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The stated interest payment made on a bond is called the:
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The principal amount of a bond that is repaid at the end of term is called the par value or the:
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chapter 6
| Question | Answer |
|---|---|
| The stated interest payment made on a bond is called the: | coupon. |
| The principal amount of a bond that is repaid at the end of term is called the par value or the: | face value. |
| The coupon rate is best defined as the: | annual coupon divided by the face value of a bond. |
| The date on which the principal amount of a bond is paid is referred to as the: | maturity. |
| The rate required in the market on a bond is called the: | yield to maturity. |
| A premium bond is a bond that: | has a market price which exceeds the face value. |
| A bond which sells for less than the face value is called a: | discount bond. |
| The current yield is defined as the: | annual coupon divided by the market price |
| The written agreement between the corporation and its creditors is called the bond: | indenture. |
| When interest payments on a bond are made directly to the owner of record, the bond is said to be in _____ form. | registered |
| When interest payments are made to whoever holds the bond, the bond is said to be in _____ form. | bearer |
| A debenture is a(n): | unsecured debt which generally matures in ten years or more. |
| An unsecured debt which generally matures in less than ten years is called a: | note. |
| A sinking fund is an account managed by the bond trustee for the purpose of: | redeeming bonds early. |
| The right of the bond issuer to repurchase the bond at a predetermined price prior to maturity is referred to as the: | call provision. |
| The call premium is the amount by which the: | call price exceeds the par value. |
| The provision which prohibits a bond issuer from repurchasing a bond for a period of time after issue is called the _____ provision. | deferred call |
| A bond which an issuer is currently restricted from redeeming is referred to as a: | call protected bond. |
| The stipulations in a bond indenture agreement which limit the actions a firm can take while the bond issue is outstanding are called: | protective covenants |
| The nickname for a bond issued by a state is: | muni. |
| A deep discount bond that pays no regular interest payments is called a(n) _____ bond. | zero coupon |
| The price at which you can sell a bond and at which the dealer will purchase it is called the _____ price | bid |
| The price a dealer is willing to take for a security is called the _____ price. | asked |
| The profit that a dealer earns on the purchase and subsequent resale of a bond is called the: | spread. |
| An interest rate that has been adjusted for inflation is called a _____ rate. | real |
| The rate of return you earn on an investment before adjusting for inflation is called the _____ rate. | nominal |
| The clean price of a bond is the price: | excluding any accrued interest. |
| The dirty price of a bond is the price: | including any accrued interest to date. |
| The Fisher effect addresses the relationship between | inflation, real, and nominal rates. |
| The pure time value of money, as illustrated by the nominal interest rates on default-free, pure discount bonds, is called the: | term structure of interest rates. |
| The compensation investors require to offset expected future increases in prices is called the: | inflation premium. |
| The interest rate risk premium is the compensation investors require for their assumption of the risk related to: | changes in interest rates. |
| When the yields of Treasury notes and bonds are plotted on a graph in relation to their respective times to maturity, the resulting curve is called the Treasury _____ curve. | yield |
| The portion of a bond’s yield that compensates investors for the possibility that the bond’s interest or principal might not be paid is called the: | default risk premium. |
| The extra compensation investors demand for a corporate bond over that of a comparable municipal bond is called the: | taxability premium. |
| The liquidity premium is the portion of a nominal interest rate that represents compensation for the: | lack of the ability to sell the bond at its fair value in a timely manner. |
| A bond that is selling at par value has a: I. market price equal to the face value. II. market price which exceeds the face value. III. yield to maturity that exceeds the coupon rate. IV. yield to maturity that equals the coupon rate. | I and IV only |
| When a bond’s yield to maturity equals the bond’s coupon rate, the bond: | is priced at par. |
| A discount bond has a yield to maturity that: | exceeds the coupon rate. |
| A premium bond has a coupon rate that: | exceeds the yield to maturity. |
| The total value of a bond is equal to the: | present value of all the future cash flows related to that bond. |
| The longer the time period until the maturity of a bond, the: | less value the bond’s principal has today. |
| Generally, bonds issued in the U.S. pay interest on a(n) _____ basis. | semi-annual |
| Which one of the following bonds tends to be the most interest rate sensitive? | a 20-year, zero coupon bond |
| An unexpected decrease in market interest rates will cause: | bond prices to increase and the current yield to decrease. |
| The degree of sensitivity a bond has to changes in interest rates decreases the: I. shorter the time period to maturity. II. longer the time period to maturity. III. lower the coupon rate. IV. higher the coupon rate. | I and IV only |
| The current yield will increase when a bond’s: I. price increases. II. price decreases. III. coupon increases. IV. coupon decreases. | II and III only |
| The current yield on a bond is most similar to the: | dividend yield on a stock. |
