Student

07
Student: _______________________________________________________________________________________
1. A "foreign bond" issue is:
A. one denominated in a particular currency but sold to investors in national capital markets other than
the country that issued the denominating currency.
B. one offered by a foreign borrower to investors in a national market and denominated in that nation's
currency.
C. for example, a German MNC issuing yendenominated bonds to U.S. investors.
D. one offered by a domestic borrower to investors in a national market and denominated in that nation's
currency.
2. A "Eurobond" issue is:
B. usually a bearer bond.
C. for example a Dutch borrower issuing dollardenominated bonds to investors in the U.K.,
Switzerland, and the Netherlands.
D. All of these.
3. In any given year, what percent of new international bonds are likely to be Eurobonds rather than
foreign bonds?
A. 80%
B. 45%
C. 25%
D. 15%
4. A "bearer bond" is one:
A. that shows the owner's name on the bond.
B. in which the owner's name is recorded by the issuer.
C. in which mere possession is an evidence of the ownership.
D. in which possession only does not creates an evidence of the ownership.
5. A "global bond" issue:
A. is a very large international bond offering by several borrowers pooled together.
B. is a very large international bond offering by a single borrower that is simultaneously sold in several
national bond markets.
C. has higher yields for the purchasers.
D. has a lower liquidity.
6. In which of the following currencies can Eurobond be denominated?
A. Euro only
B. Euro and British Pounds only
C. Currency of any country located in Europe
D. Any currency
7. Shelf registration allows an issuer to:
A. shelve a securities issue and buy the securities later.
B. shelve a securities issue and sell the securities later.
C. preregister a securities issue and then shelve the securities for later sale.
D. preregister a securities issue and then shelve the securities for later purchase.
8. Taxes on interest paid by nonresidents are called:
A. interest taxes.
B. nonresident taxes.
C. nonresident interest taxes.
D. withholding taxes.
9. Bonds with fixed coupon payments in regular intervals and a designated maturity date are called:
A. straightfixed rate bonds.
B. euromedium term bonds.
C. floatingrate bonds.
D. equityrelated bonds.
10. Which of the following is not an example of an equityrelated bond:
A. Any convertible bond.
B. Any bond with equity warrant.
C. Any corporate stripped bond.
D. Bonds with equity warrants of state companies.
11. Fixedrate notes issued by a corporation with maturities ranging from less than 1 year to about 10
years in the international bond markets are called:
A. international straightfixed rate notes.
B. euromedium term notes.
C. euro floatingrate bonds.
D. international equityrelated bonds.
12. Consider a bond that was issued by a Canadian corporation in CA$, pays coupon payments in CA$,
but repays the face value in Euro. Such bond is called:
A. Global bond.
B. Dualcurrency bond.
C. Eurodollar bond.
D. Foreign bond.
13. Bonds with coupon payments indexed to some reference rates are called:
C. floatingrate notes.
14. Convertible bonds are a type of:
15. Floatingrate notes (FRN):
A. experience very volatile price changes between reset dates.
B. are typically mediumterm bonds with coupon payments indexed to some reference rate (e.g.
LIBOR).
C. do not appeal to investors with strong need to preserve the principal value of the investment should
they need to liquidate prior to the maturity of the bonds.
D. are typically longterm bonds with coupon payments indexed to some fixed rate.
16. A fiveyear Floatingrate note (FRN) has coupons referenced to sixmonth dollar LIBOR, and pays
coupon interest semiannually. Assume that the current sixmonth LIBOR is 6 percent. If the risk
premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a
$1,000 face value FRN will be:
A. $29.375.
B. $30.000.
C. $30.625.
D. $61.250.
17. "Investment grade" ratings are in the following categories:
A. Moody's: AAA to BBB S&P's: Aaa to Baa
B. Moody's: Aaa to Baa S&P's: AAA to BBB
C. Moody's: AAA to A S&P's: Aaa to A
D. Moody's: Aaa to A S&P's: AAA to A
18. Zerocoupon bonds issued in 1999 are due in 2009. If they are sold at 55 percent of face value, the
implied yield to maturity is (round the final percentage answer to 2 decimal places):
A. 5.50%.
B. 6.16%.
C. 8.31%.
D. cannot be determined, need more information.
19. The implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bonds that pay
$581.40 at maturity per SF1,000, is (round the final percentage answer to 2 decimal places):
A. SF0.58/$1.00.
B. SF1.58/$1.00.
C. SF1.72/$1.00.
D. SF1.95/$1.00.
20. Zerocoupon bonds were issued in 2005. If they are sold at 55 percent of face value, and the implied
yield to maturity is 5%, the bonds will mature in:
A. 4.5 years.
B. 10.75 years.
C. 12.25 years.
21. Zerocoupon bonds were issued in 2005. If their implied yield to maturity is 5%, and the bonds will
mature in 20 years, at what discount from the face value will they sell? (Do not round intermediate
answers and round the final percentage answer to 2 decimal places)
A. 10%
B. 25.42%
C. 37.69%
D. cannot be determined, need more information
22. A fiveyear $1,000 face value floatingrate note (FRN) has coupons referenced to sixmonth dollar
LIBOR, and pays coupon interest semiannually. Assume that the last sixmonth LIBOR was 6.5
percent and the current sixmonth LIBOR is 6 percent. If the risk premium above LIBOR that the
issuer must pay is 0.25%, by how much did the coupon payment change?
A. increase by $2.5
B. decrease by $2.5
C. increase by $5
D. decrease by $5
23. Which statement is NOT true about market makers?
A. Market makers stand ready to buy or sell on their own account.
B. Market makers quote twoway bid and ask prices.
C. Market makers trade with one another only.
D. Market makers only make the bidask spread and charge no other commission.
24. An underwriting syndicate consists of all of the following except:
A. lead manager
B. managing group
C. underwriting syndicate
D. managing syndicate
25. ABC Corporation, a Canadian firm, wants to float a bond issue in the United Kingdom. Which
choices does the company have? Discuss the main characteristics of each option. What do you
recommend?
26. A Canada Inc. has issued a dualcurrency bond that pays $555.10 at maturity per SF1,000 of par
value. The company's cash flows are exclusively in Canadian dollars.
a) What is the implicit $/SF exchange rate at maturity?
b) Will the company be better or worse off if the actual exchange rate at maturity is $0.6123/SF?
27. ZZZ Corp. wants to issue zerocoupon bonds with a 10year maturity. The implied yield to maturity
on these bonds is 5% and ZZZ Corp. wants to raise $10,000,000. (Assume no transaction costs). How
much money will ZZZ Corp. have to pay at maturity of the bond?
28. Assume Bank of Montreal has two zerocoupon bonds outstanding, each for a face value
$100,000,000. Bond A matures in 10 years and sells at a discount of 35% off face value and bond B
matures in 20 years and sells at a discount of 60% off face value. Calculate the implied yield to
maturity of each bond.
29. What happens to the present value of the bonds in 4., if the implied yield to maturity increases by
1%?

