1. The amount that is originally borrowed or the amount that is repaid when the bond mature is due is known as ___________ .A)Indenture. B)Par value. C)Principal amount. D)Maturity value. E)B, C, and D are correct. 2. Assume that a 20-year semi-annual, 10% bond is callable after 10 years at 102% of par value and the discount rate in todays market is 8%. Using the price-to-worst method, what is the value of this bond? A)$1,020 B)$1,198 C)$1,145 D)$1,201 E)$1,000 3. Which of the following is TRUE concerning the interest rate risk while investing in fixed-coupon debt obligations? A)The higher the coupon on a bond, the higher the volatility of bond prices, the greater the interest rate risk B)Interest rate risk is the easiest risk to assess, among the four types of risks. C)Interest rate risk is the risk that a change in market interest rates will affect the interest payments to the bond holders. D)The longer the maturity of a bond, the lower the volatility of bond prices, the smaller the risk. E)Fluctuations in market levels of interest rates would affect the price a bond. 4. You own a 15-year bond and a 20-year bond, both of which are non-callable bond and pay a coupon of 9%. What is true about the change in the value of your bonds if interest rate rise from 8% to 10%? A)The value of the 20-yr bond will increase by $21.66 more than the 15-yr bond B)The value of the 20-yr bond will decrease by $9.07 more than the 15-yr bond C)The value of the 20-yr bond will increase by $12.59 more than the 15-yr bond D)The value of the 20-yr bond will decrease by $12.59 more than the 15-yr bond E)The value of the 20-yr bond will decrease by $21.66 more than the 15-yr bond 5. Which of the following is TRUE regarding fixed rate premium bonds? A)The market value of the bond is equal to its par value. B)The bonds coupon rate is equal to the yield that it offers. C)The market value of the bond is less than its par value. D)The bonds coupon rate is lower than the yield that it offers. E)The bonds coupon rate is higher than the yield that it offers. 6. Value a 15-yr, non-callable bond that pays coupons of 6% assuming market interest rates are 8%. A)$986 B)$829 C)$926 D)$833 E)$1,000 7. Which of the following is true about bonds? A)In a liquidation scenario, subordinated debt holders have claims to cash flows after senior debt holders and stockholders B)Only bonds issued in the primary market are subject to prepayment risk C)The bond rating being changed from BBB+ to B would result in a lower required yield D)The primary advantage to municipal bonds is that coupons received are not taxed E)Spread to treasuries measures the difference between the coupon rate paid by a bond and the coupon rate paid by risk free security with the comparable maturity 8. Which of the below are considered types of risk involved when investing in fixed- coupon debt obligations? A)Default risk B)Reinvestment risk C)Interest rate risk D)Prepayment risk E)All of the above 9. According to the Random Walk Hypothesis, in efficient markets, ________. A)Share prices react immediately to news and share price changes are random. B)Beta is a risk that can be eliminated through diversification. C)Past historical data can be used to predict future share prices. D)Technical Analysis is a valid method to determine future stock prices. E)There are predictable stock trends in efficient markets based on past performance. 10. Which of the following is the risk that income earned from a bonds coupon payments will earn a different rate of return? A)Prepayment risk B)Interest rate risk C)Reinvestment risk D)Default risk E)Systematic risk 11. Which of the following is definitely true when interest rates are lower than a bonds coupon rate? A)Bond will sell at a premium B)Bond will see at a discount C)Bond will sell at par D)Coupon rate will be decreased to current interest rate E)Principal to be repaid will decrease 12. Given the following information, calculate the present value of the following bond that pays semi-annual coupons. Coupon Rate: 7% Interest Rate: 9% Maturity: 12 years A)$1,362 B)$1,228 C)$606 D)$806 E)$855 13. Which of the following is true of bonds? A)Bonds dont have default risk. B)Bonds repay principal at maturity. C)Bonds repay the principal to the investor in semi-annual payments only. D)Bonds are an equity investment. E)Bonds are only issued by governments and municipalities. 14. Which of the following is true concerning the duration of a bond? A)Duration is a measure of the price volatility of an asset given a change in the coupon rate. B)Bonds with the same time to maturity will always have the same duration C)Bonds with longer durations are always preferable to bonds with shorter durations. D)The duration of a par bond is equal to the current time to maturity. E)The longer the duration, the more sensitive a bonds value to interest rate fluctuations. 15. A downward sloping yield curve means that A)Investors expect interest rates to decline. B)Investors require lower returns for shorter maturity Treasuries. C)Investors require the same return for both short and long-term Treasuries. D)The yield curve is not related to required return on Treasuries. E)Investors require higher returns for longer maturity Treasuries. 16. Which of the following is a risk associated with bonds? A)Stock Market Risk B)Low Principal Risk C)Default Risk D)Zero coupon Risk E)Ratings Upgrade Risk 17. Which of the following is true concerning the interest rate risk of bonds? A)The length of maturity of a bond does not affect interest rate risk B)The higher the coupon of a bond, the higher the interest rate risk of that bond C)The longer the maturity of a bond, the lower the interest rate risk of that bond D)The lower the coupon of a bond, the higher the interest rate risk of that bond E)The shorter the maturity of a bond, the higher the interest rate risk of that bond 18. Meaghan purchases a stock for $155 and sells it for $135 after a year. She also received a dividend of $22 that year. What RETURN did Meaghan earn over the year?A)1.8% B)-8.3% C)-16.3% D)-12.9% E)1.3% 19. Calculate value of a perpetuity with even annual cash flows of $8,600 with 7% discount rate. A)$8,037 B)$865,700 C)$9,202 D)$92,020 E)$122,857 20. According to _________________, the yield curve represents a series of expected future short-term interest rates. A)pure expectations hypothesis B)the market segmentation hypothesis C)the liquidity preference theory D)the random walk theory E)the efficient markets theory 21. What is true about the excess return period? A)It is the period in which a firm is able to earn returns on new investments that are greater than its cost of capital due to competitive advantage of the firm over others B)The excess return period is the timeframe historically that a company was able to outperform the market C)A higher cost of capital will result in a company having a lower excess return period D)Strong economies of scale typically mean a lower excess return period E)The intrinsic value of a company will be lower if it has a higher excess return period 22. Which of the following is an example of fundamental analysis? A)Analyzing the stock price momentum. B)Analyzing the price and volume relationships. C)Studying financial statements. D)Analyzing historic stock price movements. E)Analyzing the daily trading volume of stock. 23. Which of the following is true about the dividend policy of a company? A)The higher the dividend paid, the higher the current value of the stock B)If interest rates increase, the dividend policy of a company will always become more conservative C)If the dividend is expected to grow, it will reduce the expected future value of the stock because the company is not reinvesting in new projects D)Companies with low excess return periods typically pay lower dividends E)The dividend policy of a company should affect the future value of a stock but not the current value 24. A callable bond: A)would usually have a lower yield than a similar non-callable bond. B)generally has a higher credit rating than a similar non-callable bond. C)is more apt to be called when interest rates are high because the interest savings will be greater. D)is attractive to the issuer because it allows the issuer to prepay outstanding debt if new debt can be issued at lower rates. E)is attractive to the buyer because the immediate receipt of principal and premium usually produces a higher return. 25. Under which scenario is an issuer LEAST likely to call their bonds? A)The companys cash reserve increases B)Interest rates remain the same C)The issuers credit rating improves D)The issuers credit rating deteriorates E)Bond prices go up