Deck 4: Bond Fundamentals

Question 1

Which is not used to identify a bond?

A) issuer
B) yield to maturity
C) coupon
D) maturity

Answer 1

yield to maturity

Question 2

To find details about a specific bond, one would refer to a legal document known as the

A) debenture.
B) trust certificate.
C) financial newspaper.
D) indenture.

Answer 2

indenture.

Question 3

A city wishing to build a new toll bridge across a river would most likely issue a(n)

A) mortgage.
B) assessment bond.
C) revenue bond.
D) sinking fund.

Answer 3

revenue bond.

Question 4

A sinking fund is

A) setting aside a portion of the principal each year.
B) money invested poorly.
C) a low-interest investment.
D) a bond that decreases in value until maturity.

Question 5

Interest only, sinking fund, and balloon are

A) types of repayment.
B) types of maturities.
C) investment strategies.
D) types of stock.

Question 6

An annuity promises a_____ amount of money on a periodic schedule for a _____ amount of time.

A) fixed, fixed
B) fixed, variable
C) variable, fixed
D) variable, variable

Question 7

Upon maturity of a zero coupon bond, the owner receives

A) the entire interest amount.
B) the principal.
C) the interest earned over its life.
D) nothing; payments for a zero coupon bond are periodic.

Question 8

All new debt now issued by the U.S. Treasury is in_____ form.

A) bearer
B) coupon
C) zero-coupon
D) book entry

Question 9

A $1,000 par bond with a closing price of 107 in the financial press has a dollar price of

A) $107.00.
B) $1,070.00.
C) $1,700.00.
D) $10,700.

Question 10

A volume of 59 in the financial press for bonds means how much par value traded?

A) 59
B) 590
C) 5,900
D) 59,000

Question 11

A bond with PEP 7.5s00 as its identifier

A) is a zero-coupon bond.
B) has a 7.5% yield to maturity.
C) expires 7.5 years from purchase.
D) has a 7.5% coupon.

Question 12

You see the following in the financial papers that a bond closed at 120, down 1/4. The previous closing price was

A) $120.25.
B) $1,202.50.
C) $122.50.
D) $1200.25.

Question 13

Which is better to own during a period of declining interest rates in terms of reinvestment rate risk?

A) a zero coupon bond
B) a bond with a 13% coupon
C) a bond with a variable interest rate
D) a municipal bond

Question 14

Bonds rated below _____ are known as junk bonds.

A) BBB
B) BB
C) B
D) CCC

Question 15

Bonds that can be exchanged for common stock are said to be

A) callable.
B) transferable.
C) convertible.
D) discount.

Question 16

With a consol, a level rate of interest is paid

A) until the end of the recession.
B) weekly.
C) to a charity of the bondholder's choosing.
D) forever.

Question 17

A 7 1/2 % coupon semi-annual payment bond selling for $950 will pay how much to the holder at maturity?

A) $950
B) $1000
C) $1037.50
D) $1075

Question 18

A bond with a rating of_____ will have a _____ yield to maturity than the other bonds listed.

A) AAA, higher
B) BBB, lower
C) BB, lower
D) B, higher

Question 19

When dealing with junk bonds, _____ have the highest degree of speculation, while_____ have the lowest.

A) C, B
B) BB, C
C) C, BB
D) CCC, C

Question 20

A zero coupon bond is best associated with which of the following terms of repayment?

A) interest only
B) sinking fund
C) balloon payment
D) call provision

Question 21

What is the current yield of a AT&T 8 10 88.5?

A) 8%
B) 10%
C) 9%
D) 11.3%

Question 22

What is the yield to maturity (approx.) of a 7%, 10-year bond selling for $900?

A) 6.4%
B) 6.3%
C) 7.4%
D) 8.5%

Question 23

The yield to maturity assumes that coupon payments are reinvested at the:

A) coupon rate.
B) the yield to maturity.
C) current market yield each coupon period.
D) the realized compound yield.

Question 24

Calculate the realized compound yield on a 5-year 7% bond (interest paid semiannually) now selling for 101?

A) 6.76%
B) 6.87%
C) 6.97%
D) 7.10%

Question 25

A municipal bond classified as a general obligation bond is also commonly known as:

A) a revenue bond.
B) a taxable bond.
C) a full faith and credit issue.
D) none of the above.

Question 26

All other factors held constant, which of the following would cause the coupon rate on a new issue to be higher than it might otherwise be?

A) The existence of a sinking fund.
B) The presence of a put feature.
C) The existence of a par value.
D) The existence of a call feature.

Question 27

Bonds are completely identified by the issuer and the bond maturity.

Question 28

The debenture is a legal document describing the terms of a bond issue.

Question 29

All U.S. Treasury debt is specifically secured by gold bullion.

Question 30

An assessment bond pays for a project that benefits a specific group of people.

Question 31

Approximately half of all U.S. bonds are income bonds.

Question 32

A step-up bond is a special type of consol.

Question 33

The owner of a convertible bond has the option to become a shareholder.

Question 34

Bearer bonds and coupon bonds are synonymous.

Question 35

U.S. Treasury bonds are currently sold in book entry form only.

Question 36

Most bond yield calculations use quarterly compounding.

Question 37

You cannot lock in a yield to maturity with a coupon-paying bond.

Question 38

A yield curve for U.S. government securities usually slopes down and to the right.

Question 39

On a discount bond, the current yield exceeds the yield to maturity.

Question 40

A person who buys $10,000 par of a U.S. government bond at a price of 101:16 would pay $10,150 for the principal.

Question 41

Bonds in default usually trade flat.

Question 42

Standard & Poor's rates junk bonds CCC and below.

Question 43

Distressed debt has a current yield 10% below the yield on U.S. Treasury securities of comparable maturity.

Question 44

Duration measures interest rate risk.

Question 45

A bond that is an overhanging issue is usually immediately callable.

Question 46

The higher the coupon on a bond, the higher its reinvestment rate risk.

Question 47

The realized compound yield on a semiannual paying coupon bond will always exceed the approximate yield to maturity?

Question 48

The classic "long"U.S. Treasury bond had a maturity of thirty years?

Question 49

An indenture is an unsecured bond.

Question 50

The value of a consol paying $70 annually and yielding 7% will be priced in the market at $1000.

Question 51

A spot rate of a U.S. Treasury note or bond is commonly used to construct a yield curve.

Question 52

Tax-exempt securities known as Treasury Inflation Protected Securities have proven to be the most popular municipal bonds offered in recent years.