Thẻ ghi nhớ: Chapter 5: Bond Markets | Quizlet

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

A) Bearer

B) Registered

C) Treasury

D) Corporate

A

2. The yield to maturity is the annualized discount rate that equates the future coupon and principal payments to the initial proceeds received from the bond offering.

A) True

B) False

A

3. Note maturities are usually ______, while bond maturities are ______

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 years

A

4. Investors in Treasury notes and bonds receive interest payments from the Treasury.

A) annual

B) semiannual

C) quarterly

D) monthly

B

5. Since 2001, the Treasury has relied heavily on ______-year bonds to finance the U.S. budget deficit.

A) 50

B) 2

C) 10

D) 5

C

6. Interest earned from Treasury bonds is

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.

C

7. Treasury bond auctions are normally conducted only at the beginning of each year.

A) True

B) False

B

8. ______ bids for Treasury bonds specify a price that the bidder is willing to pay and a dollar amount of securities to be purchased.

A) Competitive

B) Noncompetitive

C) Negotiable

D) Non-negotiable

A

9. Treasury bond dealers

A) quote an ask price for customers who want to sell existing Treasury bonds to the dealers.

B) profit from a very wide spread between bid and ask prices in the Treasury securities market.

C) may trade Treasury bonds among themselves.

D) make a primary market for Treasury bonds.

C

10. Under the STRIP program created by the Treasury, stripped securities are created and sold by the Treasury.

A) True

B) False

B

11. A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the coupon payment after six months will be $

A) 250

B) 255

C) 500

D) 510

B

12. Bonds issued by ______ are backed by the federal government.

A) the Treasury

B) AAA-rated corporations

C) state governments

D) city governments

A

13. Municipal general obligation bonds are ______. Municipal revenue bonds are ______

A) supported by the municipal government's ability to tax; supported by the municipal government's ability to tax

B) supported by the municipal government's ability to tax; supported by revenue generated from the project

C) always subject to federal taxes; always exempt from state and local taxes

D) typically zero-coupon bonds; typically zero-coupon bonds

B

14. In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will

A) remain unchanged

B) fall

C) rise

D) none of the above

C

15. The municipal yield curve is typically ______ than the Treasury yield curve, and the shape of the municipal yield curve is ______ the shape of the Treasury yield curve.

A) lower; similar to

B) higher; much different than

C) lower; much different than

D) higher; similar to

D

16. The yield curve for corporate bonds is normally affected by interest rate expectations, a liquidity premium, and the specific maturity preferences by corporations issuing bonds.

A) True

B) False

A

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

A) higher; lower

B) lower; lower

C) higher; higher

D) none of the above

A

18. A private bond placement has to be registered with the SEC.

A) True

B) False

B

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

A) commercial bank

B) mutual fund

C) insurance company

D) savings institution

C

20. A protective covenant may

A) specify all the rights and obligations of the issuing firm and the bondholders.

B) require the firm to retire a certain amount of the bond issue each year.

C) restrict the amount of additional debt the firm can issue.

D) none of the above

C

21. A call provision normally

A) allows the firm to call bonds at par value.

B) gives the firm the option to call bonds at market value.

C) allows the firm to call bonds at a price below par value.

D) requires the firm to call bonds at a price above par value.

D

22. When would a firm most likely call bonds?

A) after interest rates have declined

B) if interest rates do not change

C) after interest rates increase

D) just before the time at which interest rates are expected to decline

A

23. Assume U.S. interest rates are significantly higher than German rates. A U.S. firm with a German subsidiary could achieve a lower financing rate, without exchange rate risk by denominating the bonds in

A) dollars.

B) euros and making payments from U.S. headquarters.

C) euros and making payments from its German subsidiary.

D) dollars and making payments from its German subsidiary.

C

24. Many bonds have different call prices: a higher price for calling the bonds to meet sinking-fund requirements and a lower price if the bonds are called for any other reason.

A) True

B) False

B

25. Bonds that are not secured by specific property are called

A) a chattel mortgage.

B) open-end mortgage bonds.

C) debentures.

D) blanket mortgage bonds.

C

26. Bonds that are secured by personal property are called

A) chattel mortgage bonds.

B) first mortgage bonds.

C) second mortgage bonds.

D) debentures.

A

27. The coupon rate of most variable-rate bonds is tied to

A) the prime rate.

B) the discount rate.

C) LIBOR.

D) the federal funds rate.

C

28. Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely ______ as a result.

