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FINC 340: INVESTMENTS UNIT #4A WEEKLY QUIZ ANSWER SHEET DIRECTIONS: Here is the Unit #4 Weekly Quiz Answer Sheet that you should submit to your Unit #4 Homework Assignment Folder. Please submit your Unit #4 Quiz Answer Sheet in MS Word format with the following file name: LastNameFirstInitial_Unit 04_QuizAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_Unit04_QuizAnswerSheet.docx. If you have any questions or comments, please do not hesitate to contact me. NAME: _____________________________________ Question Number 1 2 3 Question How can you describe bond issuers? 1. Government 2. Corporate (public and private) 3. Household 4. Foreign Bond issuers include: A. 1 and 2 B. 1, 2, and 3 C. 2, 3, and 4 D. 1, 2 and 4 Which bond has the most interest rate risk? A. A 3-month Treasury bill B. A zero-coupon 30-year Treasury STRIP C. A 6% 30-year Treasury bond D. A 3% 5-year Treasury note Jane, a financial professional, has a client in the 35% marginal income tax bracket who would like to purchase a bond for her investment portfolio. After making her calculations for the highest after-tax yield, which of the following bonds should Jane recommend to her client? A. 5.5% corporate debenture B. 4.00% general obligation municipal bond C. 2.55% U.S. Treasury note D. 3.75% private activity municipal bond 1 4 All of the following are true, EXCEP: A. Bond prices increase when interest rates decrease B. YTM increases bring about proportionally smaller price changes than YTM decreased of the same magnitude C. The maturity of a bond has an increasing effect on price sensitivity D. Price risk decreases inversely with coupon 5 Which of the following risk factors are the most important for purchasers of long-term high-grade bonds? A. The ability to pay interest when due B. The ability to pay principal upon maturity C. Limited marketability D. Purchasing power risk 6 Which of the following is not the Face Value (usually $1,000 in the US) of a bond? A. Nominal value B. Coupon rate C. Maturity value D. Par value 7 Term structure interest rates are also known as: A. Yield curve B. Yield to maturity C. Investor expectation line D. Liquidity preference curve 8 Rose wants to buy a second home that will eventually become her retirement home and does not want a mortgage to finance this second home. She plans to spend approximately $130,000 in 10 years on this purchase. She has two zero-coupon bonds that mature in 10 years each with cash values of $1,157.98 and face values of $2,500. In 10 years, she will use them as part of her $130,000. The bonds have a semi-annual effective interest rate of 3.923%. What is Rose's required monthly deposit at the beginning of each month in order to accumulate the $130,000 she needs to buy her home at an assumed interest rate of 10% on her investment? A. B. C. D. 9 $543.39 $618.17 $629.38 $605.17 Which of the following is true about the impact of expected interest rate increases: A. Banks would be unaffected B. Utilities would pass on the cost C. Due to the nature of cyclical industries, they would not be disturbed D. Investors would avoid fixed assets 2 10 11 12 The difference between a general obligation and a revenue bond is: A. A general obligation bond is backed by the full faith, credit and \"taxing power\" of the government unit B. For a revenue bond, the repayment of the issue is fully dependent on the revenue-generating capability of a specific project or venture C. General obligation bonds are usually of high quality because of the taxing power behind most of them D. All of the above Your company is going to start a new project using retained earnings. Which of the following is true: A. There is no way to calculate the Weighted Average Cost of Capital (WACC) before the project begins. B. There will be no project risk so the required rated of return is very low. C. The required rate of return is the company's WACC D. Use the company's book value to determine WACC Interest payments and bond prices are stated as percentages of par 1% or 1 point for a bond = $10.00 An 1/8 of a point for a bond = $1.25 Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. She paid a price of 92 for the bond. How much is this in dollars? A. $9,250.00 B. $925.00 C. $92.50 D. $9.25 3