07 KEY
1. A "foreign bond" issue is:
B. one offered by a foreign borrower to investors in a national market and denominated in that nation's
currency.
C. for example, a German MNC issuing yendenominated bonds to U.S. investors.
D. one offered by a domestic borrower to investors in a national market and denominated in that nation's
currency.
Accessibility: Keyboard Navigation
Brean Chapter 07 #1
Difficulty: Medium
Learning Objective: The worlds bond market: a statistical overview

2. A "Eurobond" issue is:
B. usually a bearer bond.
C. for example a Dutch borrower issuing dollardenominated bonds to investors in the U.K.,
Switzerland, and the Netherlands.
D. All of these.
Brean Chapter 07 #2
Difficulty: Medium
Learning Objective: Foreign bonds and Eurobonds

3. In any given year, what percent of new international bonds are likely to be Eurobonds rather than
foreign bonds?
A. 80%
B. 45%
C. 25%
D. 15%
Brean Chapter 07 #3
Difficulty: Easy

4. A "bearer bond" is one:
A. that shows the owner's name on the bond.
B. in which the owner's name is recorded by the issuer.
C. in which mere possession is an evidence of the ownership.
D. in which possession only does not creates an evidence of the ownership.
Brean Chapter 07 #4
Difficulty: Easy

5. A "global bond" issue:
A. is a very large international bond offering by several borrowers pooled together.
B. is a very large international bond offering by a single borrower that is simultaneously sold in several
national bond markets.
C. has higher yields for the purchasers.
D. has a lower liquidity.
Brean Chapter 07 #5
Difficulty: Medium

6. In which of the following currencies can Eurobond be denominated?
A. Euro only
B. Euro and British Pounds only
C. Currency of any country located in Europe
D. Any currency
Brean Chapter 07 #6
Difficulty: Easy