A) rise

B) decline

C) be zero

D) be unaffected

B

29. During weak economic periods, newly issued junk bonds offer ______ risk premiums.

A) true

B) false

B

30. ______ bonds have the most active secondary market.

A) Treasury

B) Zero-coupon corporate

C) Junk

D) Municipal

A

31. Some bonds are "stripped," which means that

A) they have defaulted.

B) the call provision has been eliminated.

C) they are transferred into principal-only and interest-only securities.

D) their maturities have been reduced.

C

32. ______ are not primary purchasers of bonds.

A) Insurance companies

B) Finance companies

C) Mutual funds

D) Pension funds

B

33. Leveraged buyouts are commonly financed by the issuance of:

A) AAA-rated bonds.

B) Treasury bonds.

C) junk bonds.

D) municipal bonds.

C

34. When firms issue ______ the amount of interest and principal to be paid is based on specified market conditions. The amount of the repayment may be tied to a Treasury bond price index or even to a stock index.

A) auction-rate securities

B) structured notes

C) leveraged notes

D) stripped securities

B

35. Which of the following statements is true regarding STRIPS?

A) they are issued by the Treasury

B) they are created and sold by various financial institutions

C) they are not backed by the U.S. government

D) they have to be held until maturity

E) all of the above are true regarding STRIPS

B

36. Lisa can purchase bonds with 15 years until maturity, a par value of $1,000 and a 9 percent annualized coupon rate for $1,100. Lisa's yield to maturity is ______ percent.

A) 9.33

B) 7.84

C) 9.00

D) none of the above

B

37. Erin is, a private investor, who can purchase $1,000 par value bonds for $980. The bonds have a 10 percent coupon rate, pay interest annually, and have 20 years remaining until maturity. Erin's yield to maturity is ______ percent.

A) 9.96

B) 10.00

C) 10.33

D) 10.24

E) none of the above

D

38. Devin is, 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 return of ______ percent.

A) 12

B) 9

C) 10.5

D) more information is needed to answer this question

B

39. Which of the following is not true regarding zero-coupon bonds?

A) They are issued at a deep discount from par value.

B) Investors are taxed annually on the amount of interest earned, even though the interest will not be received until maturity.

C) The issuing firm is permitted to deduct the amortized discount as interest expense for federal income tax purposes, even though it does not pay interest.

D) Zero-coupon bonds are purchased mainly for tax-exempt investment account, such as pension funds and individual retirement accounts.

E) all of the above are true

E

40. Which of the following is not true regarding the call provision?

A) It typically requires a firm to pay a price above par value when it calls its bonds.

B) The difference between the market value of the bond and the par value is called the call premium.

C) A principal use of the call provision is to lower future interest payments.

D) A principal use of the call provision is to retire bonds as required by a sinking-fund provision.

E) A call provision is normally viewed as a disadvantage to bondholders.

B

41. If interest rates suddenly ______, those existing bonds that have a call feature are likely to be called.

A) decline; more

B) decline; less

C) increase; more

D) increase; less

A

42. Which of the following would not be a likely example of a protective covenant provision?

A) a limit on the amount of dividends a firm can pay

B) a limit on the corporate officers' salaries a firm can pay

C) the amount of additional debt a firm can issue

D) a call feature

D

43. Bonds are issued in the primary market through a telecommunications network.

A) True

B) False

A

44. Corporate bonds can be placed with investors through a public offering or a private placement.

A) True

B) False

A

45. When a corporation issues bonds, it normally hires a securities firm that targets large institutional investors such as pension funds, bond mutual funds, and insurance companies.

A) True

B) False

A

46. Rule 144A, which allows small individual investors to trade privately-placed bonds (and some other securities) with each other without requiring that the firms that issued the securities to register them with the SEC.

A) True

B) False

B

47. Rule 144A creates liquidity for securities that are privately placed.

A) True

B) False

A

48. Corporate bonds are more standardized than stocks.

A) True

B) False

B

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

A) True

B) False

A

50. Bonds issued by large well-known corporations in large volume are illiquid because most buyers hold these bonds until maturity.

A) True

B) False

B

51. The bond market is served by bond dealers, who can play a broker role by matching up buyers and sellers.

A) True

B) False

A

52. Bond dealers do not have an inventory of bonds.

A) True

B) False

B

53. Bond dealers specialize in small transactions (less than $100,000) in order to enable small investors to trade bonds.

