Reference no: EM133071557

1) Sometimes an indenture includes items that restrict and limit things the bond issuer can do. These restrictions/limitations are put in place to help protect the bondholder's interests and are called:

A) Trustee relationships.
B) Protective covenants.
C) Bylaws
D) Legal bounds.
E) Agency Calls

Answer:

2) You expect interest rates to go down in the near future even though the bond market is not indicating any sign of this change. Which one of the following bonds should you purchase now to maximize your gains if the rate decline does occur?

A) Long-term; zero coupon.
B) Short-term; low coupon.
C) Short-term; high coupon
D) Long-term; low coupon.
E) Long-term; high coupon.

Answer:

3) A zero coupon bond:

A) Can only be issued by the U.S. Treasury.
B) Is sold at a large premium.
C) Provides no taxable income to the bondholder until the bond matures.
D) Pays interest that is tax deductible to the issuer at the time of payment.
E) Has more interest rate risk than a comparable coupon bond.

Answer:
4) Which one of the following statements is correct?

A) Nominal rates exceed real rates by the amount of the risk-free rate.
B) The risk-free rate represents the change in purchasing power.
C) Historical rates of return must be positive.
D) The real rate must be less than the nominal rate given a positive rate of inflation.
E) Any return greater than the inflation rate represents the risk premium.

Answer:

5) Melanie just received her annual payment of $70 on a bond she owns. Which of the following refers to this payment?

A) Call premium.
B) Coupon.
C) Yield.
D) Discount.
E) Face value.