Reference no: EM133112896
1. The coupon yield is:
a. The annual coupon divided by the market value of the bond.
b. None of the choices are correct
c. All of the choices are correct.
d. The return that is calculated based on the annual coupon and the face value of the bond.
2. The risk premium is equal to which of the following:
a. None of the choices are correct.
b. Liquidity risk + risk free rate.
c. Liquidity risk + maturity risk + default risk.
d. Liquidity risk + risk free rate + maturity risk + default risk.
3. For which of the following categories of bonds is the risk for a given change in interest rates generally classified as low?
a. None of the choices are correct.
b. Short term
c. Intermediate term
d. Money market
4. Below which of the following is a bond rating regarded as a high-yield bond or a junk bond with a chance of default which typically results in bankruptcy?
a. None of the choices are correct.
b. BBB
c. C
d. CCC
5. Bond coupons are:
a. Fixed contractual payments that are not affected by changes in market rates over time.
b. Fixed contractual payments that are affected by changes in default rates over time.
c. None of the choices are correct.
d. Fixed contractual payments that are affected by changes in interest rates over time.
6. What is liquidity?
a. The possibility that you will not be able to sell assets without incurring capital gains tax.
b. The possibility that you will not be able to find a buyer at the current market price for an asset and the possibility that you will not be able to sell assets without incurring capital gains tax.
c. The possibility that you will not be able to find a buyer at the current market price for an asset
d. The ability to convert an asset into cash quickly and at a relatively low transaction cost.
7. The current yield is:
a. None of the choices are correct.
b. Annual coupon/face value of bond
c. Market value of bond/Annual coupon
d. Annual coupon/market value of bond
8. The relationship that exists between bond maturity and risk can be explained through observing that:
a. The shorter the period, the greater the potential for a change in the ability of a company to repay its debt
b. A broad-based change in interest rates will have a greater effect on long-term bonds
c. A broad-based change in interest rates will have a greater effect on long-term bonds and the shorter the period, the greater the potential for a change in the ability of a company to repay its debt
d. The longer the period, the greater the potential for a change in the ability of a company to repay its debt and broad-based change in interest rates will have a greater effect on long-term bonds
9. Due to changes in interest rates,
a. None of the choices are correct.
b. Both discount and premium bonds do not fluctuate in price
c. A discount bond has a greater fluctuation in price than a premium bond
d. A premium bond has greater fluctuation in price than a discount bond
10. A mutual fund composed of a blend of stocks and bonds can be categorized as which of the following?
a. Industry fund
b. Balanced fund
c. Sector fund
d. None of the choices are correct.
11. A callable corporate bond may be retired if:
a. Interest rates decrease sharply
b. Interest rates rise sharply
c. Default rates rise sharply
d. None of the choices are correct.
12. Are U.S. Government bonds subject to federal and state taxes?
a. They are subject to federal but not state taxes
b. They are subject to state but not federal taxes
c. None of the choices are correct.
d. No
13. Which of the following is an approach that advocates purchasing stocks that have had large price movements relative to the market?
a. Relative timing
b. Momentum investing.
c. Fundamental analysis
d. Relative investing
14. For which of the following is a bond's classification based on the likelihood that the bond will fulfill its obligation to pay interest and repay the amount owed at maturity?
a. Quality.
b. Risk
c. Credit
d. Duration
15. According to the dividend discount model, the current value of a security is equal to:
a. The annual dividend payable at the end of the year/(The company's required rate of return on its equity - Projected growth rate in dividends)
b. The annual dividend payable at the end of the year/(The company's required rate of return on its equity + Projected growth rate in dividends)
c. None of the choices are correct
d. The annual dividend payable at the end of the year × (The company's required rate of return on its equity - Projected growth rate in dividends)
16. If the annual coupon is $40, the face value $1,000, the market price $930, and the number of years to maturity 3, what is the approximate yield to maturity?
a. 4.31% .
b. 6.51%
c. 5.31%
d. 3.31%