CH7 - Self Test Quiz Chapter 7 Estimated Time To Complete...

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Self Test Quiz Chapter 7 Estimated Time To Complete: 85 minutes 1. The call premium typically starts at 10 percent of par and decreases to zero with the passage of time. A. True B. False 2. A call provision, but not a sinking fund, allows a company to retire its debt early. A. True B. False 3. An upward sloping yield curve reflects investors' desire for compensation for interest rate risk. A. True B. False 4. If you multiply a bond's current yield by its market price you get the: A. yield to maturity. B. investors' required rate of return. C. annual coupon rate. D. cost of capital. E. annual coupon payment. 5. You want to own equity in a foreign oil company, but no shares of stock are currently being offered for sale. If there are _____ for sale, you could purchase these and then trade them in for shares of stock. A. convertible bonds B. put bonds C. debentures D. zero coupon bonds E. subordinated debentures 6. Which of the following bonds can be terminated prior to maturity by the issuer? I. callable bond II. bond with sinking fund provision III. convertible bond IV. put bond A. I and II only B. II and III only C. III and IV only D. I, II, and IV only E. I, II, and III only 7. Which of the following factors affect the term structure of interest rates? I. expected rate of inflation II. interest rate risk premium III. real rate of interest A. I only B. II only C. I and II only D. I and III only E. I, II, and III
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8. HomeSafe Cab Co. wants to issue new 10-year bonds to finance its expansion plans. Currently the company has 9 percent semiannual bonds selling for $1,067.95 that mature 10 years from now. What must the coupon rate of the new bonds be in order for the issue to sell at par if interest is paid semiannually? A. 4.00 percent B. 4.21 percent C. 7.72 percent D. 7.99 percent E. 8.00 percent 9. A semiannual corporate bond has a face value of $1,000, a yield to maturity of 7.2 percent, and a coupon rate of 7.5 percent. The bond matures 10 years from today. This bond: A. pays interest payments of $75.00 every six months. B. sells at par value. C. is currently quoted at a price of 101.02. D. has a current yield of 7.34 percent. 10. The price you pay to purchase a Treasury bond is the _____ price. A. asked B. yield C. call D. bid 11. When computing the present value of an annuity stream of payments you should discount: A. the nominal cash flows using the real discount rate. B. each increasing nominal payment by using the annuity growth formula. C. each increasing nominal payment using the real discount rate for each period. D. the real cash flows using the real discount rate. 12. An investor is considering two bonds, a 5.5 percent municipal bond versus a 7.5 percent taxable bond. If the investor is in the 30 percent tax bracket, which bond should she chose? Why? Ignore state and local taxes. A. the taxable bond; it has a higher aftertax yield
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CH7 - Self Test Quiz Chapter 7 Estimated Time To Complete...

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