Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?
a. coupon
b. face value
c. discount
d. call premium
e. yield
a. coupon
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called?
a. coupon
b. face value
c. discount
d. yield
e. dirty price
b. face value
A bond's coupon rate is equal to the annual interest divided by which one of the following?
a. call price
b. current price
c. face value
d. clean price
e. dirty price
c. face value
The specified date on which the principal amount of a bond is payable is referred to as
which one of the following?
a. coupon date
b. yield date
c. maturity
d. dirty date
e. clean date
c. maturity
Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued
by Winston Industries. The 11.6 percent is referred to as which one of the following?
a. coupon rate
b. face rate
c. call rate
d. yield to maturity
e. interest rate
d. yield to maturity
The current yield is defined as the annual interest on a bond divided by which one of the
following?
a. coupon
b. face value
c. market price
d. call price
e. dirty price
c. market value
An indenture is:
a. another name for a bond's coupon.
b. the written record of all the holders of a bond issue.
c. a bond that is past its maturity date but has yet to be repaid.
d. a bond that is secured by the inventory held by the bond's issuer.
e. the
e. the legal agreement between the bond issuer and the bondholders.
Atlas Entertainment has 15-year bonds outstanding. The interest payments on these
bonds are sent directly to each of the individual bondholders. These direct payments are a clear
indication that the bonds can accurately be defined as being issued:
a. at p
b. in registered form
A bond that is payable to whomever has physical possession of the bond is said to be in:
a. new-issue condition.
b. registered form.
c. bearer form.
d. debenture status.
e. collateral status.
c. bearer form
The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These
bonds fit the definition of which one of the following terms?
a. note
b. discounted
c. zero-coupon
d. callable
e. debenture
e. debenture
Which of the following defines a note?
I. secured
II. unsecured
III. maturity less than 10 years
IV. maturity in excess of 10 years
II and III only
A sinking fund is managed by a trustee for which one of the following purposes?
a. paying interest payments
b. early bond redemption
c. converting bonds into equity securities
d. paying preferred dividends
b. early bond redemption
A bond that can be paid off early at the issuer's discretion is referred to as being which
one of the following?
a. zero coupon
b. callable
c. senior
d. collateralized
e. unsecured
b. callable
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030,
plus any accrued interest. The additional $30 is called which one of the following?
a. dirty price
b. redemption value
c. call premium
d. original-issue discount
e. rede
c. call premium
A deferred call provision is which one of the following?
a. requirement that a bond issuer pay the current market price, plus accrued
interest, should the firm decide to call a bond
b. ability of a bond issuer to delay repaying a bond until after the matu
d. prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
A call-protected bond is a bond that:
a. is guaranteed to be called.
b. can never be called.
c. is currently being called.
d. is callable at any time.
e. cannot be called during a certain period of time.
e. cannot be called during certain period of time
The items included in an indenture that limit certain actions of the issuer in order to protect
bondholder's interests are referred to as the:
a. trustee relationships.
b. bylaws.
c. legal bounds.
d. "plain vanilla" conditions.
e. protective covenants.
e. protective covenants
A bond that has only one payment, which occurs at maturity, defines which one of the
following?
a. debenture
b. callable
c. floating-rate
d. junk
e. zero coupon
e. zero coupon
Which one of the following is the price a dealer will pay to purchase a bond?
a. call price
b. asked price
c. bid price
d. bid-ask spread
e. par value
c. bid price
You want to buy a bond from a dealer. Which one of the following prices will you pay?
a. call price
b. auction price
c. bid price
d. asked price
e. bid-ask spread
d. asked price
The difference between the price that a dealer is willing to pay and the price at which he
or she will sell is called the:
a. equilibrium.
b. premium.
c. discount.
d. call price.
e. spread.
e. spread
A bond is quoted at a price of $989. This price is referred to as which one of the following?
a. call price
b. face value
c. clean price
d. dirty price
e. wholesale price
c. clean price
Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the:
a. quoted price.
b. spread price.
c. clean price.
d. dirty price.
e. call price.
d. dirty price
Real rates are defined as nominal rates that have been adjusted for which of the following?
a. inflation
b. default risk
c. accrued interest
d. interest rate risk
e. both inflation and interest rate risk
a. inflation
Interest rates that include an inflation premium are referred to as:
a. annual percentage rates.
