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Flashcards in 10 conceptzs Deck (37):
1

The invoice price of a bond is the ______.


A. , stated or flat price in a quote sheet plus accrued interest

B. , stated or flat price in a quote sheet minus accrued interest

C. , bid price

D. , average of the bid and ask price

A. , stated or flat price in a quote sheet plus accrued interest

2

Sinking funds are commonly viewed as protecting the _______ of the bond.


A. , issuer

B. , underwriter

C. , holder

D. , dealer

C. , holder

3

If you are holding a premium bond, you must expect a _______ each year until maturity. If you are holding a discount bond, you must expect a _______ each year until maturity. (In each case assume that the yield to maturity remains stable over time.)


A. , capital gain; capital loss

B. , capital gain; capital gain

C. , capital loss; capital gain

D. , capital loss; capital loss

C. , capital loss; capital gain

4

Floating-rate bonds have a __________ that is adjusted with current market interest rates.


A. , maturity date

B. , coupon payment date

C. , coupon rate

D. , dividend yield

C. , coupon rate

5

Inflation-indexed Treasury securities are commonly called ____.


A. , PIKs

B. , CARs

C. , TIPS

D. , STRIPS

C. , TIPS

6

In regard to bonds, convexity relates to the _______.


A. , shape of the bond price curve with respect to interest rates

B. , shape of the yield curve with respect to maturity

C. , slope of the yield curve with respect to liquidity premiums

D. , size of the bid-ask spread

A. , shape of the bond price curve with respect to interest rates

7

A Japanese firm issued and sold a pound-denominated bond in the United Kingdom. A U.S. firm issued bonds denominated in dollars but sold the bonds in Japan. Which one of the following statements is correct?


A. , Both bonds are examples of Eurobonds.

B. , The Japanese bond is a Eurobond, and the U.S. bond is termed a foreign bond.

C. , The U.S. bond is a Eurobond, and the Japanese bond is termed a foreign bond.

D. , Neither bond is a Eurobond.

C. , The U.S. bond is a Eurobond, and the Japanese bond is termed a foreign bond.

8

The primary difference between Treasury notes and bonds is ________.


A. , maturity at issue

B. , default risk

C. , coupon rate

D. , tax status

A. , maturity at issue

9

TIPS offer investors inflation protection by ______________ by the inflation rate each year.


A. , increasing only the coupon rate

B. , increasing only the par value

C. , increasing both the par value and the coupon payment

D. , increasing the promised yield to maturity

C. , increasing both the par value and the coupon payment

10

According to the liquidity preference theory of the term structure of interest rates, an increase in the yield on long-term corporate bonds versus short-term bonds could be due to _______.


A. , declining liquidity premiums

B. , an expectation of an upcoming recession

C. , a decline in future inflation expectations

D. , an increase in expected interest rate volatility

D. , an increase in expected interest rate volatility

11

__________ are examples of synthetically created zero-coupon bonds.


A. , COLTS

B. , OPOSSMS

C. , STRIPS

D. , ARMs

C. , STRIPS

12

A __________ bond gives the bondholder the right to cash in the bond before maturity at a specific price after a specific date.


A. , callable

B. , coupon

C. , puttable

D. , Treasury

C. , puttable

13

TIPS are an example of _______________.


A. , Eurobonds

B. , convertible bonds

C. , indexed bonds

D. , catastrophe bonds

C. , indexed bonds

14

Bonds issued in the currency of the issuer's country but sold in other national markets are called _____________.


A. , Eurobonds

B. , Yankee bonds

C. , Samurai bonds

D. , foreign bonds

A. , Eurobonds

15

Consider the liquidity preference theory of the term structure of interest rates. On average, one would expect investors to require _________.


A. , a higher yield on short-term bonds than on long-term bonds

B. , a higher yield on long-term bonds than on short-term bonds

C. , the same yield on both short-term bonds and long-term bonds

D. , none of these options (The liquidity preference theory cannot be used to make any of the other statements.)

B. , a higher yield on long-term bonds than on short-term bonds

16

You hold a subordinated debenture in a firm. In the event of bankruptcy you will be paid off before which one of the following?


A. , Mortgage bonds

B. , Senior debentures

C. , Preferred stock

D. , Equipment obligation bonds

C. , Preferred stock

17

Bonds with coupon rates that fall when the general level of interest rates rise are called _____________.


A. , asset-backed bonds

B. , convertible bonds

C. , inverse floaters

D. , index bonds

C. , inverse floaters

18

_______ bonds represent a novel way of obtaining insurance from capital markets against specified disasters.


A. , Asset-backed bonds

B. , TIPS

C. , Catastrophe

D. , Pay-in-kind

C. , Catastrophe

19

The issuer of ________ bond may choose to pay interest either in cash or in additional bonds.


