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Question;1. A bond will pay principal of \$1,000 upon maturity in 10;years from now, plus it will pay \$60 every six months, including the date of;maturity and starting six months from now. What price would you expect to pay;for the bond if comparable bonds yield 8 percent?;A. \$1,272;B. \$1,162;C. \$815;D. \$456;2. What is the yield to maturity on a municipal bond;scheduled to pay \$10,000 upon maturity 5 years from now? This is a zero-coupon;bond selling for \$8,220. Round the yield to maturity to;the nearest percent.;A. 8 percent;B. 5 percent;C. 4 percent;D. 3 percent;3. What is the yield to maturity on a corporate bond;scheduled to pay annual interest of \$100 and \$1,000 upon maturity 3 years from;now? The bond is selling for \$1,025.31. Round the yield to maturity to the;nearest percent.;A. 11 percent;B. 9 percent;C. 8 percent;D. 7 percent;4. What is the duration of a bond that will pay \$50 per year;in coupon payments and \$1,000 after four years? Use a discount rate of 10;percent.;A. 8.4 years;B. 4.0 years;C. 3.7 years;D. 0.27 years;5. What is the present value of a share of preferred stock;that you own indefinitely? The stock?s dividend is \$5. The appropriate discount;rate is 6 percent.;A. \$13.33;B. \$83.33;C. \$852.33;D. \$852.98;6. A perpetual bond annually pays interest of \$35 and;alternative investments yield 14 percent.;What is the present value of the bond?;A. \$250;B. \$355;C. \$490;D. \$505;7. Duration is a better way to compare cash flows than;simply comparing present values because;A. duration incorporates cash flow volatility.;B. present value fails to incorporate the timing of cash;flows.;C. when maturities differ among compared cash flows, present;value inaccurately represents the yield to maturity.;D. duration effectively treats cash flows as a perpetuity;incorporating the reinvestment rate.;8. One of the benefits of the laddered approach to managing;interest rate risk in a bond portfolio is that;A. reinvestment risk is eliminated because you standardize;the timing of bond maturities.;B. the portfolio includes bonds issued by different;organizations, thereby reducing default risk.;C. all bonds are liquidated if the investor elects to;capitalize on an opportunity.;D. when bonds mature at different intervals, you diversify;the timing of reinvestment.;9. If you want to maximize safety and earn federally;tax-exempt interest, you should buy;A. municipal bonds backed by the revenue earned on the;project funded by the bond.;B. municipal bonds backed by the taxing authority of the;issuing government.;C. U.S. Treasury bonds backed by the taxing authority of the;U.S. federal government.;D. U.S. Treasury bills backed by the taxing authority of the;U.S. federal government.;10. To participate in the U.S. national mortgage market by investing;in bonds, the best way would be to invest in;A. revenue bonds issued by a sprawling suburban city.;B. treasury bonds that ultimately depend on funding from;households.;C. mortgage pass-through bonds issued by a federal;government agency.;D. stocks issued by banks that make mortgage loans.;11. One strategy for diversifying government-issued bonds;and earning tax-exempt interest is to invest in;A. U.S. Treasury bonds, notes, and bills with diverse;maturities.;B. a state-specific municipal bond fund.;C. a combination of state and local bonds plus bonds issued;by foreign governments.;D. money market mutual funds and U.S. Treasury bills.;12. What is the key distinction between Series EE bonds and;Treasury bills?;A. Series EE bonds pay interest every six months.;B. Series EE bonds aren?t backed by the full faith and;credit of the federal government.;C. Treasury bills are deeply discounted bonds with all;interest paid upon maturity.;D. Treasury bills can be traded in the secondary market.;13. Why do bond issuers attach a call feature to their;bonds?;A. Increases the marketability of the bond;B. Increases the likelihood of issuing bonds at face value;or higher;C. Presents an opportunity to capitalize on rising interest;rates;D. Frees the organization from high-interest debt if;interest rates drop;14. If you were CEO and decided to finance retirement of a;bond issue, you would be most likely to;A. issue collateral serial bonds, the proceeds of which;would fund the bond retirement.;B. rewrite the debenture to include an option to exchange;bonds for shares of stock.;C. set up a payment arrangement with a trustee to fund an;account designated for bond retirement.;D. sell production assets and apply the proceeds to bond;retirement.;15. If you owned bonds issued by a corporation that;announced expectations for a protracted period of cash flow difficulties, what;kind of risk would concern you most?;A. Default risk;B. Interest rate risk;C. Reinvestment rate risk;D. Price fluctuation;16. When an investor purchases a 12-month T-bill with the;intention of selling it after a period of time, he?s;A. riding the yield curve and selling on a secondary market.;B. minimizing his return on a short-term investment.;C. ensuring that the sale is at maximum discount.;D. maximizing his return on a long-term investment.;17. Which of the following measures would increase the;duration of a bond issue?;A. Exercising a call option;B. Offering bondholders early retirement of bonds;C. Prepaying interest;D. Exercising an extendible option;18. If a bond issuer failed to honor terms of the indenture;prohibiting the corporation from merging with another corporation;A. the bond issue would be considered a fallen angel.;B. the bond issue would be considered in default.;C. the corporation would be obliged to exercise an;extendible option.;D. bondholders could exchange their bonds for stock of the;issuing corporation.;19. Periods of a negatively sloped yield curve have also;been times of;A. rising interest rates and inflation.;B. a bull market in stocks.;C. rapid economic growth that reduced the cost of long-term;debt.;D. low commodity prices.;20. The impact of inflation as it relates to a bonding;arrangement is most devastating to;A. borrowers.;B. lenders.;C. corporations and governments.;D. trustees.

Paper#49653 | Written in 18-Jul-2015

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