10) If an issuer has the right to pay off a bond before its maturity, the bond i
ID: 1171909 • Letter: 1
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10) If an issuer has the right to pay off a bond before its maturity, the bond is A) reversible 10) B) convertible C) callable D) speculative 11) Compared with other bonds convertible bonds usually have A) a higher yield C) low tax payments. B) a higher price D) less liquidity 12) Compared with other bonds, callable bonds usually have 12) A) a higher yield C) a higher price B) low tax payments D) less liquidity 13) Holders of bonds can exchange their bonds into shares of the company's common price at a A) investment grade C) callable B) junk D) convertible 14) A corporation is likely to "call" a bond if 14) A) interest rates rise sharply. C) it goes bankrupt. B) interest rates fall sharply D) it has short-term liquidity problems 15) Junk bonds are defined as those bonds the rating services consider to be 15) A) investment grade C) high risk or speculative grade. B) financial grade D) in default. 16) Moody's gives junk bonds a rating below 16) A) Baa. B) Aaa. C) A. Aa. 17) Which of the following is least likely to issue commercial paper? A) General Electric C) The U.S. Treasury B) General Motors Acceptance Corporation D) A large bank holding company 18) bonds are municipal bonds that are backed by the general taxing power of the state or local government. A) Revenue C) Tax-anticipation B) Bond-anticipation D) General obligation 19) Most municipal bonds are A) general obligation bonds. C) single maturity bonds B) revenue bonds. D) callable bonds. 20) 20) A municipal bond issued by the state of Colorado to construct a new toll highway is a bond A) collateralized C) revenue B) Treasury D) general obligation 21) To borrow funds between tax payment dates, city governments can issue B) revenue bonds A) tax anticipation notes C) general obligation bonds D) corporate bonds.Explanation / Answer
10. Correct option C. Callable
Explanation: A callable bond is a bond that can be redeemed by the issuer prior to its maturity.
11. A) a higher yield.
Explanation: company offers convertible bonds with the higher returns commonly found with stocks along with the reduced risk associated with bonds.
12.a higher yield.
Explanation: A callable bond pays an investor a higher coupon (nominal yield) than a non-callable bond, because the investor must be rewarded for taking the risk the issuer will call the bond if interest rates decline.
13. D) convertible bonds.
Explanation: convertible bond is a type of bond that can be converted into a predetermined amount of company's equity.
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