Chapter 7
Bond Markets
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1. Which of the following statements is correct?
a. Federal agency bonds are issued by the Treasury.
b. Municipal bonds are issued by the federal government.
c. Corporate bonds are issued by corporations.
d. All of the above are correct.
2. Investors in Treasury notes and bonds receive _______ interest payments from the Treasury.
a. quarterly
b. semiannual
c. annual
d. none of the above
3. __________ bids are often used at auctions because many bidders want to purchase more Treasury bonds than the maximum that can be purchased otherwise.
a. Competitive
b. Noncompetitive
c. Average
d. none of the above
4. (Financial calculator required.) An investor can purchase a bond with ten years remaining until maturity, a par value of $1,000, and a 7 percent annual coupon rate for $1,050. The yield to maturity is _____ percent.
a. 6.31
b. 7.00
c. 3.16
d. none of the above
5. The bid price for a bond with a $100,000 par value is quoted as 110:11. Thus, the bid price for the bond is __________.
a. $110,688
b. $110,344
c. $111,375
d. none of the above
6. Stripped securities:
a. were originally created by securities firms in the early 1980s.
b. are issued by the Treasury.
c. have to be held until maturity.
d. all of the above
7. Which of the following is not an issuer of federal agency bonds?
a. Government National Mortgage Association (Ginnie Mae)
b. Federal Home Loan Mortgage Association (Freddie Mac)
c. Federal National Mortgage Association (Fannie Mae)
d. All of the above are issuers of federal agency bonds.
8. Payments on __________ bonds are supported by the municipal government's ability to tax.
a. general obligation
b. revenue
c. treasury
d. corporate
9. The requirement that a firm retire a certain amount of the bond issue each year is the _____________.
a. indenture
b. call provision
c. sinking-fund provision
d. convertibility clause
10. A _________ is secured by personal property.
a. first mortgage bond
b. chattel mortgage bond
c. debenture
d. subordinated debenture
11. The popularity of junk bonds in the 1990s declined because of:
a. allegations of insider trading against some participants in the junk bond market.
b. financial problems in the thrift industry.
c. increased regulation.
d. all of the above.
12. Callable bonds are _______ likely to be called when interest rates _________.
a. less; decline
b. more; decline
c. more; increase
d. none of the above
13. Registered bonds require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.
a. True
b. False
14. Treasury bonds are registered over-the-counter, but the secondary market trading occurs at the New York Stock Exchange.
a. True
b. False
15. Common purchasers of corporate bonds include many financial and some nonfinancial institutions, as well as individuals.
a. True
b. False
16. Investors in zero-coupon bonds are taxed annually on the amount of interest earned, even though much or all of the interest will not be received until maturity.
a. True
b. False
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