7. Shelf registration allows an issuer to:
A. shelve a securities issue and buy the securities later.
B. shelve a securities issue and sell the securities later.
C. preregister a securities issue and then shelve the securities for later sale.
D. preregister a securities issue and then shelve the securities for later purchase.
Brean Chapter 07 #7
Difficulty: Medium

8. Taxes on interest paid by nonresidents are called:
A. interest taxes.
B. nonresident taxes.
C. nonresident interest taxes.
D. withholding taxes.
Brean Chapter 07 #8
Difficulty: Easy

9. Bonds with fixed coupon payments in regular intervals and a designated maturity date are called:
B. euromedium term bonds.
C. floatingrate bonds.
Brean Chapter 07 #9
Difficulty: Easy
Learning Objective: Types of Instruments

10. Which of the following is not an example of an equityrelated bond:
A. Any convertible bond.
B. Any bond with equity warrant.
C. Any corporate stripped bond.
D. Bonds with equity warrants of state companies.
Brean Chapter 07 #10
Difficulty: Easy

11. Fixedrate notes issued by a corporation with maturities ranging from less than 1 year to about 10
years in the international bond markets are called:
A. international straightfixed rate notes.
C. euro floatingrate bonds.
D. international equityrelated bonds.
Difficulty: Medium

12. Consider a bond that was issued by a Canadian corporation in CA$, pays coupon payments in CA$,
but repays the face value in Euro. Such bond is called:
A. Global bond.
B. Dualcurrency bond.
C. Eurodollar bond.
D. Foreign bond.
Difficulty: Medium

13. Bonds with coupon payments indexed to some reference rates are called:
Difficulty: Easy

14. Convertible bonds are a type of:
Difficulty: Medium

15. Floatingrate notes (FRN):
A. experience very volatile price changes between reset dates.
B. are typically mediumterm bonds with coupon payments indexed to some reference rate (e.g.
LIBOR).
C. do not appeal to investors with strong need to preserve the principal value of the investment should
they need to liquidate prior to the maturity of the bonds.
D. are typically longterm bonds with coupon payments indexed to some fixed rate.
Difficulty: Medium

16. A fiveyear Floatingrate note (FRN) has coupons referenced to sixmonth dollar LIBOR, and pays
coupon interest semiannually. Assume that the current sixmonth LIBOR is 6 percent. If the risk
premium above LIBOR that the issuer must pay is 1/8 percent, the next period's coupon rate on a
$1,000 face value FRN will be:
A. $29.375.
B. $30.000.
C. $30.625.
D. $61.250.
Coupon rate = 0.5 × (LIBOR + risk premium percent) × $1,000
= 0.5 × (0.06 + 0.00125) × $1,000 = $30.625
Difficulty: Medium

17. "Investment grade" ratings are in the following categories:
A. Moody's: AAA to BBB S&P's: Aaa to Baa
B. Moody's: Aaa to Baa S&P's: AAA to BBB
C. Moody's: AAA to A S&P's: Aaa to A
D. Moody's: Aaa to A S&P's: AAA to A
Difficulty: Easy
Learning Objective: International Bond Market Credit Ratings

18. Zerocoupon bonds issued in 1999 are due in 2009. If they are sold at 55 percent of face value, the
implied yield to maturity is (round the final percentage answer to 2 decimal places):
A. 5.50%.
B. 6.16%.
C. 8.31%.
FV = PV × (1 + i)t
i = (FV/PV)1/t 1
i = (1/0.55)1/10 1
i = 1.0616 1
i = 0.0616
i = 6.16%
Difficulty: Medium

19. The implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bonds that pay
$581.40 at maturity per SF1,000, is (round the final percentage answer to 2 decimal places):
A. SF0.58/$1.00.
B. SF1.58/$1.00.
C. SF1.72/$1.00.
D. SF1.95/$1.00.
SF1,000/$581.40 = SF1.72/$1.00
Difficulty: Medium

20. Zerocoupon bonds were issued in 2005. If they are sold at 55 percent of face value, and the implied
yield to maturity is 5%, the bonds will mature in:
A. 4.5 years.
B. 10.75 years.
C. 12.25 years.
FV = PV × (1 + i)t
(1/0.55) = (1 + 0.05)t
t = ln(1/.55)/ln(1.05)
t = 12.25 years
Difficulty: Hard

