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Question;? 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 C. 4 percent B. 5 percent D. 3 percent;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 C. 8 percent B. 9 percent D. 7 percent;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 C. 3.7 years B. 4.0 years D. 0.27 years;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 C. \$852.33 B. \$83.33 D. \$852.98;A perpetual bond annually pays interest of \$35 and;alternative investments yield 14 percent. What is the present value of the;bond?;A. \$250 C. \$490 B. \$355 D. \$505;Duration is a better way to compare cash flows than simply;comparing present values because;duration incorporates cash flow volatility.;present value fails to incorporate the timing of cash flows.;when maturities differ among compared cash flows, present;value inaccurately;represents the yield to maturity.;durationeffectivelytreatscashflowsasaperpetuity,incorporatingthereinvestmentrate.;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. theportfolioincludesbondsissuedbydifferentorganizations,therebyreducingdefaultrisk.;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.;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.;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.;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.;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.;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;If you were CEO and decided to finance retirement of a bond;issue, you would be most likely to;issue collateral serial bonds, the proceeds of which would;fund the bond retirement.;rewrite the debenture to include an option to exchange bonds;for shares of stock.;set up a payment arrangement with a trustee to fund an;account designated for bond retirement.;sell production assets and apply the proceeds to bond;retirement.;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 C. Reinvestment rate risk B. Interest rate;risk D. Price fluctuation;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.;1.;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;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.;2.;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.;The impact of inflation as it relates to a bonding;arrangement is most devastating to;A. borrowers. C. corporations and governments. B. lenders.;D. trustees.

Paper#49654 | Written in 18-Jul-2015

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