One of your clients wants to free up some capital and decides to sell a municipal bond out of their portfolio. The bond last paid interest a couple of months ago and will not pay interest again for a few months. In this situation, who pays the accrued int
A
An Open-end Mortgage Bond issued by a corporation is one in which the property used to secure the bonds:
[A] Cannot be used to secure a later loan unless the later loan is lesser in claim.
[B] Can be used to secure additional debt as long as the additiona
C
Which of the following describe a Junk Bond?
I. They are also called High Yield Bonds.
II. They have ratings of BB or lower or are not rated
III. They offer yields which are higher than Investment Grade Bonds.
IV.They offer yields which are lower than Inv
I,II,III
Which of the following are CORRECT statements in relation to sinking fund provisions included in corporate bond indentures?
I. Such provisions require mandatory retirement of debt by the issuer.
II. Such provisions allow the voluntary retirement of debt b
I & IV
If interest rates are declining, which of the following would be expected?
[A]Discount bonds will appreciate more than premium bonds.
[B] Premium bonds will appreciate more than discount bonds.
[C] All bonds will depreciate equally.
[D] All bonds will app
A
All of the following are correct regarding corporate convertible bonds EXCEPT:
[A] Nominal yields on convertible bonds are normally lower than non-convertibles of the same quality.
[B] Market prices of convertible bonds fluctuate more than non-convertible
[C] Lowering the conversion price of a convertible bond would cause the number of shares the bond converts into to be lower.
If a corporation is in liquidation, the holder of a subordinated debenture would be paid at what time?
[A] Before bank loans and before accounts payable.
[B] Before bank loans and after accounts payable.
[C] After bank loans and before accounts payable.
[
[D] After bank loans and after accounts payable.
Concerning the taxation of Collateralized Mortgage Obligations (CMO's), which of the following decreases the yield of the bond?
[A] The return is tax exempt
[B] The return is taxable by the Federal Government only.
[C] The return is taxable by state gover
[D] The return is taxable at the Federal, state, and local levels.
A term used to describe a Junk Bond (credit rating of BB or lower) would be a:
[A] high-yield bond
[B] investment grade bond
[C] low-yield bond
[D] high grade bond
[A] high-yield bond
What is the current yield on a corporate bond trading at 103 with a 7% coupon?
[A] 6.3%
[B] 6.5%
[C] 6.8%
[D] 7.0%
[C] 6.8%
ABC Corporation wants to issue $20,000,000 of debentures each of which would be convertible in 20 shares of common stock. How many common shares are issued if all the debentures are converted?
[A] 100,000
[B] 200,000
[C] 400,000
[D] 600,000
C 400,000
$20,000,000 worth of bonds divided by par of $1,000 = 20,000 bonds
20,000 bonds X 20 shares per bond = 400,000 common shares issued
Which of the following amounts is typically paid to the holder of a normal corporate bond at maturity?
[A] The market price of the bond at the time of purchase
[B] All interest payments
[C] The par or face value that is printed on the bond
[D] No amount i
[C] The par or face value that is printed on the bond
A bank has a large loan outstanding to a new car dealer and becomes concerned about the dealer's ability to repay the loan in full on time. To hedge this default risk, the bank decides to "insure" this risk by entering into a credit default swap agreement
[D] The bank cannot profit from this transaction, but can only be reimbursed for its loss on the default
Which of the following statements are true regarding equipment trust certificates?
I. Default is common due to financial problems.
II. They are normally serial issues.
III. They are most often issued by transportation companies.
IV. They are secured by sp
II, III, IV
Long term bonds differ from short term bonds of the same issuer in which of the following ways?
I.Usually provide a greater return than short term bonds
II.Dollar value is more affected by interest rate fluctuations
III.More often callable
IV.Long term bo
ALL
Which of the following most frequently issue Equipment Trust Certificates?
[A] High tech companies.
[B] Aircraft construction companies.
[C] Utility companies.
[D] Transportation companies.
D
A bond's par value represents the bond's
[A] market price and guaranteed payout on the bond.
[B] face value and the amount of principal that the issuer is expected to repay at maturity of the bond.
[C] value as a sum of all interest payments that will be
C
Which best describes municipal bonds priced at par?
[A] All coupons yield the same return.
[B] Bonds will be issued with a face value of $100.
[C] Coupon rate for any given year equals the yield to maturity.
[D] Bonds are offered net of accrued interest.
