Deck 8: Bond Markets

Question 1

Capital market interest rates tend to be higher than money market rates for a given issuer.

Answer 1

True

Question 2

Investors may invest in capital market securities either directly or indirectly.

Answer 2

True

Question 3

Both governments and businesses issue both debt and equity capital market securities.

Answer 3

False

Question 4

A U.S. Treasury STRIP is a zero-coupon bond.

Question 5

Capital market securities are more liquid than money market securities.

Question 6

Most state and local government bonds are sold to investors in low tax brackets.

Question 7

A state turnpike authority is more likely to issue revenue bonds than a city that issues bonds to finance a school expansion.

Question 8

A serial bond issue matures over a period of years.

Question 9

The money market provides liquidity for deficit units; the capital market finances economic growth.

Question 10

Capital market securities are typically used to finance real capital investments.

Question 11

In 2015 the volume of mortgages outstanding exceeds the volume of corporate bonds in the U.S.

Question 12

The market where firms and institutions warehouse funds until needed in the near future is called the capital market.

Question 13

Life insurance companies are likely to invest more in corporate capital market securities as a percentage of investments than commercial banks.

Question 14

Households in aggregate owe more financially than they own.

Question 15

Lower marginal tax rates increase the demand for municipal securities.

Question 16

TIPS are designed to primarily protect investors from default risk.

Question 17

Bonds rated Ba or BB are investment grade bonds.

Question 18

Yields on U.S. Treasury "ask" prices are higher than yields quoted on "bid" prices.

Question 19

In 2015 households were the major investor in municipal bonds.

Question 20

Money market securities are all debt securities, while capital market securities are either debt or equity securities.

Question 21

Compare and contrast the characteristics of the securities of the money market with those of the capital market.

Question 22

What factors have contributed to the increased globalization of bond markets?

Question 23

What types of risks are faced by bond investors?

Question 24

Revenue bonds are generally considered more risky than general obligation bonds.

Question 25

The after-tax return on a 9 percent municipal bond held by a commercial bank in the 34 percent tax bracket is 5.94 percent.

Question 26

Commercial banks purchase more tax-exempt securities in periods when loan losses are high.

Question 27

Secondary trading of privately issued securities was authorized by Regulation Q.

Question 28

You check the Wall Street Journal and find information regarding a principal STRIP that will mature in 7 years. The price quote per hundred of par for this STRIP is 85.75%. Using semiannual compounding, what is the promised yield to maturity on the STRIP?

Question 29

Callable bonds are the bonds that can be redeemed at par at the option of their holders.

Question 30

Financial guarantees generate interest income for banks and insurers.

Question 31

A bond's promised yield is inversely related to its default rating, all else equal.

Question 32

Bondholders may profitably convert their convertible bonds into shares of stock when theconversion price is greater than the market price of the stock.

Question 33

Why are U.S. Treasury STRIPs are of interest to individuals with IRA's or $401k pension plans?