b. stripped rates.
c. effective annual rates.
d. real rates.
e. nominal rates.
e. nominal rates
The Fisher effect is defined as the relationship between which of the following variables?
a. default risk premium, inflation risk premium, and real rates
b. nominal rates, real rates, and interest rate risk premium
c. interest rate risk premium, real rat
d. real rates, inflation rates, and nominal rates
The pure time value of money is known as the:
a. liquidity effect.
b. Fisher effect.
c. term structure of interest rates.
d. inflation factor.
e. interest rate factor.
c. term structure of interest rates
Which one of the following premiums is compensation for expected future inflation?
a. default risk
b. taxability
c. liquidity
d. inflation
e. interest rate risk
d. inflation
The interest rate risk premium is the:
a. additional compensation paid to investors to offset rising prices.
b. compensation investors demand for accepting interest rate risk.
c .difference between the yield to maturity and the current yield.
d. differenc
b. compensation investors demand for accepting interest rate risk.
A Treasury yield curve plots Treasury interest rates relative to which one of the following?
a. market rates
b.comparable corporate bond rates
c.the risk-free rate
d. inflation
e. maturity
e. maturity
A Treasury yield curve plots Treasury interest rates relative to which one of the following?
a. market rates
b. comparable corporate bond rates
c. the risk-free rate
d. inflation
e. maturity
e. maturity
Which one of the following risk premiums compensates for the possibility of nonpayment
by the bond issuer?
a. default risk
b. taxability
c. liquidity
d. inflation
e. interest rate risk
a. default risk
The liquidity premium is compensation to investors for:
a. purchasing a bond in the secondary market.
b. the lack of an active market wherein a bond can be sold for its actual value.
c. acquiring a bond with an unfavorable tax status.
d. redeeming a bond
b. the lack of an active market wherein a bond can be sold for its actual value
An 8 percent corporate bond that pays interest semi-annually was issued last year. Which
two of the following most likely apply to this bond today if the current yield-to-maturity is 7 percent?
I. a structure as an interest-only loan
II. a current yield t
I and IV only
A bond has a market price that exceeds its face value. Which of the following features
currently apply to this bond?
I. discounted price
II. premium price
III. yield-to-maturity that exceeds the coupon rate
IV. yield-to-maturity that is less than the coup
II and IV only
All else constant, a bond will sell at _____ when the coupon rate is _____ the yield to
maturity.
a. a premium; less than
b. a premium; equal to
c. a discount; less than
d. a discount; higher than
e. par; less than
c. a discount; less than
The Walthers Company has a semi-annual coupon bond outstanding. An increase in the
market rate of interest will have which one of the following effects on this bond?
a. increase the coupon rate
b. decrease the coupon rate
c. increase the market price
d. d
d. decrease the market price
Which of the following are characteristics of a premium bond?
I. coupon rate < yield-to-maturity
II. coupon rate > yield-to-maturity
III. coupon rate < current yield
IV. coupon rate > current yield
II and IV only
Which of the following relationships apply to a par value bond?
I. coupon rate < yield-to-maturity
II. current yield = yield-to-maturity
III. market price = call price
IV. market price = face value
II and IV only
Which one of the following relationships is stated correctly?
a. The coupon rate exceeds the current yield when a bond sells at a discount.
b. The call price must equal the par value.
c. An increase in market rates increases the market price of a bond.
d.
d. Decreasing the time to maturity increases the price of a discount bond, all else constant.
Green Roof Inns is preparing a bond offering with a 6 percent, semiannual coupon and a
face value of $1,000. The bonds will be repaid in 10 years and will be sold at par. Given this, which
one of the following statements is correct?
a. The bonds will beco
c. The bonds will sell at a premium if the market rate is 5.5 percent.
A newly issued bond has a 7 percent coupon with semiannual interest payments. The
bonds are currently priced at par value. The effective annual rate provided by these bonds must be:
A. 3.5 percent.
b. greater than 3.5 percent but less than 7 percent.
c. 7
d. greater than 7 percent
Which of the following increase the price sensitivity of a bond to changes in interest rates?
I. increase in time to maturity
II. decrease in time to maturity
III. increase in coupon rate
IV. decrease in coupon rate
I and IV only
Which one of the following bonds is the least sensitive to interest rate risk?
a. 3-year; 4 percent coupon
b.3-year; 6 percent coupon
c. 5-year; 6 percent coupon
d. 7-year; 6 percent coupon
e. 7-year; 4 percent coupon
b. 3 year; 6 percent coupon
As a bond's time to maturity increases, the bond's sensitivity to interest rate risk:
a. increases at an increasing rate.
b.increases at a decreasing rate.
c. increases at a constant rate.
d. decreases at an increasing rate.
e. decreases at a decreasing r
b. increases at a decreasing rate
You own a bond that has a 6 percent annual coupon and matures 5 years from now. You
purchased this 10-year bond at par value when it was originally issued. Which one of the following
statements applies to this bond if the relevant market interest rate is
e. You will realize a capital gain on the bond if you sell it today.
You expect interest rates to decline in the near future even though the bond market is not
indicating any sign of this change. Which one of the following bonds should you purchase now to
maximize your gains if the rate decline does occur?
a. short-term; l
c. long-term. zero coupon
A 6 percent, annual coupon bond is currently selling at a premium and matures in 7 years.
The bond was originally issued 3 years ago at par. Which one of the following statements is accurate
in respect to this bond today?
a. The face value of the bond tod
c. The yield-to-maturity is less than the coupon rate.
Which of the following statements concerning bonds are correct?
I. Bonds provide tax benefits to issuers.
II. The risk of a firm financially failing increases when the firm issues bonds.
III. Most long-term bond issues are referred to as unfunded debt.
IV
I and II only
Texas Foods has a 6 percent bond issue outstanding that pays $30 in interest every
March and September. The bonds are investment grade and sell at par. The bonds are callable at a
price equal to the present value of all future interest and principal payme
II, III, and IV only
Last year, Lexington Homes issued $1 million in unsecured, non-callable debt. This debt
pays an annual interest payment of $55 and matures 6 years from now. The face value is $1,000
and the market price is $1,020. Which one of these terms correctly descri
c. note
Callable bonds generally:
a. grant the bondholder the option to call the bond anytime after the deferment
period.
b. are callable at par as soon as the call-protection period ends.
c. are called when market interest rates increase.
d. are called within th
e. have a sinking fund provision
Which of the following are negative covenants that might be found in a bond indenture?
I. The company shall maintain a current ratio of 1.10 or better.
II. No debt senior to this issue can be issued.
III. The company cannot lease any major assets without
II and III only
Protective covenants:
a. apply to short-term debt issues but not to long-term debt issues.
b. only apply to privately issued bonds.
c. are a feature found only in government-issued bond indentures.
d. only apply to bonds that have a deferred call provisio
e. are primarily designed to protect bondholders
Which one of the following statements concerning bond ratings is correct?
a. Investment grade bonds are rated BB or higher by Standard & Poor's.
d. Bond ratings assess both interest rate risk and default risk.
c. Split rated bonds are called crossover bon
c. Split rated bonds are called crossover bonds.
A "fallen angel" is a bond that has moved from:
a. being publicly traded to being privately traded.
b. being a long-term obligation to being a short-term obligation.
c. having a yield-to-maturity in excess of the coupon rate to c. having a yield-tomaturit
e. investment grade to speculative grade
Bonds issued by the U.S. government:
a. are considered to be free of interest rate risk.
b. generally have higher coupons than those issued by an individual state.
c. are considered to be free of default risk.
d. pay interest that is exempt from federal i
c. are considered to be free of default risk.
Treasury bonds are:
a. issued by any governmental agency in the U.S.
b.issued only on the first day of each fiscal year by the U.S. Department of
Treasury.
c. bonds that offer the best tax benefits of any bonds currently available.
d. generally issued as
d. generally issued as semi-annual coupon bonds.
Municipal bonds:
a. are totally risk-free.
b. generally have higher coupon rates than corporate bonds.
c. pay interest that is federally tax-free.
d. are rarely callable.
e. are free of default-risk.
c. pay interest that is federally tax-free
The taxability risk premium compensates bond holders for which one of the following?a. yield decreases in response to market changes
b. lack of coupon payments
c. possibility of default
d. a bond's unfavorable tax status
e. decrease in a municipality's cr
d