CH06 - Chapter 6 Bond Markets True/False Questions 1. A...

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Chapter 6 Bond Markets True/False Questions 1. A Treasury STRIP is sometimes referred to as a TIPS. Answer: False Page: 158 Level: Easy 2. A callable bond is one where the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principle is paid by final maturity. Answer: False Page: 175 Level: Easy 3. Of the three major sectors of bond issuers, corporations have the greatest dollar value of bonds outstanding. Answer: True Page: 155 Level: Medium 4. “On the run” Treasury notes and bonds are newly issued securities and “off the run” Treasuries are securities that have been previously issued. Answer: True Page: 156 Level: Medium 5. Bonds that give the bondholder the opportunity to purchase common stock at a prespecified price up to a specified date are called convertible bonds. Answer: False Page: 178 Level: Medium 6. The dirty price plus accrued interest is called the clean price of the security. Answer: False Page: 164-165 Level: Easy 7. Accrued interest owed to the bond seller increases as the next coupon payment date approaches Answer: True Page: 165 Level: Easy 8. Revenue bonds are backed by the full revenue of the municipality. Answer: False Page: 171 Level: Easy 9. An institutional investor that pays no taxes and is looking for a bond investment will probably not invest in municipal bonds. Answer: True Page: 170 Level: Medium 10. An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture. Answer: True Page: 175 Level: Easy 11. With TIPS, the security's coupon rate is changed every six months by the inflation rate as measured by the CPI. Answer: False Page: 164 Level: Medium 12. Bond ratings use a classification system to give investors an idea of the amount of interest rate risk 71
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associated with the bond issue. Answer: False Page: 180-181 Level: Easy 13. Bonds rated below Baa by Moody's or BBB by S&P are junk bonds. Answer: True Page: 180 Level: Medium 14. Euro bonds are bonds denominated in the issuer's home currency, but are issued outside their home country. Answer: True Page: 187 Level: Medium 15. Callable bonds have lower required yields than similar convertible bonds, ceteris paribus. Answer: False Page: 178-179 Level: Medium Multiple Choice Questions 16. The largest component of bond market instruments outstanding in 2004 was comprised of A) T-Bills B) T-Bonds C) Municipal bonds D) Corporate bonds E) None of the above Answer: D Page: 155 Level: Medium 17. A T-Bond with a $1000 par is quoted at 98:20 Bid, 98:24 Ask. The clean price for you to buy this bond is A) $986.25 B) $987.50 C) $982.00 D) $982.40 E) None of the above Answer: B Page: 163 Level: Medium 18. The quoted ask yield on a 15 year $1000 par T-Bond with a 6% semiannual payment coupon and a price quote of 104:12 is A) 6.00% B) 5.60% C) 5.57% D) 2.81% E) 2.78% Answer: C Page: 164 Level: Medium Rationale: $1,043.75 = $30 × PVIFA(r%,30) + $1,000
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This note was uploaded on 12/05/2011 for the course ECON 3311 taught by Professor L during the Spring '11 term at University of Texas at Dallas, Richardson.

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CH06 - Chapter 6 Bond Markets True/False Questions 1. A...

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