| Which one of the following comparisons between debt and equity is correct? | The creditors have first claim to the firm’s assets but the stockholders are the owners. |
| The indenture is a legal document which: | outlines the terms and provisions of a bond issue. |
| Which of the following can generally be found in the indenture agreement? I. description of the loan collateral II. call provisions III. annual voting procedures IV. protective covenants | I, II, and IV only |
| The amount of a bond issue along with the repayment terms are generally included in the: | indenture. |
| All of the following are generally included in the indenture EXCEPT the: | yield to maturity. |
| A security arrangement where all the real property of a firm is used as collateral for a bond issue is called a(n): | blanket mortgage. |
| A collateral trust bond generally means that the security on a bond issue is provided by the _____ held by the corporation. | common stock |
| A bond for which no specific property has been pledged as security is classified as a: | debenture. |
| The indenture often calls for a bond issue to be at least partially repaid prior to maturity. The means of doing this is frequently a: | sinking fund. |
| Which one of the following provisions allows a firm to repurchase its bonds prior to the planned maturity date? | call |
| Under which of the following conditions is a bond most likely to be called? | The bond is a 20-year bond and has 3 years to maturity. |
| Which of the following are positive covenants that might be found in an indenture? I. The firm must maintain a current ratio of 1.5 or better. II. The firm cannot sell any major equipment without approval. III. The firm shall provide audited financi | I and III only |
| Which one of the following is a positive covenant? | The firm will maintain a minimal level of net working capital. |
| The general purpose of protective covenants is to help protect the: | lenders from company actions contrary to the lenders’ benefit. |
| 63. The lowest rating a bond can receive from Moody’s and still be classified as investment grade is: | Baa. |
| 64. A crossover bond is one which | is rated as investment grade by one rating agency and rated as junk by another rating agency. |
| 65. A bond which was previously rated as investment grade but which has fallen to junk status is commonly referred to as a: | fallen angel. |
| 66. Bond ratings primarily help potential investors measure the likelihood that the bond issuer will: | pay both the bond interest and principal in a timely fashion. |
| 67. Which one of the following statements concerning municipal bonds is correct? | Municipal bonds are generally callable. |
| 68. Which one of the following individuals is most apt to purchase a newly issued municipal bond? | a high-income, high-tax bracket executive |
| 69. Which one of the following statements is true about zero coupon bonds? | The implicit interest is taxable income to the bondholder each year. |
| 70. Which of the following are common characteristics of a floating-rate bond? I. The bonds generally contain a put feature. II. The coupon rate fluctuates based on an interest rate index. III. The coupon rate generally is capped at the upper collar | I, II, and III only |
| 71. A relatively rare bond that pays interest based on the profits of the firm are generally described as _____ bonds. | income |
| 72. A convertible bond has features of both debt and equity because | the bond can be exchanged for shares of stock. |
| 73. The general purpose of a put bond is to give the: | bondholder the right to force the issuer to purchase the bond at a stated price. |
| 74. Which of the following are considered exotic bonds? I. Cat II. Corts III. Muni IV. Pets | I, II, and IV only |
| 75. A type of bond issued by insurance firms which allow them to forego paying interest under certain natural conditions are classified as _____ bonds. | cat |
| 76. Which one of the following statements is correct concerning the bond markets? | Bonds are generally bought from and sold to electronically-connected dealers. |
| 77. A $1,000 face value bond quoted as 101.23 sells for _____ and a bond quoted as 98:06 sells for: | $1,012.30; $981.875. |
| 78. The clean price of a bond includes which of the following? I. quoted price II. transaction costs III. accrued interest | I only |
| 79. The dirty price of a bond: | is also called the full price. |
| 80. The yield to maturity on a Marshall Co. premium bond is 7.6 percent. This is the: | nominal rate. |
| 81. Which one of the following rates is the best measure of the increased purchasing power you can realize from a bond investment? | real rate |
| 82. The Fisher effect can be described as differentiating between: | the income you receive and the increase in your purchasing power from that income. |
| 83. If interest rates are expected to increase in the future, the graph depicting the term structure of interest rates will be: | upward-sloping. |
| 84. If inflation is expected to decrease in the future, the graph depicting the term structure of interest rates will be: | downward-sloping. |
| 85. To offset the decreasing value of a dollar over time, bond investors demand a(n) _____ premium. | inflation |
| 86. A bond investor believes, based on statements made by the Federal Reserve governors, that interest rates will increase in the future. Therefore, this investor will demand a(n) _____ premium if they purchase a bond today. | interest rate risk |
| 87. The Treasury yield curve: | is based on coupon bond yields. |
| 88. All else equal, a bond with a rating of B will have a larger _____ premium than a bond with an A rating. | default risk |
| 89. Which one of the following is most apt to have the largest taxability premium? | Treasury bond |
| 90. Which one of the following is most apt to have the largest liquidity premium? | municipal bond issued by a rural city |
Created by:
martin.2021