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| 1 | |
Bond ratings issued by Moody's and Standard & Poor's specifically account for default risk. |
| | A) | True |
| | B) | False |
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| 2 | |
An upward sloping yield curve reflects investors' desire for compensation for interest rate risk. |
| | A) | True |
| | B) | False |
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| 3 | |
A bond with a face value of $1,000 has annual coupon payments of $100 and was issued 7 years ago. The bond currently sells for $1,000 and has 8 years left to maturity. This bond's _____ must be 10 percent.
I. yield to maturity
II. current yield
III. coupon rate |
| | A) | I only |
| | B) | I and II only |
| | C) | III only |
| | D) | II and III only |
| | E) | I, II, and III |
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| 4 | |
An unsecured bond, for which no specific pledge of property is made, is called a: |
| | A) | collateral bond. |
| | B) | debenture. |
| | C) | mortgage bond. |
| | D) | registered bond. |
| | E) | bearer bond. |
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| 5 | |
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) | preferred equity traded security (PETS). |
| | C) | convertible bond. |
| | D) | put bond. |
| | E) | floating-rate bond. |
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| 6 | |
Which of the following risks do debt ratings specifically attempt to assess?
I. interest rate
II. Default
III. call |
| | A) | I only |
| | B) | II only |
| | C) | I and II only |
| | D) | II and III only |
| | E) | I, II, and III |
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| 7 | |
_____ is the highest rating given by Moody's that is NOT considered investment grade. |
| | A) | A |
| | B) | Baa |
| | C) | BB |
| | D) | Ba |
| | E) | Caa |
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| 8 | |
As a corporate treasurer, you manage a $100 million bond portfolio. Economists suggest (and you believe) that market interest rates are headed up over the next several months. To reduce interest rate risk you should attempt to:
I. reduce the average maturity of the portfolio by selling long-term bonds and buying short-term bonds.
II. lengthen the average maturity of the portfolio by buying long-term bonds and selling short-term bonds.
III. reduce the average coupon rate by selling high-coupon bonds and buying low-coupon bonds.
IV. increase the average coupon rate by buying high-coupon bonds and selling low-coupon bonds. |
| | A) | I only |
| | B) | I and III only |
| | C) | I and IV only |
| | D) | II and IV only |
| | E) | II and III only |
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| 9 | |
Returns that have not been adjusted for inflation are called: |
| | A) | nominal returns. |
| | B) | average returns. |
| | C) | taxable returns. |
| | D) | percentage returns. |
| | E) | real returns. |
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| 10 | |
Which one of the following is true? |
| | A) | If the rate of inflation is expected to decline by a small amount, there cannot be an upward-sloping term structure of interest rates. |
| | B) | Investors demand an extra yield on a nontaxable bond as compensation for the unfavorable tax treatment. |
| | C) | The compensation investors demand for bearing interest rate risk adds a downward slope to the term structure of interest rates. |
| | D) | The compensation investors demand for buying bonds that don't trade very often is called a default premium. |
| | E) | A bond's yield is typically calculated assuming that all of the promised coupon and principal payments will be made. |
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