quiz3solution - Quiz 3 Finance 310 Fall 2005 Instructor...

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Quiz 3 Finance 310 Fall 2005 Instructor: Marlena L. Akhbari Name: _______________________ Section I. Multiple Choice Questions. There is only one correct answer for each question. Please choose carefully. 2 Points Each 1. Your broker offers you the opportunity to purchase a bond with coupon payments of $90 per year and a face value of $1000. If the yield to maturity on similar bonds is 8%, this bond should: a. Sell for the same price as the similar bond regardless of their respective maturities. b. Sell at a premium . c. Sell at a discount. d. Sell for either a premium or a discount but it’s impossible to tell which. e. Sell for par value. 2. All else the same, the existence of a _________ will increase the required return on a bond. a. protective covenant b. trust deed c. sinking fund d. call provision e. conversion feature 3. If a firm could sell a debenture at an 8% interest rate, it could sell an otherwise identical subordinated debenture at: a. a rate less than 8% b. 8% c. a rate greater than 8% d. none of the above/cannot be determined 4. The ABC Company has two bonds outstanding that are the same except for the maturity date. Bond D matures in 8 years while Bond E matures in 3 years. If the required return changes a. Bond D will have the greater change in price. b. Bond E will have a greater change in price. c. The price of the bonds will be constant d. The price change for the bonds will be equal because they have the same coupon rate.
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5. The written, legally binding agreement between the corporate borrower and the lender detailing the terms of a bond issue is called the: a. call provision b. indenture c. terms of trade d. covenant e. form 5140 6. Which if the following is (are) true? I.
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quiz3solution - Quiz 3 Finance 310 Fall 2005 Instructor...

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