Question 1

All income from Government of Canada securities is ________ at the federal and provincial levels.If an investor sells a security before it matures,there may be ________.

Accepted Answer

Income from Government of Canada securities is taxable at both federal and provincial levels. If an investor sells a security before it matures, there may be taxes on both interest income and capital gains. Therefore, the best choice is C.

Question 2

In addition to the tradable securities,the Canadian government also borrows directly from ________ through ________ and Canada Premium Bonds.

Accepted Answer

The sentence mentions "Canada Savings Bonds," which are a type of government bond available for purchase by individuals. Therefore, the Canadian government borrows directly from individuals through Canada Savings Bonds.

Question 3

Two kinds of auctions are used by the Bank of Canada.The first type of auction is the ________,which is also called the discriminatory price auction and the second type of auction is the ________,which is used for real return bonds.

Accepted Answer

The first type of auction used by the Bank of Canada is the multiple-price auction, which is also called the discriminatory price auction. The second type of auction used for real return bonds is the single price auction. Therefore, option B is the correct choice.

Question 4

Which of the following statements is false regarding a call provision?

Accepted Answer

C) The call price is generally set at or above, and is expressed as a percentage of, the bond's face value.

Question 5

Which of the following statements is false?

Accepted Answer

B) Treasury securities are initially sold to the public through auction.

Question 6

One of the ways that issuers repay bonds is to exercise a ________ provision that allows the issuer to repurchase the bonds ________.

Accepted Answer

This is because a call provision allows the issuer to redeem, or "call back," the bonds before maturity at a predetermined price, which is usually at a premium to the bond's face value. This gives the issuer the flexibility to refinance the bond at a lower interest rate or to take advantage of other favorable market conditions.

Question 7

The Canadian government sells its domestic debt to financial market distributors and dealers through ________ run by ________.

Accepted Answer

The Canadian government sells its domestic debt through auctions, and these auctions are run by the Bank of Canada. This process is a common method for governments to raise funds by issuing government securities.

Question 8

Which of the following statements is false?

Accepted Answer

C) The issuer will exercise the call option only when the prevailing market rate is below the coupon rate of the bond.

Question 9

Which of the following statements is false?

Accepted Answer

A) If the issuer fails to live up to any covenant, the issuer goes into default.

Question 10

Which of the following statements regarding municipal bonds is false?

Accepted Answer

A) A single municipal bond issue will often contain a number of different maturity dates. Such issues are often called serial bonds because the bonds are scheduled to mature over a multiple number of years.

Question 11

Which of the following statements is false?

Accepted Answer

A) When bond yields have decreased, by exercising the call on the callable bond and then immediately refinancing, the issuer can lower its borrowing costs.

Question 12

Which of the following statements is false?

Accepted Answer

A) By including more covenants, issuers decrease their costs of borrowing.

Question 13

Which of the following statements is false?

Accepted Answer

A) In the case of a Treasury note or Treasury bond offering, the stop-out yield determines the coupon of the bond and then all bidders pay the par value for the bond or note.

Question 14

Which of the following statements is false?

Accepted Answer

The Government of Canada does issue bonds through both multiple-price and single-price auctions, as well as through auctions in bond markets. However, strip bonds are not frequently issued by the Government of Canada.

Question 15

The Government of Canada also issues ________ with maturities of up to ________ years.

Accepted Answer

Real return bonds are issued by the Government of Canada with maturities of up to 20 years.

Question 16

________ and ________ are used by the Government of Canada.

Accepted Answer

The question refers to the types of securities used by the Government of Canada. Option C states that there are four kinds of domestic debt securities and three types of foreign debt securities, making it the most accurate answer. The other options either have too many or too few types of securities mentioned.

Question 17

Fixed-coupon marketable bonds,more commonly known as ________,are ________ with original maturities of between 2 and 40 years.

Accepted Answer

Government of Canada bonds are fixed-coupon marketable bonds with original maturities of between 2 and 40 years. They also pay semiannual coupons. Canada Savings bonds are also fixed-coupon marketable bonds, but they have original maturities of up to 10 years and pay annual coupons.

Question 18

Suppose that in January 2001,the Canadian Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%.On the date of issue the consumer price index (CPI)was 175.1.In January 2006,the CPI had increased to 198.3.What coupon payment was made on this bond in January 2006?

Accepted Answer

The answer of Suppose that in January 2001,the Canadian Treasury...

Question 19

________ are issued by Crown corporations of the Canadian federal government.

Accepted Answer

Crown corporations of the Canadian federal government issue agency bonds as a way to finance their operations. A, B, and D are types of bonds issued by the Canadian federal government, but not specifically by Crown corporations.

Question 20

A ________ is a standard coupon bond and its outstanding principal is adjusted for ________.

Accepted Answer

A real return bond is a bond whose outstanding principal is adjusted for inflation. It is a type of inflation-indexed bond that provides protection against the erosion of purchasing power caused by inflation. Option B is incorrect because a discounted bond is a bond that is priced lower than its face value, and its outstanding principal is not adjusted for anything. Option C is incorrect because a strip bond is a bond that has been stripped of its coupon payments, and its outstanding principal is not adjusted for anything. Option D is incorrect because the yield to maturity is a measure of the total return anticipated on a bond, but it does not affect the outstanding principal of the bond.

Quiz 24: Debt Financing

All income from Government of Canada securities is at the federal and provincial levels.If an investor sells a security before it matures,there may be .

In addition to the tradable securities,the Canadian government also borrows directly from through and Canada Premium Bonds.

Two kinds of auctions are used by the Bank of Canada.The first type of auction is the ,which is also called the discriminatory price auction and the second type of auction is the ,which is used for real return bonds.

Which of the following statements is false regarding a call provision?

Which of the following statements is false?

One of the ways that issuers repay bonds is to exercise a provision that allows the issuer to repurchase the bonds .

The Canadian government sells its domestic debt to financial market distributors and dealers through run by .

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements regarding municipal bonds is false?

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

Which of the following statements is false?

The Government of Canada also issues with maturities of up to years.

and are used by the Government of Canada.

Fixed-coupon marketable bonds,more commonly known as ,are with original maturities of between 2 and 40 years.

Suppose that in January 2001,the Canadian Treasury issued a ten-year inflation-indexed note with a coupon of 3 1/2%.On the date of issue the consumer price index (CPI)was 175.1.In January 2006,the CPI had increased to 198.3.What coupon payment was made on this bond in January 2006?

________ are issued by Crown corporations of the Canadian federal government.

A is a standard coupon bond and its outstanding principal is adjusted for .