Question 1

High-risk bonds are called trash bonds.

Accepted Answer

A) True 
 B)False

Question 2

Stripped bonds are bonds whose cash flows have been transformed into a security representing the principal payment only and a security representing interest payments only.

Accepted Answer

A) True 
 B)False

Question 3

The bond debenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following institutions is most likely to purchase a private bond placement?

Accepted Answer

A)   commercial bank
B)   finance company
C)   insurance company
D)   savings institutionE) C) and D)
F) A) and B) C

Question 5

Everything else being equal, which of the following bond ratings is associated with the highest yield?

Accepted Answer

A)   Baa
B)   A
C)   Aa
D)   AaaE) B) and C)
F) A) and C)

Question 6

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

Accepted Answer

A)   more; less; lower
B)   more; less; higher
C)   less; more; higher
D)   none of the aboveE) All of the above
F) A) and B)

Question 7

Bonds that are not secured by specific property are called

Accepted Answer

A)   a chattel mortgage.
B)   open-end mortgage bonds.
C)   debentures.
D)   blanket mortgage bonds.E) A) and D)
F) C) and D)

Question 8

Treasury bonds are issued by state and local governments.

Accepted Answer

A) True 
 B)False

Question 9

____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.

Accepted Answer

A)   Bearer
B)   Registered
C)   Treasury
D)   CorporateE) A) and B)
F) All of the above

Question 10

A credit rating agency is paid by:

Accepted Answer

A)   the purchasers of the bonds that the agency rates.
B)   the issuers of the bonds that the agency rates.
C)   the taxpayers, because the rating agencies are government agencies.
D)   the New York Stock Exchange or the over-the-counter market where the bonds are listed.E) None of the above
F) C) and D)

Question 11

Devin, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Devin will hold the bonds until maturity. Thus, he will earn a returnof ____ percent.

Accepted Answer

A)   12
B)   9
C)   10.5
D)   more information is needed to answer this questionE) All of the above
F) A) and C)

Question 12

Subordinated indentures have claims against the firm's assets that are junior to the claims of both mortgage bonds and regular debentures.

Accepted Answer

A) True 
 B)False

Question 13

Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields.

Accepted Answer

A)   higher; lower
B)   lower; lower
C)   higher; higher
D)   none of the aboveE) All of the above
F) A) and B)

Question 14

Corporate bonds usually pay interest on an annual basis.

Accepted Answer

A) True 
 B)False  False

Question 15

Interest earned from Treasury bonds is

Accepted Answer

A)   exempt from all income tax.
B)   exempt from federal income tax.
C)   exempt from state and local taxes.
D)   subject to all income taxes.E) B) and C)
F) A) and D)

Question 16

Many bonds are listed on the New York Stock Exchange (NYSE).

Accepted Answer

A) True 
 B)False

Question 17

Corporate bonds are more standardized than stocks.

Accepted Answer

A) True 
 B)False

Question 18

The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.

Accepted Answer

A)   50
B)   70
C)   10
D)   5E) None of the above
F) A) and C)

Question 19

Structured notes are issued by firms to borrow funds, and the repayment of interest and principal is based on specified market conditions.

Accepted Answer

A) True 
 B)False

Question 20

Note maturities are usually ____, while bond maturities are ____.

Accepted Answer

A)   less than 10 years; 10 years or more
B)   10 years or more; less than 10 years
C)   less than 5 years; 5 years or more
D)   5 years or more; less than 5 yearsE) B) and C)
F) C) and D) A

Exam 7: Bond Markets

High-risk bonds are called trash bonds.

Correct AnswerverifiedShow Answer

Stripped bonds are bonds whose cash flows have been transformed into a security representing the principal payment only and a security representing interest payments only.

Correct AnswerverifiedShow Answer

The bond debenture is a legal document specifying the rights and obligations of both the issuing firm and the bondholders.

Correct AnswerverifiedShow Answer

Which of the following institutions is most likely to purchase a private bond placement?

Correct AnswerverifiedC

Everything else being equal, which of the following bond ratings is associated with the highest yield?

Correct AnswerverifiedShow Answer

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

Correct AnswerverifiedShow Answer

Bonds that are not secured by specific property are called

Correct AnswerverifiedShow Answer

Treasury bonds are issued by state and local governments.

Correct AnswerverifiedShow Answer

____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.

Correct AnswerverifiedShow Answer

A credit rating agency is paid by:

Correct AnswerverifiedShow Answer

Devin, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Devin will hold the bonds until maturity. Thus, he will earn a returnof ____ percent.

Correct AnswerverifiedShow Answer

Subordinated indentures have claims against the firm's assets that are junior to the claims of both mortgage bonds and regular debentures.

Correct AnswerverifiedShow Answer

Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields.

Correct AnswerverifiedShow Answer

Corporate bonds usually pay interest on an annual basis.

Correct AnswerverifiedFalse

Interest earned from Treasury bonds is

Correct AnswerverifiedShow Answer

Many bonds are listed on the New York Stock Exchange (NYSE).

Correct AnswerverifiedShow Answer

Corporate bonds are more standardized than stocks.

Correct AnswerverifiedShow Answer

The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.

Correct AnswerverifiedShow Answer

Structured notes are issued by firms to borrow funds, and the repayment of interest and principal is based on specified market conditions.

Correct AnswerverifiedShow Answer

Note maturities are usually ____, while bond maturities are ____.

Correct AnswerverifiedA

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C

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If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using debt and equity, which implies a degree of financial leverage.

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Corporate bonds that receive a rating from credit rating agencies are normally placed at yields.

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False

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Note maturities are usually , while bond maturities are .

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A