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
Which of the following statements about call features found on securities such as preferred stock or bonds is CORRECT?
[A] Call features should not be a consideration as they do not impact the security's return.
[B] Call features are required on all long-
[C] -
Call features allow the issuing company to "call in" their securities prior to their specified maturity date. These features are beneficial to issuers because they allow the issuer to call securities if lower costs of borrowing (lower rates of inter
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
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]
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.
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] -
Bond prices and yields have an inverse relationship; as a bond's price increases its yield decreases. Conversely, as prices decrease, yields increase. When a bond is selling above its par value, this would mean that both the current yield and yield-
Zero Coupon Bonds are purchased primarily by investors who are looking for
[A] Interest income
[B] Income from dividends
[C] Accretion
[D] Capital accumulation
[D] -
Since all interest is paid at maturity with the principal payment, the investor would have capital accumulation.
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 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
A customer interested in call protection on a bond would not want to purchase which of the following?
[A] A discount bond callable at a premium.
[B] A deep discount bond callable at par.
[C] A premium bond callable at par.
[D] A discount bond callable at
Zero coupon bonds are frequently used to:
[A] amortize the cost of the bond
[B] provide a steady stream of dividend income
[C] provide a steady stream of interest income
[D] accumulate capital to fund a particular investment goal
[D] -
Zero coupon bonds do not make semi-annual interest payments, but instead are sold at a deep discount from their face value by the issuer. They are generally purchased by investors that do not need the semi-annual income and want to accumulate capita
The primary difference between yield to maturity (YTM) and the current yield (CY) on corporate bonds is:
[A] YTM uses coupon rate and CY does not.
[B] YTM uses time remaining until maturity. CY does not.
[C] CY uses time remaining until maturity. YTM does
The Trust Indenture Act of 1939 regulates corporate debt issues and requires the designation of a trustee. What duty does this trustee have?
[A] The trustee is charged with ensuring that the proper filing procedures take place with relation to the issue a
[C] -
The Trust Indenture Act of 1939 pertains to corporate debt issues and requires that each corporate debt issue has an indenture and a trustee. The trustee's main function is the representation of bondholders and ensuring the safeguarding of bondholde
A corporate bond is purchased at a discount. Which of the following would best state its future rate of return?
[A] current yield
[B] coupon rate
[C] basis or yield to maturity
[D] stated discount
[C] -
Of the choices offered, only preferred stock and bonds could be issued as convertible. Common stock is never issued as convertible. Certificates of Deposit are issued by banks, not by corporations and are never issued as convertible.
[D] -
All choices are correct regarding long term bonds.
A guaranteed bond is a bond in which?
[A] Principal and interest are always paid promptly.
[B] The payment of interest and principal of a subsidiary corporation is guaranteed by a parent corporation.
[C] There is absolutely no risk associated with the bon
[B] -
Guaranteed bonds are issued by a subsidiary corporation, but the parent corporation guarantees payment if the subsidiary is unable to meet their obligation.
A basis point on a bond is
[A] 1%
[B] 10%
[C] .01%
[D] .001%
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
General Motors Corporation 6 1/2's of '19 describe a bond with
[A] $65 annual interest with a quote of 190
[B] $65 annual interest maturing in 2019
[C] $650 annual interest maturing in 2019
[D] $6.50 annual interest with a quote of 190
[C] -
High quality debt generally has lower yields, because the investor forfeits yield in lieu of quality. With lower yields you also have higher prices.
When investors buy bonds of higher quality they "give-up" yield in order to get the safety they are