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A bond's indenture agreement generally includes all of the following except the:


A) terms of repayment.
B) details of protective covenants.
C) total amount of the bond issue.
D) names of registered shareholders.
E) description of property used as security.

F) All of the above
G) A) and B)

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A registered-form bond is defined as a bond that:


A) is a bearer bond.
B) is held in street name.
C) pays coupon payments directly to the owner of record.
D) is listed with the Securities and Exchange Commission (SEC) .
E) is unsecured.

F) A) and B)
G) A) and E)

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A callable bond:


A) is generally call protected during the entire term of the bond issue.
B) generally will have a call protection period during the final three years prior to maturity.
C) may be structured to pay bondholders the current value of the bond on the date of call.
D) is prohibited from having a sinking fund also.
E) is frequently called at a price that is less than par value.

F) D) and E)
G) B) and D)

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The yield to maturity on a discount bond is:


A) equal to both the coupon rate and the current yield.
B) equal to the current yield but greater than the coupon rate.
C) greater than both the current yield and the coupon rate.
D) less than the current yield but greater than the coupon rate.
E) less than both the current yield and the coupon rate.

F) B) and C)
G) A) and E)

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A company needs to raise $22 million and plans to issue 20-year bonds for this purpose.The required rate of return is7.6 percent in the current market.The company has two issue alternatives: a 7.6 percent coupon and a zero coupon bond.The company's tax rate is 34 percent.At bond maturity, how much will the company need to pay to its bondholders if it issues the coupon bonds? What if it issue the zeros? Assume semiannual compounding for both bond issues.(For simplicity's sake, assume the company can issue a partial bond.)


A) $21.407 million; $102.12 million
B) $23.672 million; $97.795.51 million
C) $22.836 million; $102.12 million
D) $22.836 million; $97.795 million
E) $23.672 million; $102.12 million

F) A) and E)
G) B) and D)

Correct Answer

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The $1,000 face value bonds of Universe International have coupon of 6.8 percent and pay interest semiannually.Currently, the bonds are quoted at 103.5 and mature in 16 years.What is the yield to maturity?


A) 5.75 percent
B) 6.24 percent
C) 12.89 percent
D) 6.92 percent
E) 6.45 percent

F) A) and D)
G) A) and E)

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Which one of the following terms applies to a junk bond that was originally issued with a bond rating of AA?


A) Debenture
B) Covenant
C) Fallen angel
D) Sinking ship
E) Trust deed

F) None of the above
G) C) and D)

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The R in the Fisher effect formula represents the:


A) current yield.
B) real return.
C) coupon rate.
D) inflation rate.
E) nominal return.

F) B) and D)
G) A) and E)

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You own two bonds, each of which currently pays semiannual interest, has a coupon rate of 6 percent, a $1,000 face value, and 6 percent yields to maturity.Bond A has 12 years to maturity and Bond B has 4 years to maturity.If the market rate of interest rises unexpectedly to 7 percent, Bond _____ will be the most volatile with a price decrease of _____ percent.


A) A; 5.73
B) A; 3.44
C) A; 8.03
D) B; 7.97
E) B; 4.51

F) B) and D)
G) All of the above

Correct Answer

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A seventeen-year, semiannual coupon bond is selling for $1,030.The bond has a face value of $1,000 and a yield to maturity of 5.95 percent.What is the coupon rate?


A) 2.65 percent
B) 5.95 percent
C) 6.40 percent
D) 6.23 percent
E) 3.12 percent

F) B) and E)
G) B) and D)

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Suppose that a small, rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds.Which one of the following components of the bond's yield will be affected by the fact that no active secondary market is expected for these bonds?


A) Real rate
B) Liquidity premium
C) Interest rate risk premium
D) Inflation premium
E) Taxability premium

F) A) and E)
G) B) and C)

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All else held constant, the present value of a bond increases when the:


A) coupon rate decreases.
B) yield to maturity decreases.
C) current yield increases.
D) time to maturity of a premium bond decreases.
E) time to maturity of a zero coupon bond increases.

F) A) and E)
G) C) and D)

Correct Answer

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Travis recently purchased a callable bond.However, that bond cannot be currently redeemed by the issuer.Thus, the bond must currently be:


A) subject to a sinking fund provision.
B) a debenture.
C) a "fallen angel."
D) call protected.
E) unrated.

F) A) and E)
G) A) and D)

Correct Answer

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A protective covenant:


A) protects the borrower from unscrupulous practices by the lender.
B) guarantees the interest and principal payments will be paid in full on a timely basis.
C) prevents a bond from being called.
D) limits the actions of the borrower.
E) guarantees the market price of a bond will never be less than par value.

F) None of the above
G) B) and D)

Correct Answer

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Of these choices, a risk-adverse investor who prefers to minimize interest rate risk is most apt to invest in:


A) 5-year, 7 percent coupon bonds.
B) 20-year, 6 percent coupon bonds.
C) 20-year, zero coupon bonds.
D) 2-year, 7 percent coupon bonds.
E) 3-year, zero coupon bonds.

F) A) and B)
G) A) and C)

Correct Answer

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Which one of the following types of bonds permits its issuer to forego paying interest payments if certain natural events cause significant losses?


A) PETS
B) PUT
C) CAT
D) PINES
E) LIBOR

F) C) and E)
G) A) and C)

Correct Answer

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Which one of the following is the price that an investor pays to purchase an outstanding bond?


A) Dirty price
B) Face value
C) Call price
D) Bid price
E) Clean price

F) A) and B)
G) D) and E)

Correct Answer

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The call premium is the amount by which the:


A) market price exceeds the par value.
B) market price exceeds the call price.
C) face value exceeds the market price.
D) call price exceeds the par value.
E) call price exceeds the market price.

F) A) and E)
G) D) and E)

Correct Answer

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Lake Industries bonds have a face value of $1,000, a coupon rate of 7.2 percent, semiannual interest payments, and mature in 15 years.What is the current price of these bonds if the yield to maturity is 6.98 percent?


A) $988.39
B) $1,000.00
C) $1,020.26
D) $1,012.78
E) $1,010.68

F) D) and E)
G) A) and E)

Correct Answer

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The market-required rate of return on a bond that is held for its entire life is called the:


A) coupon rate.
B) yield to maturity.
C) dirty yield.
D) call premium.
E) current yield.

F) C) and D)
G) B) and D)

Correct Answer

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