Question 1

Liquid yield option notes or LYONs have which of the following characteristics?
I.	Convertibility at a fixed conversion ratio.
II.	High coupon rates.
III.	A put feature that guarantees the right to redeem the bonds at a prespecified price.
IV.	Convertibility at a fixed conversion price.

Accepted Answer

B

Question 2

In general, foreign- pay bonds provide ___________rates of return and___________ diversification effects for U.S. investors.

Accepted Answer

Foreign-pay bonds can offer competitive rates of return and positive diversification effects for U.S. investors by providing exposure to different interest rate environments and currency fluctuations.

Question 3

Which one of the following statements concerning Treasury bonds is correct?

Accepted Answer

B

Question 4

Two years ago, Mathew purchased a 10 year government bond with a yield of 4.75%. Today, the interest rate on government bonds with 8 years to maturity is 3.5%. If Mathew sells his bond today, he most likely will

Accepted Answer

When interest rates decrease, the price of existing bonds with higher yields increases, leading to a capital gain if sold.

Question 5

Bonds are least likely to be called if

Accepted Answer

Bonds are least likely to be called if they are selling at a substantial discount because the issuer would have to pay more than the current market price to call them, which is not financially advantageous.

Question 6

Which of the following is most likely to happen with a convertible bond when the market price of the share exceeds the conversion price. The share does not pay a dividend.

Accepted Answer

When the market price of the share exceeds the conversion price, it is advantageous for bondholders to convert their bonds into shares. The issuing company may call the bonds to encourage conversion and reduce debt.

Question 7

When convertible bonds are first issued
I.	the conversion price of the share is higher than the market price.
II.	the market price of the share is higher than the conversion price.
III.	the coupon rate is higher than if the bond were not convertible.
IV.	the coupon rate is lower than if the bond were not convertible.

Accepted Answer

Convertible bonds typically have a conversion price higher than the current market price of the stock, and they offer a lower coupon rate compared to non-convertible bonds due to the added value of the conversion feature.

Question 8

Which of the following is a good reason to invest in convertible bonds?

Accepted Answer

Convertible bonds provide regular interest payments and the potential to convert into equity, allowing investors to benefit from a rise in the company's stock price.

Question 9

Bob expects to retire in a few years and his primary goal is to avoid major losses. Which of the following bond characteristics should he be seeking?
I. Long maturities.
II. High ratings.
III. High yields.
IV. Short maturities.

Accepted Answer

Bob should seek bonds with high ratings to minimize credit risk and short maturities to reduce interest rate risk, which aligns with his goal of avoiding major losses.

Question 10

Most bonds pay interest

Accepted Answer

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

Question 11

A type of bond that is issued and traded outside the United States and which is denominated in U.S. dollars but is not registered with the SEC is

Accepted Answer

A Eurodollar bond is issued and traded outside the United States, denominated in U.S. dollars, and not registered with the SEC.

Question 12

Treasury strip bonds are popular because

Accepted Answer

The answer of Treasury strip bonds are popular because
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Question 13

If you expect market interest rates to rise, you should purchase

Accepted Answer

Short term, high coupon bonds are less sensitive to interest rate changes and provide higher income, making them preferable when expecting rising rates.

Question 14

Which one of the following is the most junior in terms of its claim on earnings and assets?

Accepted Answer

Subordinated debentures are unsecured bonds that have a lower claim on assets and earnings compared to other types of bonds, making them the most junior in terms of claims.

Question 15

In a severe recession, the major source of risk faced by investors who purchase corporate bonds is

Accepted Answer

In a severe recession, companies may struggle financially, increasing the risk of default on their bond obligations.

Question 16

The practice of bundling mortgages or other loans into pools and selling shares of the pool as bond- like instruments is known as

Accepted Answer

Securitisation is the process of bundling various types of debt, such as mortgages, and selling them as securities to investors.

Question 17

The bond market is considered bearish when

Accepted Answer

A bearish bond market is characterized by high or rising market interest rates, which typically lead to falling bond prices.

Question 18

Which one of the following statements concerning a global view of the bond market is correct?

Accepted Answer

Exchange rate fluctuations can affect the returns on foreign-pay bonds because the bond's interest and principal payments are made in a foreign currency, which must be converted back to the investor's home currency.

Question 19

If a bond rating moves from a BB to a BBB rating

Accepted Answer

The bond will be more attractive to investors, which will increase the demand for the bond and thus raise its price.

Question 20

Pass- through securities backed by pools of auto loans, credit card bills, and computer leases are known as

Accepted Answer

ABSs are pass-through securities backed by pools of auto loans, credit card bills, and computer leases.

Quiz 10: Fixed-Income Securities

Liquid yield option notes or LYONs have which of the following characteristics? I. Convertibility at a fixed conversion ratio. II. High coupon rates. III. A put feature that guarantees the right to redeem the bonds at a prespecified price. IV. Convertibility at a fixed conversion price.

In general, foreign- pay bonds provide _rates of return and_ diversification effects for U.S. investors.