Professional Documents
Culture Documents
Instructions: For each question there are several answers. Clearly mark the best
answer.
4. Mortgage bonds:
A. Is a type of debenture?
B. Are secured by a lien on real property.
C. Usually pay little or no interest.
D. Can only be issued by financial institutions.
10.A (n) ________ is used to outline the issuing company's contractual obligations to
bondholders.
A. mortgage
B. debenture
C. bond rating
D. indenture
11.Junk bonds:
A. Are high yield bonds.
B. Have higher default risk.
C. Were used to finance "fallen angels."
D. All of the above.
15.A $1,000 par value 10-year bond with a 10% coupon rate recently sold for $900. The yield
to maturity:
A. Is 10%.
B. Is greater than 10%.
C. Is less than 10%.
D. Cannot be determined.
16.Sterling Corp. bonds pay 10% annual interest and are selling at 97. The market rate of
interest:
A. Is less than 10%.
B. Is greater than 10%.
C. Equals 10%.
D. Cannot be determined.
17.The Blackburn Group has recently issued 20-year; unsecured bonds rated BB by Moody's.
These bonds are:
A. Low-risk bonds.
B. Debentures.
C. Premium bonds.
D. Mortgage bonds.
20.As interest rates, and consequently investors' required rates of return, change over time, the
________ of outstanding bonds will also change.
A. maturity date
B. coupon interest payment
C. par value
D. price
23.If current market interest rates rise, what will happen to the value of outstanding bonds?
A. It will rise.
B. It will fall.
C. It will remain unchanged.
D. There is no connection between current market interest rates and the value of outstanding
bonds.
24.If current market interest rates fall, what will happen to the value of outstanding bonds?
A. It will rise.
B. It will fall.
C. It will remain unchanged.
D. There is no connection between current market interest rates and the value of outstanding
bonds.
25.Cassel Corp. bonds pay an annual coupon rate of 10%. If investors' required rate of return is
now 8% on these bonds, they will be priced at:
A. Par value.
B. A premium to par value.
C. A discount to par value.
D. Cannot be determined from information given.
27.Quirk Drugs sold an issue of 30-year, $1,000 par value bonds to the public that carry a
10.85% coupon rate, payable semiannually. It is now 10 years later, and the current market
rate of interest is 9.00%. If interest rates remain at 9.00% until Quirk's bonds mature, what
will happen to the value of the bonds over time?
A. The bonds will sell at a premium and decline in value until maturity.
B. The bonds will sell at a discount and rise in value until maturity.
C. The bonds will sell at a premium and rise in value until maturity.
D. The bonds will sell at a discount and fall in value until maturity.
29.A bond with a face value of $1,000 has annual coupon payments of $100 and was issued
seven years ago. The bond currently sells for a premium and has eight years left to maturity.
This bond's ________ must be less than 10%.
A. yield to maturity
B. current yield
C. coupon rate
D. current yield and coupon rate
E. yield to maturity and current yield
30.A bond has a coupon rate of 10% and yield to maturity of 12%. Which of the following must
be true?
A. The bond is selling at a discount.
B. The bond is selling at a premium.
C. The bond's current yield is less than the coupon rate.
D. Both A and C.
E. Both B and C.
36.Eurobonds are:
A. Issued in a country different from the one in whose currency the bond is denominated.
B. Issued only in Europe.
C. The European equivalent of a junk bond.
D. None of the above.
37.Which of the following statements about zero coupon bonds is FALSE?
A. When the bonds mature, the issuing firm is faced with a small cash outflow relative to the
cash inflow the firm receives when the bonds are initially issued.
B. Zero coupon bonds are disadvantageous to the issuing firm if interest rates fall.
C. Yields tend to be bid down on zero coupon bonds due to investor demand for the bonds.
D. Zero coupon bonds provide a positive annual cash flow to the issuing firm over the life of
the bonds.
38.Eurobonds:
A. Are registered with the SEC.
B. Are frequently offered to U.S. citizens and residents during their initial distribution.
C. Take relatively longer periods of time to issue.
D. Have none of the above characteristics.
39.Which of the following bonds is sold by a corporation at a discount and pays no interest?
A. An indenture bond
B. A zero coupon bond
C. A junk bond
D. A Eurobond
42.Government bonds have lower yield to maturity than do corporate bonds of the same
maturity because the ________ premium is lower for government bonds.
A. interest rate risk
B. inflation
C. default
D. maturity
43.Shafer Corporation issued callable bonds. The bonds are most likely to be called if
A. Interest rates decrease.
B. Interest rates increase.
C. Shafer Corporation needs additional financing.
D. Shafer Corporation's stock price increases dramatically.
48.If a firm were to experience financial insolvency, the legal system provides an order of
hierarchy for the payment of claims. Assume that a firm has the following outstanding
securities: mortgage bonds, common stock, debentures, and preferred stock. Rank the order
in which investors that own mortgage bonds would have their claim paid?
A. First
B. Second
C. Third
D. Fourth
49.Put the following in order of their claim on assets of a firm, starting with the LAST to have a
claim:
50.Other things being equal, investors will value which of the following bonds the highest?
A. Callable bonds
B. Convertible bonds
C. Bonds that are both callable and convertible
D. Unsecured, callable bonds