Reference no: EM13790329

Question 1: A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the coupon payment after six months will be $____.

• 250
• 255
• 500
• 510

Question 2: Municipal general obligation bonds are ____. Municipal revenue bonds are ____.

• supported by the municipal government's ability to tax; supported by the municipal government's ability to tax
• supported by the municipal government's ability to tax; supported by revenue generated from the project
• always subject to federal taxes; always exempt from state and local taxes
• typically zero-coupon bonds; typically zero-coupon bonds

Question 3: In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will ____.

• remain unchanged
• fall
• rise
• none of the above

Question 4: When would a firm most likely call bonds?

• after interest rates have declined
• if interest rates do not change
• after interest rates increase
• none of the above

Question 5: Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely ____ as a result.

• rise
• decline
• be zero
• be unaffected

Question 6: Some bonds are "stripped," which means that

• they have defaulted.
• the call provision has been eliminated.
• they are transferred into principal-only and interest-only securities.
• their maturities have been reduced.

Question 7: (Financial calculator required.) Paul can purchase bonds with 15 years remaining until maturity, a par value of $1,000, and a 9 percent annual coupon rate for $1,100. Paul's yield to maturity is ____ percent.

• 9.33
• 7.84
• 9.00
• none of the above

Question 8: A ____ has first claim on specified assets, while a ____ is a debenture that has claims against a firm's assets that are junior to the claims of mortgage bonds and regular debentures.

• first mortgage bond; second mortgage bond
• first mortgage bond; debenture
• first mortgage bond; subordinated debenture
• chattel mortgage bond; subordinated debenture
• none of the above

Question 9: If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

• more; less; lower
• more; less; higher
• less; more; higher
• none of the above

Question 10: A sinking-fund provision is a requirement that the issuing firm retire a certain amount of the bond issue each year.

• True
• False