Question 1

Corporate bonds generally trade in units of:

Accepted Answer

Corporate bonds generally trade in denominations of $1,000, which means that each bond represents a $1,000 principal amount. This is the standard unit size for trading and investment purposes.

Question 2

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months.
a)How much interest would an investor receive?
b)What will be the price of the Treasury bill?
c)What will be the true rate of return?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Question 3

Assume a $1,000 Treasury bill is quoted to pay 9.5% interest over a six-month period.
a)How much interest would an investor receive?
b)What will be the price of the Treasury bill?
c)What will be the true rate of return?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Question 4

Inflation-indexed Treasury securities provide returns through:

Accepted Answer

Inflation-indexed Treasury securities provide returns through interest payments, plus an increase in value due to inflation. The interest payments are based on a fixed interest rate, while the principal value adjusts with inflation. This means that as inflation rises, the value of the principal and interest payments will also increase, providing a hedge against inflation for investors.

Question 5

If inflation is higher than that expected at time of issue,inflation-indexed Treasury securities:

Accepted Answer

Inflation-indexed Treasury securities provide a higher return than fixed-income securities if inflation is higher than expected at the time of issue. This is because the principal and interest payments of these securities are adjusted for inflation, so investors are protected against the erosion of purchasing power. The real return of inflation-indexed securities is higher in the case of unexpected inflation, making them a better choice for investors compared to fixed-income securities.

Question 6

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.How much interest would the investor receive?

Accepted Answer

The interest earned on a $1,000 Treasury bill at a 6% annual rate over a three-month period is calculated as follows: $1,000 * 6% * (3/12) = $15.

Question 7

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%,what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

Accepted Answer

The answer of If an investor is in the 33%...

Question 8

A corporate bond quoted at 108.25 is selling for:

Accepted Answer

When a bond is quoted at 108.25, it means that the bond is selling at 108.25% of its face value. Therefore, to calculate the actual selling price, we need to multiply the face value of the bond by the quoted price, as follows:

Face value x Quoted price = Selling price

Assuming the face value of the bond is $1,000, we get:

$1,000 x 1.0825 = $1,082.50

Therefore, the bond is selling for $1,082.50.

Question 9

Major investors in municipal bonds include:

Accepted Answer

Banks and wealthy individuals are major investors in municipal bonds due to their tax-exempt status, which is particularly attractive to those in higher tax brackets and institutions seeking tax-advantaged investments.

Question 10

What is the dollar value of a U.S.government bond quoted at 98 8/32?

Accepted Answer

The answer of What is the dollar value of a...

Question 11

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.What will be the effective yield?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Question 12

The junk bond market includes all of the following except:

Accepted Answer

Profitable companies undergoing expansion typically do not issue junk bonds, as they are able to obtain investment grade ratings and access to lower-cost financing options. Junk bonds are typically issued by companies that are seen as higher risk or less creditworthy, such as fallen angels, growth companies, and those undergoing restructuring after an LBO or unfriendly takeover.

Question 13

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.What will be the price of the Treasury bill?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Quiz 10: Bond and Fixed-Income Fundamentals

Corporate bonds generally trade in units of:

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months. a)How much interest would an investor receive? b)What will be the price of the Treasury bill? c)What will be the true rate of return?

Assume a $1,000 Treasury bill is quoted to pay 9.5% interest over a six-month period. a)How much interest would an investor receive? b)What will be the price of the Treasury bill? c)What will be the true rate of return?

Inflation-indexed Treasury securities provide returns through:

If inflation is higher than that expected at time of issue,inflation-indexed Treasury securities:

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.How much interest would the investor receive?

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%,what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

A corporate bond quoted at 108.25 is selling for:

Major investors in municipal bonds include:

What is the dollar value of a U.S.government bond quoted at 98 8/32?

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.What will be the effective yield?

The junk bond market includes all of the following except:

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period.What will be the price of the Treasury bill?