Each multiple choice question is worth 2.4 points. Select the best answer. 1. A

Question

Each multiple choice question is worth 2.4 points. Select the best answer. 1. A protective covenant: A. protects the borrower from unscrupulous practices by the lender B. is designed to protect the bond dealer from potential legal liability related to the bond issue C. prevents a thoughtless gift bearer from being placed in the Pit of Misery D. limits the actions of the borrower E. guarantees that a bond will be repaid in full with interest 2. Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation? A. Nominal rate B. Real rate C. Dirty rate D. Coupon rate E. Clean rate 3. The Treasury yield curve plots the yields on Treasury notes and bonds relative to the of those securities A. face value B. market price C. maturity D. coupon rate E. issue date 4. When a bond's yield to maturity is less than the bond's coupon rate, the bond: A. had to be recently issued B. is selling at a premium C. can be exchanged for a Bud Light D. is priced at par E. is selling at a discount 5. Dexter, Inc. has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years. This provision is referred to as the provision. A. safeguard B. market C. liquidity D. deferred call E. sinking fund 6. A call provision grants the bond issuer the: A. right to phone for help from the Pit of Misery B. option to exchange the bonds for equity securities C. right to automatically extend the bond's maturity date D. right to repurchase the bonds on the open market prior to maturity E. option of repurchasing the bonds prior to maturity at a pre-specified price PAGE 1

Explanation / Answer

Question Answer Explanation 1 d It limits the action of the borrower to protect interest of lender 2 a Nominal rate is unadjusted rate of return 3 c Treasury yield curve plots yield relative to maturity 4 e It means that bond is selling at discount 5 d It is known as deferred call 6 e allows the original issuer to repurchase and retire the bonds.

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