Question 1

Dollar-denominated bonds sold outside the United States.

Accepted Answer

Eurodollar bonds are dollar-denominated bonds issued outside of the United States, typically by non-U.S. entities, allowing them to raise capital in dollars without being subject to U.S. regulations.

Question 2

All of the following represent bonds secured by real assets except a(n):

Accepted Answer

A debenture is an unsecured bond and does not have real assets securing it. Closed-end mortgage bonds and open-end mortgage bonds are secured by real estate assets, while equipment trust certificates are secured by specific pieces of equipment.

Question 3

A bond that allows investors to force the issuer to redeem the bond prior to maturity is called a:

Accepted Answer

A putable bond allows investors to force the issuer to redeem the bond prior to maturity. A convertible bond allows investors to convert the bond into a predetermined number of shares of common stock. A callable bond allows the issuer to redeem the bond prior to maturity. A debenture bond is an unsecured bond that is backed only by the creditworthiness and reputation of the issuer.

Question 4

A bond that can be changed into a specified number of shares of the issuer's common stock is called a:

Accepted Answer

A convertible bond can be changed into a specified number of shares of the issuer's common stock. A retractable bond can be redeemed by the investor at a specified date or at the issuer's option. A callable bond can be redeemed by the issuer at a specified date or at the investor's option. A collateralized bond is secured by assets of the issuer.

Question 5

Interest payments on a bond.

Accepted Answer

Interest payments on a bond are known as coupon payments. The face value is the amount the bond will be worth when it reaches maturity, and the issue value refers to the price at which the bond was originally issued. Carry value is not a term commonly used in relation to bonds.

Question 6

Bonds that are generally denominated in U.S. dollars and marketed globally.

Accepted Answer

Global bonds are denominated in U.S. dollars but marketed globally, making them a popular choice for multinational corporations and investors looking for diversification. Bearer bonds (A) are not typically issued anymore due to concerns about money laundering and terrorism financing. Eurodollar bonds (C) are denominated in U.S. dollars but issued outside of the United States, typically in Europe or Asia. Yankee bonds (D) are also denominated in U.S. dollars but are issued by foreign entities in the United States.

Question 7

Which of the following statements is false?

Accepted Answer

Yankee bonds are actually dollar-denominated bonds that are sold in the United States by foreign entities, not outside the United States.

Question 8

Which of the following bonds can be redeemed prior to maturity by the firm?

Accepted Answer

Callable bonds give the issuer the option to redeem the bonds prior to maturity. Convertible bonds give the holder the option to convert the bonds into common stock. Putable bonds give the holder the option to sell the bonds back to the issuer prior to maturity. Retractable bonds give the holder the option to demand repayment of the principal prior to maturity.

Question 9

A current yield on a corporate bond is calculated as:

Accepted Answer

Current yield is calculated as the annual coupon interest payment divided by the current market price of the bond. Therefore, the correct formula for calculating current yield is coupon interest amount divided by the current price.

Question 10

Dollar-denominated bonds that are issued in the United States by a foreign issuer are called:

Accepted Answer

Yankee bonds are dollar-denominated bonds issued in the United States by foreign issuers. Eurodollar bonds are actually USD-denominated bonds that are issued outside of the United States. Foreign bonds are issued in a foreign country and denominated in the local currency. Global bonds are bonds that are issued simultaneously in multiple markets and denominated in multiple currencies.

Question 11

Bonds issued in the United States.

Accepted Answer

The answer of Bonds issued in the United States.
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Question 12

Which of the following types of bonds have the lowest bondholder security risk?

Accepted Answer

Closed-end mortgage bonds are secured by specific assets or properties, which provides a higher level of security for bondholders compared to subordinated debentures or open-end mortgage bonds. Subordinated debentures are lower in the capital structure and have a higher risk of default, while open-end mortgage bonds are secured by a pool of mortgages, which may not provide as much security as a specific property or asset.

Question 13

Eurodollar bonds are:

Accepted Answer

Eurodollar bonds are not denominated in Eurodollars, but rather in U.S. dollars. They are issued outside the U.S. but are still subject to U.S. securities laws and regulations. The term "euro" does not refer to the currency, but rather to the fact that they are issued outside the domestic market of the currency of denomination (in this case, outside of the U.S.). They can have varying maturities, but are not necessarily extremely long-term obligations.

Question 14

Bonds that have coupons that are literally clipped and presented, like a check, to the bank for payment, and where the bond issuer does not know who is receiving the coupon payments are called:

Accepted Answer

Bearer bonds have physical coupons that are clipped and presented for payment, and the bond issuer does not keep track of who receives the coupon payments. Registered bonds, on the other hand, record the identity of the bondholder and pay the coupon payments electronically or by check. Coupon bonds refer more generally to bonds that have periodic interest payments. Yankee bonds are bonds issued by foreign entities in the US market.

Question 15

Principal amount that the issuer is obligated to repay at maturity.

Accepted Answer

Face value is the principal amount that the issuer is obligated to repay at maturity.

Question 16

These bonds have coupons that are "clipped" and presented, like a check, to the bank for payment.

Accepted Answer

The answer of These bonds have coupons that are "clipped"...

Question 17

A (n) _____________ gives the bondholder a claim to specific assets (identified through serial numbers) such as railroad cars or airplanes.

Accepted Answer

An equipment trust certificate gives the bondholder a claim to specific assets, such as railroad cars or airplanes, identified through serial numbers. The assets purchased with the proceeds from the bond issue serve as collateral.

Question 18

Which type of bond is currently prohibited from being issued in the United States?

Accepted Answer

Bearer bonds are currently prohibited from being issued in the United States because they are easily transferable and can facilitate illicit activities, such as money laundering and tax evasion. Instead, registered bonds are required, in which the ownership and transfer of the bond can be traced. The other options (B, C, D) are not currently prohibited from being issued in the United States.

Question 19

Most bonds pay coupon interest

Accepted Answer

Most bonds pay coupon interest semi-annually, meaning twice a year.

Question 20

Which of the following statements is correct?

Accepted Answer

Covenants in a trust indenture are legally binding restrictions placed on the issuer of a bond that put limitations on the actions of the firm. Option A is incorrect because a closed-end mortgage bond refers to a type of bond issue in which the assets serving as collateral can't have additional bonds issued against them. Option C is incorrect because retractable bonds can be redeemed by the investor, not the firm. Option D is incorrect because junk bonds can be secured or unsecured with hard assets.

Quiz 10: Bonds and Stocks: Characteristics and Valuations