C
CMOs can be collateralized by which of the following?
I.Fannie Maes
II.Ginnie Maes
III.Freddie Macs
IV.Sally Maes
I,II,III
Which of the following is the implied credit rating on a Collateralized Mortgage Obligation (CMO)
[A] AAA
[B] AA
[C] AA+
[D] A
A
An XYZ Corporation Debenture pays annual interest to its bondholders. The interest is taxable to the bondholders as
[A] ordinary income subject to federal and state taxes.
[B] a long-term capital gain.
[C] ordinary income subject to federal tax only.
[D]
A
Zero coupon bonds would be most suitable for an investor seeking which one of the following?
[A] Tax free interest.
[B] Dividend income.
[C] Accumulation of capital.
[D] Semi-annual interest income.
C
A basis point equals:
[A] 1/1000 of 1%
[B] 1/100 of 1%
[C] 1/10 of 1%
[D] 1%
B 1/100 OF 1%
A corporate bond called at 108 1/8 would pay the bondholder:
[A] $1,084.50
[B] $1,081.25 plus accrued interest
[C] $1,081.25 minus accrued interest
[D] $1,000 plus accrued interest of $1.25
[B] $1,081.25 plus accrued interest
Which of the following would represent a quote for a railroad bond?
[A] 106 1/2
[B] 106 16/32
[C] 106.50
[D] 106.16
[A] 106 1/2
If a bond is selling at a premium,
I. It has a coupon rate lower than the current yield.
II. The face value is lower than the market price.
III. It is of higher quality than another bond selling at a discount.
II. The face value is lower than the market price.
If an investor is primarily seeking capital gains, when would be the best time to buy bonds?
[A] When the interest rates are stable and are expected to remain stable.
[B] When interest rates are low and are expected to rise.
[C] When bond prices are low a
[D] When interest rates are high and are expected to drop.
The following bond offerings have identical maturity dates. Which results in the higher dollar purchase cost to the investor?
[A] 4 7/8% coupon offered on a 5.20 basis
[B] 5 1/4% coupon offered on a 5.00 basis
[C] 5 1/2% coupon offered on a 5.50 basis
[D]
B] 5 1/4% coupon offered on a 5.00 basis
Which of the following is true regarding "bearer bonds"?
[A] A check will be sent in payment of interest.
[B] The security of the bond is greatly affected by a "bear" market.
[C] Demonstration of ownership is required for redemption.
[D] Coupons will be a
D Coupons will be attached to the bonds.
An investor wishing to "lock-in" interest payments for the next several years would be best advised to purchase:
[A] a debt issue with a high call premium
[B] bonds trading at a high premium
[C] zero coupon bonds
[D] non-callable bonds
[D] non-callable bonds
Mr. Jones purchased $10,000 par value of 8% bonds to yield 5%. On the normal interest payment date, he will receive:
[A] $250
[B] $400
[C] $500
[D] $800
[B] $400
"Normal" interest payment date is semi-annual and based on the coupon rate not yield, therefore:
$10,000 x .08 = $800 (annual interest)
$800 / 2 = $400 (semi annual payment)
If a bond has a Coupon Rate of 7% and a Basis of 6%, the bond is trading at a:
[A] Premium
[B] Discount
[C] Parity
[D] Disparity
[A] Premium
One of your clients purchases a callable corporate bond. The bond is callable at 106.55. What will the customer receive if the corporation calls the bonds and the customer tenders them back to the corporation?
[A] The customer will receive $1,065.50 for t
[B] The customer will receive $1,065.50 for the bond and accrued interest up to the call date will be added to that figure.
If the basis price of a bond is 5.25% and the coupon rate 4.75%, the bond is selling
[A] At par
[B] Below par
[C] Above par
[D] Cannot determine
[B] Below par
All the following are characteristics of the swaps market EXCEPT:
[A] The agreements are standardized so that they may easily be traded.
[B] The agreements are used for hedging risks and for speculating.
[C] There is a wide variety of swaps agreements.
[D
[A] The agreements are standardized so that they may easily be traded.
Which of the following are true of a fully registered bond?
I.The owner's name is on the certificate.
II.The coupons remain with the bond.
III.The bond must be signed by all joint owners in order to be negotiable.
I & III
The two issuance formats used when Corporate Bonds are issued, are Serial Form and Series Form. In describing Series Form, the issue would have
I.Different issuance dates
II.The same issuance date
III.Different maturity dates
IV.The same maturity date
[B] I and IV
A bond issued as Series Form, would have different issuance dates and the same maturity date.
