Note: During the 2008-2009 period of financial crisis, when housing prices started to decline, trouble hit these mortgage-backed securities (MBS) and the risky sections started taking on losses. Unemployment, falling property values and weak consumer sentiment have pushed residential mortgage securities down to historically low prices. In many cases, residential mortgage securities are being held at 20 or 30 cents on the dollar, even for performing loans that continue to make payments.
151 Chapter 8 Review Questions 1. An investor is currently holding income bonds, debentures, subordinated debentures, first-mortgage bonds, and floating rate notes. Which of these securities traditionally is considered to have the least risk? A.Mortgage bonds. B.Income bonds. C.Debentures. D.Subordinated debentures. 2. Debentures are 3. Zero-coupon bonds issued by corporations 4. Junk bonds are
152 5. Which one of the following characteristics distinguishes income bonds from other bonds? A.The bondholder is guaranteed an income over the life of the security. B.By promising a return to the bondholder, an income bond is junior to preferred and common stock. C.Income bonds are junior to subordinated debt but senior to preferred and common stock. D.Income bonds pay interest only if the issuing company has earned the interest. 6. Serial bonds are attractive to investors because 7. The best advantage of a zero-coupon bond to the issuer is that the
- Fall '08