Question 1 (2.5 points)

Federal government debt is believed to have minimal default risk because the government has the power to tax and to create money.

Question 1 options:

	a) True
	b) False

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Question 2 (2.5 points)

If an investor is in the 25 percent income tax bracket and can earn 5 percent on a corporate bond, then 3 percent on a municipal bond is attractive.

Question 2 options:

	a) True
	b) False

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Question 3 (2.5 points)

Agencies of the federal government are not allowed to issue bonds.

Question 3 options:

	a) True
	b) False

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Question 4 (2.5 points)

Build American bonds are not exempt from federal income taxation.

Question 4 options:

	a) True
	b) False

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Question 5 (2.5 points)

Municipal bonds are exempt from federal income but not necessarily from state income taxation.

Question 5 options:

	a) True
	b) False

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Question 6 (2.5 points)

Sources of risk to investors in municipal bonds include 1. fluctuations in interest rates 2. reinvestment rate risk 3. default risk

Question 6 options:

a)

1 and 2

b)

1 and 3

c)

2 and 3

d)	all of the above

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Question 7 (2.5 points)

Municipal bonds are considered to be safe investments because they may be readily sold with little chance of loss.

Question 7 options:

	a) True
	b) False

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Question 8 (2.5 points)

Municipal bonds are often examples of serial bonds.

Question 8 options:

	a) True
	b) False

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Question 9 (2.5 points)

Treasury bills are sold for a premium.

Question 9 options:

	a) True
	b) False

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Question 10 (2.5 points)

Yields on municipal bonds exceed yields on corporate bonds with the same term to maturity and credit rating.

Question 10 options:

	a) True
	b) False

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Question 11 (2.5 points)

The price of a convertible bond is often 1. greater than its value as stock 2. less than its value as stock 3. greater than its value as debt 4. less than its value as debt

Question 11 options:

a)

1 and 3

b)

1 and 4

c)

2 and 3

d)

2 and 4

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Question 12 (2.5 points)

If a convertible bond is called, the bondholder must convert the bond or lose the appreciation achieved by the stock.

Question 12 options:

	a) True
	b) False

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Question 13 (2.5 points)

Convertible preferred stock 1. pays a fixed dividend 2. pays a variable dividend 3. may be converted into the firm's bonds 4. may be converted into the firm's stock

Question 13 options:

a)

1 and 3

b)

1 and 4

c)

2 and 3

d)

2 and 4

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Question 14 (2.5 points)

If interest rates fall, the investor will not exercise the option in a put bond.

Question 14 options:

	a) True
	b) False

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Question 15 (2.5 points)

When a convertible bond is called, 1. interest ceases to accrue 2. the bondholder receives the principal 3. the bondholder generally converts the bond 4. dividends are paid to the bondholder

Question 15 options:

a)

1 and 3

b)

1 and 4

c)

2 and 3

d)

2 and 4

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Question 16 (2.5 points)

If interest rates rise, the value of a convertible bond as debt increases.

Question 16 options:

	a) True
	b) False

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Question 17 (2.5 points)

The premium paid over a convertible bond's value as stock tends to fall as the price of the stock rises.

Question 17 options:

	a) True
	b) False

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Question 18 (2.5 points)

Convertible bonds tend to pay more interest than comparable non-convertible bonds.

Question 18 options:

	a) True
	b) False

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Question 19 (2.5 points)

When interest rates rise, the price of a put bond will tend to fluctuate more than a bond without the put option.

Question 19 options:

	a) True
	b) False

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Question 20 (2.5 points)

A convertible bond may be converted at the firm's option into common stock.

Question 20 options:

	a) True
	b) False

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