Questions 1 to 10 are false statements. Please re-write each statement so that it is true. It may be as simple as one word change or more complex.

1.	A callable bond is one in which the issuer is required to retire a certain amount of the outstanding bonds each year to ensure that all the bond principle is paid by final maturity.

2.	There is no default risk with either Treasury bonds or municipal bonds.

3.	The dirty price of a bond plus accrued interest is known as the "clean" price of the bond.

4.	When a city issues revenue bonds, the interest and principle are backed by the revenue received from property taxes of the municipality.

5.	The way that TIPS protect against inflation is because the coupon rate is changed every six months by the inflation rate as measured by the consumer price index (CPI).

6.	All else equal, (maturity, coupon rate, face value, etc.) a bond that is callable should have a lower yield-to-maturity than a convertible bond by the same issuer.

7.	When a bond is sold between coupon payment dates, the accrued interest owed to the bond buyer decreases as the next coupon payment date approaches.

8.	T-notes and T-bonds are issued in minimum denominations of $10,000 or multiples of $10,000.

9.	Some corporate bonds may have a deferred call provision. That means that the bondholder can defer returning the bond to the company if it is called and hold the bond to maturity.

10.	Most all corporate bonds are traded on an exchange market and only a select few trade over-the-counter through bond dealers.

Questions 11 to 15 are problems to be solved. Please include your work if you would like partial credit if the ultimate answer is incorrect. That is, if you just write a one-number answer, its either right or wrong.

11.	Nate purchases a STRIP that will mature in 15 years. The price quote per hundred of par for the strip is 48.125%. Using semiannual compounding what is the promised yield to maturity on the STRIP?

12.	A T-Bond with a $10,000 par value and 8.25 years to maturity is quoted at 94.28 Bid, 94:34 Ask. The clean price for you to buy this bond is

13.	What is the quoted ask yield on a 14-year $100,000 par T-Bond with a 5.25% semiannual coupon and a price quote of 96.75?

14.	The ask yield on a 6.75% coupon Treasury bond maturing in 8 years is 5.42%. If the face value is $1,000, what should be the QUOTED cost of the bond today? (use semiannual compounding)?

15.

The convertible bonds of RKO, Inc. may be converted into 28.25 shares of common stock. The bonds have a par value of $1,000, a coupon rate of 4.80 percent, pay interest semi-annually, and have 8 years left until they mature. The yield to maturity is 4.25 percent. If the common stock of RKO is currently selling for $37.50 per share, what should be the market price of the convertible bonds?

Questions 16 to 20 are short-answer.

16.	A T-Bond that is a STRIP security resulted in eighteen (18) individual securities. What was the original maturity (in years) of the bond that was stripped?

17.	The state of Ohio issued a standard revenue bond. Describe the differences between a revenue bond and one that is a general obligation bond issued by a state or municipality.

18.	Briefly describe those individuals or entities that are the ones that are successful or are allocated some of a Treasury bond issue. That is, who are the winners and how did they win?

19.

Which one of the following 4-year bonds is the least sensitive to changes in market interest rates, all else equal? Zero-coupon ; 6 percent coupon ; 8 percent coupon Which of the following 10 percent coupon bonds are the least sensitive to changes in market interest rates, all else equal? 18-year maturity ; 9-year maturity ; 2-year maturity

20.	Many municipal bonds and some corporate bonds are privately placed with investors. What are the advantages and disadvantages of private placement rather than issuing to the general public?