1. A ____ is unsecured debt that is generally payable within the next ten years.

2. A(n) ____ bond is a bond that is rated as investment grade by one rating agency and rated as junk by another rating agency.

3. The "R" in the Fisher formula represents the ___ return.

4. The Treasury yield curve plots the yields on Treasury notes and bonds relative to the issue date of those securities. T/F

5. Jeff just received an interest payment that is equal to 7 percent of his investment. This 7 percent is best described as a clean return. T/F

6. The call premium is the amount by which the market price exceeds the call price. T/F

7. If inflation is expected to increase in the future, the term structure of interest rates will most likely be humped. T/F

8. Interest rate risk premium represents additional compensation provided to bondholders to offset the possibility that the bond issuer might not pay the interest and/or principal payments as expected. T/F

9. The maturity date of a bond is defined as the date on which the principal amount is paid. T/F

10. A bond that was previously rated as investment grade but has fallen to junk status is commonly referred to as a fallen angel. T/F

11. Zero coupon bonds: I. are valued using semiannual compounding. II. create taxable income only on the maturity date. III. provide an annual tax deduction to the issuer. IV. are issued at a deep discount.

Can be multiple

12. The "R" in the Fisher formula represents the: Real Return, Nominal Return, Inflation Rate, Current Yield, Coupon Rate

13. Which one of the following statements is correct?

Bond issuers maintain a listing of bondholders when bonds are issued in bearer form.

Collateralized bonds are called debentures.

An indenture is a contract between a corporation and its shareholders.

Bonds are generally called at par value.

The description of any property used to secure a bond issue is included in the bond indenture.

14. Today, you are buying a $1,000 face value bond at an invoice price of $955. The bond has a 7 percent coupon and pays interest semiannually. There are 3 months until the next coupon date. What is the clean price of this bond? A. 967.67 B. 885 C. 937.50 D. 943.33 E. 955

15. One year ago, Auto Land issued 10-year bonds at par. The bonds have a coupon rate of 6.5 percent and pay interest annually. Today, the market rate of interest on these bonds is 6.25 percent. How does today's price of this bond compare to the issue price? A. 1.68 percent lower B. 1.82 percent lower C. 1.68 percent higher D. .25 percent higher

16. You are buying a bond at a clean price of $1,141.63. The bond has a face value of $1,000, a 8.5 percent coupon, and pays interest semiannually. The next coupon payment is 3 months from now. What is the dirty price of this bond?

17. The quoted price of a bond is referred to as the ____ price.

18. A bond for which there is a very limited secondary market will tend to have a higher ____ premium.

19. The ____ compensates investors for expected price increases.

20. The annual interest on a bond divided by the bond's ____ is called the current yield.

21. The call premium is the amount by which the call price exceeds the par value. T/F

22. The coupon is the annual interest divided by the current bond price.T/F

23. A bond dealer buys at the bid price and sells at the asked price.T/F

24. Default risk premium provides compensation to bond holders when a bond is not readily marketable at its full value.T/F

25. The "R" in the Fisher formula represents the coupon rate.T/F

26. Taxability premium compensates bondholders when a bond has an unfavorable tax status.T/F

27. The primary purpose of bond covenants is to protect the lender.T/F

28. A call protected bond is a bond that cannot be called at any time prior to maturity. T/F

29. A note is a formal loan secured by real estate. T/F

30. The quoted price of a bond is referred to as the durty price.T/F

31. Which one of the following bonds is the most sensitive to interest rate movements?

5 percent semi-annual coupon, 10 year

zero-coupon, 5 year

5 percent annual coupon, 10 year

zero-coupon, 10 year

7 percent annual coupon, 5 year

32. A bond's sensitivity to changes in market interest rates decreases when the: I. time to maturity increases. II. time to maturity decreases. III. coupon rate increases. IV. coupon rate decreases.

Can be multiple

33. A type of bond issued by insurance firms that allows the issuer to forego paying interest payments if certain cause significant losses are classified as _____ bonds.

NoNo

CAT

PINES

PETS

DEATH

34. The general purpose of protective covenants is to help protect the:

bond issuer from rising interest rates.

lenders from company actions that are detrimental to the lenders.

lenders from bond calls.

bond issuer should sales slow down.

lenders from increases in a firm's retained earnings.

35. The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of those securities.

face value

par value

issue date

maturity

coupon rate

36. One year ago, you purchased a 6 percent annual coupon bond for a clean price of $975. The bond now has five years remaining until maturity. Today, the yield to maturity on this bond is 5.76 percent. How does today's price of this bond compare to your purchase price?

3.61 percent higher

3.42 percent higher

1.82 percent lower

37. Lambert, Inc. bonds have a face value of $1,000. The bonds carry a 9 percent coupon, pay interest semiannually, and mature in 11 years. What is the current price of these bonds if the yield to maturity is 8.79 percent?

$705.14

$1,014.62

$1,641.04

$710.36

$1,020.15

38. A bond has a yield to maturity of 10.15 percent, an 11.5 percent annual coupon, a $1,000 face value, and a maturity date 8 years from today. What is the current yield?

11.86 percent

9.47 percent

10.15 percent

10.73 percent

11.50 percent

39. Paris' Trojan Archery Store needs to raise $6.7 million for an expansion project. The firm wants to raise this money by selling zero coupon bonds with a par value of $1,000 that mature in 18 years. The market yield on similar bonds is 9.9 percent. How many bonds must Paris' Trojan Archery sell to raise the money it needs?

40. The 6.3 percent, $1,000 face value bonds of The Pergamon Co. are currently selling at $1,106. These bonds have 17 years left until maturity. What is the current yield (in percents)?