A customer purchases $20,000 XYZ Corporation 8% bonds for $18,700 and pays $350 in accrued interest. What is the customer's cost basis for the bonds?
[A] $18,250
[B] $18,700
[C] $19,050
[D] $20,000
B
Which of the following bond offerings would be required to have a trust indenture under the Trust Indenture Act of 1939?
[A] U.S. Treasury Bond
[B] airport authority revenue bond
[C] general obligation bond
[D] mortgage bond
D
Which of the following factors is the LEAST important in analyzing the investment quality of a mortgage bond?
[A] The collateral held by the trustee bank
[B] The current phase of the economic cycle
[C] The trustee bank holding the title to the collateral
C
What TWO effects would a decline in interest rates have on a CMO?
I.Increase the market price
II.Decrease the market price
III.Shorten the average life
IV.Lengthen the average life
I & III
An investor purchases the following bonds, all at a premium above par value:
-XYZ 5% non-callable bonds maturing in 15 years
-XYZ 5.10% non-callable bonds maturing in 20 years
-XYZ 5.25% non-callable bonds maturing in 25 years
Several months after these b
[B] The 25-year bonds will be affected the most.
One of your customers owns 20 XYZ 6% debentures in their portfolio. The XYZ debentures are convertible with a conversion price of $25. The market value of the bonds is 105, and the common stock is currently trading at $29.50 per share. In this situation,
[B] The conversion of the debentures into common and the subsequent sale of the common at its current market price would be best for the client.
List the yields from lowest to highest, if a corporate bond is trading at a premium.
Nominal Yield
Current Yield
Basis
BASIS
CURRENT YIELD
NOMINAL YIELD
In a regular way delivery of municipal bonds, accrued interest is computed
[A] Up to and including the trade date.
[B] Up to and including the settlement date.
[C] Up to but not including the trade date.
[D] Up to but not including the settlement date.
[D] Up to but not including the settlement date.
On a fully registered bond, a customer would receive his interest in what manner?
[A] By sending in one of the coupons attached to the bond.
[B] By check mailed to him semi-annually.
[C] By presenting the bond to the paying agent.
[D] By check mailed to h
[B] By check mailed to him semi-annually.
Assuming investments of similar quality and coupons, which would be most appropriate for an investor who is anticipating a decline in interest rates over the next 15 years?
I. anticipation notes.
II.Noncallable 15-year bonds.
III.30-year bond putable in 1
II & III
If a bond has a Coupon Rate of 8% and a Basis of 7%, the bond is trading at a?
[A] Premium
[B] Discount
[C] Parity
[D] Premium above parity price
[A] Premium
ABC Corporation has little or no track record of sales and earnings and wants to raise capital by issuing debt securities. The corporation would most likely issue securities that would be called:
[A] Debentures
[B] Preferred Stock
[C] Junk Bonds
[D] Subor
[C] Junk Bonds
When a conversion takes place, what occurs?
[A] Existing bonds are traded into the issuer for new bonds.
[B] The issuer performs a second issue of bonds to retire an existing issue with the proceeds.
[C] The issuer uses excess cash on hand to retire bonds
[D] Existing bonds are tendered to the issuer for equity securities, most frequently common stock.
During a discussion with a client, the client indicates that he feels that interest rates are going to be going down soon. If the client wishes to invest according to this assumption, which of the following recommendations should the registered representa
[C] II and III
The SEC has exclusive jurisdiction over market participants in the swaps market which includes all of the following except:
[A] Dealers who are registered securities swaps market makers
[B] Major securities swaps players such as banks and hedge funds
[C]
[D] Dealers who trade mixed swaps that have a commodity component
Which two of the following would occur when interest rates change? Bond prices
I.Decline when interest rates decline
II.Rise when interest rates decline
III.Decline when interest rates rise
IV.Rise when interest rates rise
[A] I and II
[B] I and III
[C] I
[C] II and III
An investor buys two bonds, a 7.5% bond and a 8.5% bond maturing in 2020 at a 6.00 basis. The price of both of the bond moves to 90.5. Which bond will appreciate most in the price?