A) True

B) False

B

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

A) True

B) False

A

55. The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.

A) True

B) False

A

56. The key difference between a note and a bond is that note maturities are usually less than one year, while bond maturities are one year or more.

A) True

B) False

B

57. Treasury bonds are issued by state and local governments.

A) True

B) False

B

58. 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.

A) True

B) False

A

59. Inflation-indexed Treasury bonds are intended for investors who wish to ensure that the returns on their investments keep up with the increase in prices over time.

A) True

B) False

A

60. Savings bonds are bonds issued by the Federal Reserve.

A) True

B) False

B

61. Corporate bonds usually pay interest on an annual basis.

A) True

B) False

B

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

A) True

B) False

B

63. A sinking-fund provision is a requirement that the issuing firm retire a certain amount of the bond issue each year.

A) True

B) False

A

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

A) True

B) False

B

65. High-risk bonds are called trash bonds.

A) True

B) False

B

66. Zero-coupon bonds do not pay interest. Instead, they are issued at a discount from par value.

A) True

B) False

A

67. If interest rates suddenly decline, those existing bonds that have a call feature are less likely to be called.

A) True

B) False

B

68. Which of the following statements is not true regarding STRIPS?

A) They are not issued by the Treasury.

B) They are created and sold by various financial institutions.

C) They are backed by the U.S. government.

D) They have to be held until maturity.

E) All of the above are true regarding STRIPS.

D

69. Paul can purchase bonds with 15 years remaining until maturity, a par value of $1,000 and a 9 percent annual coupon rate for $1,100. Paul's yield to maturity is ______ percent.

A) 9.33

B) 7.84

C) 9.00

D) none of the above

B

70. Ed Wood, a private investor, can purchase $1,000 par value bonds for $980. The bonds have a 10 percent coupon rate, pay interest annually, and have 20 years remaining until maturity. Mr. Wood's yield to maturity is ______ percent.

A) 9.96

B) 10.00

C) 10.33

D) 10.24

E) none of the above

D

71. Jim, a private investor, purchases $1,000 par value bonds with a 12 percent coupon rate and a 9 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ______ percent.

A) 12.00

B) 9.00

C) 10.50

D) More information is needed to answer this question.

B

72. Which of the following is not an example of a municipal bond?

A) general obligation bond

B) revenue bond

C) Treasury bond

D) All of the above are examples of municipal bonds.

C

73. Which of the following statements is incorrect?

A) The municipal bond must pay a risk premium to compensate for the possibility of default risk.

B) The Treasury bond must pay a slight premium to compensate for being less liquid than municipal bonds.

C) The income earned from municipal bonds is exempt from federal taxes.

D) All of the above are true.

B

74. Which of the following is not mentioned in your text as a protective covenant?

A) a limit on the amount of dividends a firm can pay

B) a limit on the corporate officers' salaries a firm can pay

C) the amount of additional debt a firm can issue

D) the appointment of a trustee in all bond indentures

E) All of the above are mentioned in the text as protective covenants.

D

75. Which of the following is not true regarding the call provision?

A) It typically requires a firm to pay a price above par value when it calls its bonds.

B) The difference between the market value of the bond and the par value is called the call premium.

C) A principal use of the call provision is to lower future interest payments.

D) A principal use of the call provision is to retire bonds as required by a sinking-fund provision.

E) A call provision is normally viewed as a disadvantage to bondholders.

B

76. A ______ has first claim on specified assets, while a ______ is a debenture that has claims against a firm's assets that are junior to the claims of mortgage bonds and regular debentures.

A) first mortgage bond; second mortgage bond

B) first mortgage bond; debenture

C) first mortgage bond; subordinated debenture

D) chattel mortgage bond; subordinated debenture

E) none of the above

C

77. 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.

A) more; less; lower

B) more; less; higher

C) less; more; higher

D) none of the above

B

78. Which of the following is not true regarding zero-coupon bonds?

A) They are issued at a deep discount from par value.

B) Investors are taxed on the total amount of interest earned at maturity.

C) The issuing firm is permitted to deduct the amortized discount as interest expense for federal income tax purposes, even though it does not pay interest until maturity.

D) Zero-coupon bonds are purchased mainly for tax-exempt investment accounts, such as pension funds and individual retirement accounts.

E) All of the above are true.

B

79. A variable rate bond allows

A) investors to benefit from declining rates over time.

B) issuers to benefit from rising market interest rates over time.

C) investors to benefit from rising market interest rates over time.

D) none of the above.

C

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

A) Baa

B) A

C) Aa

D) Aaa

A