A. , an asset-backed

B. , a TIPS

C. , a catastrophe

D. , a pay-in-kind

D. , a pay-in-kind

20

Everything else equal, the __________ the maturity of a bond and the __________ the coupon, the greater the sensitivity of the bond's price to interest rate changes.


A. , longer; higher

B. , longer; lower

C. , shorter; higher

D. , shorter; lower

B. , longer; lower

21

Which one of the following statements is correct?


A. , Invoice price = Flat price - Accrued interest

B. , Invoice price = Flat price + Accrued interest

C. , Flat price = Invoice price + Accrued interest

D. , Invoice price = Settlement price - Accrued interest

B. , Invoice price = Flat price + Accrued interest

22

A __________ bond gives the issuer an option to retire the bond before maturity at a specific price after a specific date.


A. , callable

B. , coupon

C. , puttable

D. , Treasury

A. , callable

23

In an era of particularly low interest rates, which of the following bonds is most likely to be called?


A. , Zero-coupon bonds

B. , Coupon bonds selling at a discount

C. , Coupon bonds selling at a premium

D. , Floating-rate bonds

C. , Coupon bonds selling at a premium

24

Consider the expectations theory of the term structure of interest rates. If the yield curve is downward-sloping, this indicates that investors expect short-term interest rates to __________ in the future.


A. , increase

B. , decrease

C. , not change

D. , change in an unpredictable manner

B. , decrease

25

Yields on municipal bonds are typically ___________ yields on corporate bonds of similar risk and time to maturity.


A. , lower than

B. , slightly higher than

C. , identical to

D. , twice as high as

A. , lower than

26

Analysis of bond returns over a multiyear horizon based on forecasts of the bond's yield to maturity and reinvestment rate of coupons is called ______.


A. , multiyear analysis

B. , horizon analysis

C. , maturity analysis

D. , reinvestment analysis

B. , horizon analysis

27

The __________ of a bond is computed as the ratio of the annual coupon payment to the market price.


A. , nominal yield

B. , current yield

C. , yield to maturity

D. , yield to call

B. , current yield

28

Which of the following bonds would most likely sell at the lowest yield?


A. , A callable debenture

B. , A puttable mortgage bond

C. , A callable mortgage bond

D. , A puttable debenture

B. , A puttable mortgage bond

29

A 1% decline in yield will have the least effect on the price of a bond with a _________.


A. , 10-year maturity, selling at 80

B. , 10-year maturity, selling at 100

C. , 20-year maturity, selling at 80

D. , 20-year maturity, selling at 100

B. , 10-year maturity, selling at 100

30

You can be sure that a bond will sell at a premium to par when _________.


A. , its coupon rate is greater than its yield to maturity

B. , its coupon rate is less than its yield to maturity

C. , its coupon rate is equal to its yield to maturity

D. , its coupon rate is less than its conversion value

A. , its coupon rate is greater than its yield to maturity

31

Consider a 7-year bond with a 9% coupon and a yield to maturity of 12%. If interest rates remain constant, 1 year from now the price of this bond will be _________.


A. , higher

B. , lower

C. , the same

D. , indeterminate

A. , higher

32

Under the pure expectations hypothesis and constant real interest rates for different maturities, an upward-sloping yield curve would indicate __________________.


A. , expected increases in inflation over time

B. , expected decreases in inflation over time

C. , the presence of a liquidity premium

D. , that the equilibrium interest rate in the short-term part of the market is lower than the equilibrium interest rate in the long-term part of the market

A. , expected increases in inflation over time

33

The yield to maturity on a bond is:

I. Above the coupon rate when the bond sells at a discount and below the coupon rate when the bond sells at a premium
II. The discount rate that will set the present value of the payments equal to the bond price
III. Equal to the true compound return on investment only if all interest payments received are reinvested at the yield to maturity


A. , I only

B. , II only

C. , I and II only

D. , I, II, and III

D. , I, II, and III

34

Yields on municipal bonds are generally lower than yields on similar corporate bonds because of differences in _________.


A. , marketability

B. , risk

C. , taxation

D. , call protection

C. , taxation

35

A discount bond that pays interest semiannually will:

I. Have a lower price than an equivalent annual payment bond
II. Have a higher EAR than an equivalent annual payment bond
III. Sell for less than its conversion value


A. , I and II only

B. , I and III only

C. , II and III only

D. , I, II, and III

A. , I and II only

36

A bond was purchased at a premium and is now selling at a discount because of a change in market interest rates. If the bond pays a 4% annual coupon, what is the likely impact on the holding-period return if an investor decides to sell now?


A. , Increased

B. , Decreased

C. , Stayed the same

D. , The answer cannot be determined from the information given.

B. , Decreased

37

The ___________ is the document that defines the contract between the bond issuer and the bondholder.


A. , indenture

B. , covenant agreement

C. , trustee agreement

D. , collateral statement

A. , indenture