Question 1

Governments never issue stock because they cannot sell ownership claims.

Accepted Answer

A) True 
 B)False

Question 2

The current yield on a $6,000, 10 percent coupon bond selling for $5,000 is

Accepted Answer

A)  5%.
B)  10%.
C)  12%.
D)  15%.E) All of the above
F) A) and B)

Question 3

A firm will borrow long-term

Accepted Answer

A)  if the extra interest cost of borrowing long-term is less than the expected cost of rising interest rates before it retires its debt.
B)  if the extra interest cost of borrowing short-term due to rising interest rates does not exceed the expected premium that is paid for borrowing long-term.
C)  if short-term interest rates are expected to decline during the term of the debt.
D)  if long-term interest rates are expected to decline during the term of the debt.E) C) and D)
F) B) and D)

Question 4

Most corporate bonds have a face value of $1,000, are sold at a discount, and can only be redeemed at the maturity date.

Accepted Answer

A) True 
 B)False

Question 5

What is a bond indenture?

Accepted Answer

The answer of What is a bond indenture?...

Question 6

Which of the following are true for the current yield?

Accepted Answer

A)  The current yield is defined as the yearly coupon payment divided by the price of the security.
B)  The current yield and the yield to maturity always move together.
C)  The formula for the current yield is identical to the formula describing the yield to maturity for a discount bond.
D)  All of the above are true.
E)  Only A and B of the above are true.F) B) and C)
G) None of the above

Question 7

By the time the subprime financial crisis hit in force, Fannie and Freddie had ________ subprime and Alt-A assets on their books.

Accepted Answer

A)  over $1 trillion of
B)  very few
C)  been prohibited from holding
D)  none of the aboveE) A) and D)
F) B) and D)

Question 8

Treasury bonds are subject to ________ risk but are free of ________ risk.

Accepted Answer

A)  default; interest-rate
B)  default; underwriting
C)  interest-rate; default
D)  interest-rate; underwritingE) All of the above
F) B) and D)

Question 9

Most of the time, the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

Accepted Answer

A)  above; interest-rate
B)  above; default
C)  below; interest-rate
D)  below; defaultE) B) and C)
F) All of the above

Question 10

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

Accepted Answer

A) True 
 B)False

Question 11

Most of the time, the interest rate on Treasury notes is below that on money market securities because of their low default risk.

Accepted Answer

A) True 
 B)False

Question 12

(I) The primary issuers of capital market securities are financial institutions. (II) The largest purchasers of capital market securities are corporations.

Accepted Answer

A)  (I) is true, (II) false.
B)  (I) is false, (II) true.
C)  Both are true.
D)  Both are false.E) A) and D)
F) B) and D)

Question 13

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

Accepted Answer

The answer of What types of risks should bondholders be...

Question 14

To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the same as the market rate.

Accepted Answer

A) True 
 B)False

Question 15

The secondary market is where new issues of stocks and bonds are introduced.

Accepted Answer

A) True 
 B)False

Question 16

The security with the longest maturity is a Treasury

Accepted Answer

A)  note.
B)  bond.
C)  acceptance.
D)  bill.E) B) and C)
F) None of the above

Question 17

STRIPS (Separate Trading of Registered Interest and Principal Securities) are also called

Accepted Answer

A)  interest-based securities.
B)  zero-coupon securities.
C)  leveraged securities.
D)  covenant securities.E) B) and C)
F) All of the above

Question 18

The ________ value of a bond is the amount that the issuer must pay at maturity.

Accepted Answer

A)  market
B)  present
C)  discounted
D)  faceE) C) and D)
F) B) and C)

Question 19

(I) There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges. (II) When firms sell securities for the very first time, the issue is an initial public offering.

Accepted Answer

A)  (I) is true, (II) false.
B)  (I) is false, (II) true.
C)  Both are true.
D)  Both are false.E) None of the above
F) B) and D)

Question 20

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

Accepted Answer

A) True 
 B)False

Exam 12: The Bond Market

The current yield on a $6,000, 10 percent coupon bond selling for $5,000 is

Correct AnswerverifiedShow Answer

Most corporate bonds have a face value of $1,000, are sold at a discount, and can only be redeemed at the maturity date.

Correct AnswerverifiedShow Answer

Most of the time, the interest rate on Treasury notes and bonds is ________ that on money market securities because of ________ risk.

Correct AnswerverifiedShow Answer

Most of the time, the interest rate on Treasury notes is below that on money market securities because of their low default risk.

Correct AnswerverifiedShow Answer

General obligation bonds have specific assets pledged as security or specific sources of revenue allocated for their repayment.

Correct AnswerverifiedShow Answer

A firm will borrow long-term

Correct AnswerverifiedShow Answer

(I) There are two types of exchanges in the secondary market for capital securities: organized exchanges and over-the-counter exchanges. (II) When firms sell securities for the very first time, the issue is an initial public offering.

Correct AnswerverifiedShow Answer

What is a bond indenture?

Correct AnswerverifiedShow Answer

The ________ value of a bond is the amount that the issuer must pay at maturity.

Correct AnswerverifiedShow Answer

What types of risks should bondholders be aware of and how do these affect bond prices and yields?

Correct AnswerverifiedShow Answer

A financial guarantee ensures that the lender (bond purchaser)will be paid both principal and interest in the event the issuer defaults.

Correct AnswerverifiedShow Answer

By the time the subprime financial crisis hit in force, Fannie and Freddie had ________ subprime and Alt-A assets on their books.

Correct AnswerverifiedShow Answer

(I) The primary issuers of capital market securities are financial institutions. (II) The largest purchasers of capital market securities are corporations.

Correct AnswerverifiedShow Answer

Treasury bonds are subject to ________ risk but are free of ________ risk.

Correct AnswerverifiedShow Answer

Governments never issue stock because they cannot sell ownership claims.

Correct AnswerverifiedShow Answer

STRIPS (Separate Trading of Registered Interest and Principal Securities) are also called

Correct AnswerverifiedShow Answer

The security with the longest maturity is a Treasury

Correct AnswerverifiedShow Answer

To sell an old bond when rates have risen, the holder will have to discount the bond until the yield to the buyer is the same as the market rate.

Correct AnswerverifiedShow Answer

The secondary market is where new issues of stocks and bonds are introduced.

Correct AnswerverifiedShow Answer

Which of the following are true for the current yield?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Most of the time, the interest rate on Treasury notes and bonds is that on money market securities because of risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Treasury bonds are subject to risk but are free of risk.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified