | D) | $10,855 |
| | E) | $10,966 |
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| 16 | |
Equity securities and debt securities with more than one year to maturity trade in the: |
| | A) | Treasury market |
| | B) | capital market |
| | C) | municipal market |
| | D) | money market |
| | E) | private placement market |
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| 17 | |
Inflation-indexed bonds, issued by the U.S. Treasury, are called: |
| | A) | IOs |
| | B) | TIPS |
| | C) | T-bills |
| | D) | T-notes |
| | E) | T-indices |
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| 18 | |
A/an _______________________ is a long-term bond issued and sold outside the country in which it is denominated. |
| | A) | Brady bond |
| | B) | sovereign bond |
| | C) | Eurobond |
| | D) | primary market bond |
| | E) | multi-currency bond |
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| 19 | |
A bond issue sold with a/an __________________ will require the issuer to make payments to the bond's trustee over time. The resulting cash proceeds will be used to retire the bonds. |
| | A) | sinking fund provision |
| | B) | indenture |
| | C) | TIPS provisions |
| | D) | put provision |
| | E) | stock warrant |
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| 20 | |
A ________________ permits the investor to exchange the bond for shares of the issuing firm's common stock. |
| | A) | debenture |
| | B) | sinking fund bond |
| | C) | serial bond |
| | D) | convertible bond |
| | E) | revenue bond |
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