1. Private placements refer exclusively to stock issues sold to insurance compan
ID: 1889292 • Letter: 1
Question
1. Private placements refer exclusively to stock issues sold to insurance companies or individuals. (Points : 1)True
False
2. While Treasury bonds and bills are quoted on the basis of price, Treasury note are quoted on the basis of yield. (Points : 1)
True
False
3. The dollar volume of new corporate debt issues has exceeded the dollar volume of new corporate equity issues for many years. (Points : 1)
True
False
4. A bond quote of 91 7/8 on a $1,000 par value bond means the bond is trading at $918.75. (Points : 1)
True
False
5. Corporate issues make up the largest percentage of new debt offerings in the bond market. (Points : 1)
True
False
6. There is customarily a small spread between bid and asked prices of treasury notes and bonds because (Points : 1)
They are traded at a discount from par
There is competition from other markets
The market for treasury issues is liquid
There are not many government securities dealers
7. The demand side of the bond market is dominated by (Points : 1)
The federal government
Wealthy individual investors
Institutional investors
None of the above
8. The difference between a general obligation and a revenue bond is: (Points : 1)
The general obligation bond is backed by full faith, credit, and "taxing power" of the governmental unit
That for a revenue bond, the repayment of the issue is fully dependent on the revenue-generating capability of a specific project or venture
General obligation bonds are usually of high quality because of the taxing power behind most of them
All of the above
9. Junk bonds normally provide (Points : 1)
A higher yield than treasury bonds
A lower yield than treasury bonds
A lower yield than AA corporate bonds
More than one of the above is true
10. Inflation-indexed Treasury securities provide returns through (Points : 1)
Interest payments plus a conversion privilege
Interest payments plus an increase in value due to inflation
Tax exempt interest payments
Cumulative interest payments
11. The primary difference between jumbo and small Certificates of Deposit, besides dollar amount, is (Points : 1)
That jumbo certificates have a variable interest rate
That small certificates are considered to be risk-free
There is no secondary market for small certificates of deposit
None of the above
12. The yield spread between junk bonds and high quality bonds is greatest when (Points : 1)
There is weak confidence in the economy
There is strong confidence in the economy
The yield curve is flat
The Federal Reserve is refinancing
13. A legal document which is administered by an independent trustee and spells out the major provisions of a bond agreement is called the (Points : 1)
Bond contract
Bond indenture
Debenture
Bond subordination
14. The most important feature of municipal bonds is (Points : 1)
The wide range of denominations and maturities
The interest is not taxable by the federal government
The risk-free nature of this investment
Its appeal to investors needing growth
15. Which of the following is NOT a characteristic of preferred stock as an investment? (Points : 1)
Preferred stockholders are entitled to receive their dividend prior to payment of dividends to common stockholders
Preferred stock dividends are taxed at the capital gains rate for individual investors
Preferred stock dividends may be omitted by the corporation under certain circumstances
It is a hybrid security of common stock and debt
16. A descending term structure reflects the view that rates will increase in the future. (Points : 1)
True
False
17. An ascending term structure reflects the view that rates will increase in the future. (Points : 1)
True
False
18. The key to a pure pickup yield swap is that the bond price of one or both bonds has to be in disequilibrium. (Points : 1)
True
False
19. The reinvestment assumption would have no effect on yield if the bond is held to maturity. (Points : 1)
True
False
20. Deep discount bonds reflect questionable quality. (Points : 1)
True
False
21. The Oxford Fixed Income Fund invests heavily in bonds. If the fund manager thinks that interest rates are going to fall, what changes should she make in her investment portfolio? (Points : 1)
Increase investment in long-term bonds
Increase investment in short-term debt instruments
Increase investment in equity securities
Buy callable bonds
Buy real assets
22. With a pure pickup yield swap (Points : 1)
The owner thinks he can decrease the yield to maturity by selling a bond and buying a different bond of less risk
The market is assumed to be totally efficient
The key to the swap is that the bond price of one or both bonds has to be in disequilibrium
None of the above
23. When the bond investor believes interest rates are going to fall, the best strategy would be to (Points : 1)
Take a bearish position in the market by selling long-term bonds
Take a bullish position in the market by buying long-term bonds
Move out of bonds completely
Keep his portfolio unchanged
24. What is the price of a $1,000 perpetual par bond with a coupon rate of 10 percent and a current yield of 8 percent? (Points : 1)
$1,000
$800
$920
$1,250
$925.93
25. Swaps may be utilized to take advantage of (Points : 1)
A capital loss
A disequilibrium in bond prices
Conversion privileges
All of the above
26. A 15 year, 7% coupon rate bond is selling for $771.82. What is the current yield of the bond? (Points : 1)
22.8%
7.0%
9.1%
10.0%
30.7%
27. The upward slope of the yield curve is caused by investors' recognition of the relative difficulty of converting long-term securities to cash. This is the (Points : 1)
Expectations hypothesis
Liquidity preference theory
Market segmentation theory
More than one of the above
28. Short-term interest rates have _________ volatility in comparison to long-term interest rates (Points : 1)
Much less
More
Equal
Slightly less
29. Which of the following bond pricing rules is incorrect? (Points : 1)
Bond prices and interest rates are inversely related
Prices of long-term bonds are less sensitive to changes in interest rates than short-term bonds
Bond price sensitivity increases at a decreasing rate as maturity increases
Bond prices are more sensitive to a decline in market yield to maturity
30. Yield to maturity takes into account everything except: (Points : 1)
Annual interest received
The difference between the current bond price and its maturity value
The number of years to maturity
The number of years since the bonds purchase
Explanation / Answer
1. True 2. True 3. False 4. true 5. false 6. There is competition from other markets 7. Institutional investors 8. That for a revenue bond, the repayment of the issue is fully dependent on the revenue-generating capability of a specific project or venture 9. More than one of the above is true 10. Cumulative interest payments 11. There is no secondary market for small certificates of deposit 12. The yield curve is flat 13. Debenture 14. The interest is not taxable by the federal government 15. Preferred stock dividends may be omitted by the corporation under certain circumstances 16. false 17. false 18. true 19.false 20. true 21. Increase investment in long-term bonds 22. The key to the swap is that the bond price of one or both bonds has to be in disequilibrium 23. Keep his portfolio unchanged 24. $1,250 25. All of the above 26. 30.7% 27. Market segmentation theory 28. Slightly less 29. Bond prices are more sensitive to a decline in market yield to maturity 30. The number of years to maturity
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