[A] The 7.5% bond
[B] The 8.5% bond
[C] Both will appreciate by the same a
[D] Neither, the market price decreased
Mr. Smith, your client, has maintained about 80% of his portfolio in fixed income securities. Interest rates are expected to decline over the next 12 month period. Mr. Smith calls you because he is concerned about this prediction and his portfolio. Which
[B] Leave his portfolio the way it is now
A corporation may issue refund bonds to accomplish any of the following EXCEPT:
[A] To increase the capitalization of the company
[B] To retire an existing bond issue
[C] To reduce its interest costs
[D] To take advantage of a substantial drop in interest
[A] To increase the capitalization of the company
The ABC Bank buys bonds issued by the XYZ Construction Company. ABC Bank wants to hedge its counterparty risk with XYZ and buys a credit default swap contact (CDS) from DEF Insurance Company. Under the terms of a typical CDS contract, all of the following
[C] XYZ will make periodic payments to DEF until the maturity of the contract
All of the following are true of Security Based Swaps EXCEPT:
[A] They are derivative contracts.
[B] They trade OTC.
[C] They are unregulated.
[D] Credit Default Swaps are a popular example of Security Based Swaps.
[C] They are unregulated.
A conservative investor with a need for income tells his registered representative that he understands that both bonds and preferred stock are considered to be fixed income securities, but he doesn't understand the difference between the two investments.
[D] Both bondholders and preferred shareholders have a right to vote
When part of a Term Bond issue is called based on a Sinking Fund provision, how is the selection normally made?
[A] Lowest coupon.
[B] Randomly.
[C] In order of descending serial numbers.
[D] In order of ascending serial numbers.
[B] Randomly.
All of the following are true of a corporate bond with a call feature EXCEPT:
[A] Interest payments cease after the bond is called.
[B] It limits the upside potential on the bond.
[C] If the bond has a call premium, it normally declines in later years.
[D
[D] The bond will be sold for a higher price because of the call feature
Mr. C. Nate purchases a 15% corporate bond at par and, at that time, pays $60 in accrued interest. The bond pays interest annually. How much of the first annual interest payment will Mr. Nate report for tax purposes?
[A] $150
[B] $90
[C] $60
[D] $0
[B] $90
Mr. Nate paid $60 in accrued and received $150. The net amount Mr. Nate received is $90. This is the amount he will report for tax purposes.
When comparing low quality bonds to higher quality bonds, the low quality bonds would have:
I.Lower yields
II.Higher prices
III.Lower prices
IV.Higher yields
[A] I and II
[B] I and III
[C] II and IV
[D] III and IV
[D] III and IV
Lower quality bonds would have to offer a higher yield and lower prices to attract buyers.
A large corporation has a substantial amount of convertible bonds outstanding. The bonds are callable at a slight premium over par ($102) and the conversion price of the bonds is $25. Common stock for the corporation is currently trading at $28 per share.
[C] The corporation should simply call in the outstanding bonds.
Which of the following are correct with regard to the Current Yield and Coupon Rate on a bond?
I.The current yield of a bond is set for the life of the bond.
II.The coupon rate of a bond fluctuates depending on the price of the bond.
III.The current yield
[D] III and IV
Which of the following bonds currently trading at an 8% basis would most likely be refunded?
[A] 5 1/2% of 2020, callable at 100.
[B] 8 1/2% of 2030, callable at 100.
[C] 8% of 2030, callable at 103.
[D] 6 1/2% of 2020, callable at 103.
[B] 8 1/2% of 2030, callable at 100.
Which of the following statements is TRUE about agency CMOs v. private CMOs?
[A] Private CMOs can contain agency CMOs in their portfolios.
[B] Private CMOs are not covered by rating agencies.
[C] Agency CMOs can be issued by corporations such as banking c
[A] Private CMOs can contain agency CMOs in their portfolios.
Of the securities listed below, which one is subject to Federal, State, and local tax?
[A] Treasury Notes
[B] Equipment Trust Certificates
[C] Federal Farm Credit notes
[D] Federal Land Bank Bonds
[B] Equipment Trust Certificates
What TWO effects would a decline in interest rates have on a CMO?
I.Increase the market price
II.Decrease the market price
III.Shorten the average life
IV.Lengthen the average life
[A] I and III
[B] II and IV
[C] I and IV
[D] II and III
[A] I and III
Which of the following would NOT be related to equity securities that a corporation would distribute?
[A] Preferred stock
[B] Subordinated debentures
[C] Pre-emptive rights
[D] Subscription warrants
[B] Subordinated debentures