21. Zerocoupon bonds were issued in 2005. If their implied yield to maturity is 5%, and the bonds will
mature in 20 years, at what discount from the face value will they sell? (Do not round intermediate
answers and round the final percentage answer to 2 decimal places)
A. 10%
B. 25.42%
C. 37.69%
D. cannot be determined, need more information
FV = PV × (1 + i)t
1 = PV (1.05)20
PV = 1/(2.6533)
PV = 0.3769
PV = 37.69%
Difficulty: Hard

22. A fiveyear $1,000 face value floatingrate note (FRN) has coupons referenced to sixmonth dollar
LIBOR, and pays coupon interest semiannually. Assume that the last sixmonth LIBOR was 6.5
percent and the current sixmonth LIBOR is 6 percent. If the risk premium above LIBOR that the
issuer must pay is 0.25%, by how much did the coupon payment change?
A. increase by $2.5
B. decrease by $2.5
C. increase by $5
D. decrease by $5
Coupon Payment change = 0.5 × (change in LIBOR) × $1,000 = 0.5 × (0.005) × $1,000 = $2.5
Difficulty: Hard

23. Which statement is NOT true about market makers?
A. Market makers stand ready to buy or sell on their own account.
B. Market makers quote twoway bid and ask prices.
C. Market makers trade with one another only.
D. Market makers only make the bidask spread and charge no other commission.
Difficulty: Medium
Learning Objective: Eurobond Market Structure and Practices

24. An underwriting syndicate consists of all of the following except:
A. lead manager
B. managing group
C. underwriting syndicate
D. managing syndicate
Difficulty: Medium
Learning Objective: Eurobond Market Structure and Practices

25. ABC Corporation, a Canadian firm, wants to float a bond issue in the United Kingdom. Which
choices does the company have? Discuss the main characteristics of each option. What do you
recommend?
ABC Corporation can issue foreign bonds (Bulldogs) or Eurobonds. Foreign bonds are bonds issued by a
foreign borrower in a national market, in the national currency, and subject to the national securities
regulations. Eurobonds are bonds sold in countries other the country that issued the denominating
currency. Foreign bonds tend to be registered bonds and subject to the local regulations while Eurobonds
tend to be bearer bonds. Generally, foreign bonds are more costly than Eurobonds. Therefore, Eurobonds
are likely the better option.

26. A Canada Inc. has issued a dualcurrency bond that pays $555.10 at maturity per SF1,000 of par
value. The company's cash flows are exclusively in Canadian dollars.
a) What is the implicit $/SF exchange rate at maturity?
b) Will the company be better or worse off if the actual exchange rate at maturity is $0.6123/SF?
a) $555.10/SF 1,000 = $0.5551
b) The company will be better off.

27. ZZZ Corp. wants to issue zerocoupon bonds with a 10year maturity. The implied yield to maturity
on these bonds is 5% and ZZZ Corp. wants to raise $10,000,000. (Assume no transaction costs). How
much money will ZZZ Corp. have to pay at maturity of the bond?
Future Value of $10,000,000 in 10 years is $10,000,000*(1 + 0.05)10, hence, ZZZ will need to repay
$10,000,000*(1 + 0.05)10 = $16,288,946

28. Assume Bank of Montreal has two zerocoupon bonds outstanding, each for a face value
$100,000,000. Bond A matures in 10 years and sells at a discount of 35% off face value and bond B
matures in 20 years and sells at a discount of 60% off face value. Calculate the implied yield to
maturity of each bond.
Bond A:
650,000,000(1 + i)10 = 100,000,000
i = 4.4%
Bond B:
400,000,000(1 + i)20 = 100,000,000
i = 4.67%

29. What happens to the present value of the bonds in 4., if the implied yield to maturity increases by
1%?
Bond A:
100,000,000/(1.054)10 = 59,100,872.35
The present value of the bond decreases by 65,000,000 59,100,872.35 = 5,899,127.65
Bond B:
100,000,000/(1.0567)20 = 33,186,836.18
The present value of the bond decreases by 40,000,000 33,186,836.18 = 6,813,163.82

07 Summary
Category # of Questions
Accessibility: Keyboard Navigation 24
Brean Chapter 07 29
Difficulty: Easy 8
Difficulty: Hard 3
Difficulty: Medium 13
Learning Objective: Eurobond Market Structure and Practices 2
Learning Objective: Foreign bonds and Eurobonds 7
Learning Objective: International Bond Market Credit Ratings 1
Learning Objective: The worlds bond market: a statistical overview 1
Learning Objective: Types of Instruments 18

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