(TCO 1) Which of the following is true about fixed-income securities?

They encompass preferred stock, corporate bonds, and common stock.

They could include preferred stock, U.S. Treasury bonds, and corporate bonds.

Treasury stock and preferred stock only

None of the above

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Question 2

10pts

(TCO 2) The concept of risk versus return refers to

the consideration of an investor's portfolio weights being equal between risk-free and risky assets.

the fact that the yield curve is flat.

the fact that all investors expect less return for increasing amounts of risk.

None of the above

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Question 3

10pts

(TCO 5) Which of the following is true?

Current yield = dividends / price paid.

Coupon rate = interest / price paid.

YTM = interest / 30.

None of the above

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Question 4

10pts

(TCO 3) Which of the followingarenot part of the overall offering, buying, and selling process for corporate bonds?

IPO process, investment bankers, and secondary markets

Shelf registration, the SEC, and the Federal Reserve

Direct search markets, brokered markets, and dealer markets

Bonds could be declared as semiannual or annual interest payments

None of the above

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Question 5

10pts

(TCO 5) What does the term structure of interest rates refer to?

The fact that long-term interest rates are always higher than short-term interest rates

The relationship between bond maturities and interest rates

Why the expectations theory and liquidity preference theory are contradictory

None of the above

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Question 6

10pts

(TCO 6) What is the objective of portfolio diversification?

Maximize return

Minimize risk

Minimize return per unit of risk

Maximize return per unit of risk

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Question 7

10pts

(TCOs 1 and 8) Investors particularly interested in fixed-income securities could choose from which of the following?

Common stock, preferred stock, and municipal bonds

Preferred stock, Treasury bonds, and the money market

Preferred stock, municipal bonds, and corporate bonds

None of the above

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Question 8

10pts

(TCO 8) Who wouldnot normally be concerned about creating an investment policy for portfolio creation?

CEO of a firm issuing bonds

401k plan manager

Pension fund manager

None of the above

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Question 9

10pts

(TCO 4) Which of the following would be a good indicator of the bond market?

Lehman Brothers Index

S&P 500

CBOE

None of the above

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Question 10

10pts

(TCO 6) The yield on a corporate bond is 10%, and it is currently selling at par. The marginal tax rate is 20%. A par value municipal bond with a coupon rate of 8.50% is available. Which security is a better buy?

Municipal bond

Both are equal

Corporate bond

A municipal bond carries no par

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Question 11

20pts

(TCO 6) A $1,000 face value bond was issued at par 20 years ago with a 6% coupon paid semiannually. The bond now has7 years remaining to maturity, and similar debt obligations are yielding 12%.

Compute the current price of the bond.

Assuming that the bond is sold at its current price, what is the capital gain or loss from the original purchase?

Now assume that the price of the bond returns to par. What is the percentage capital gain or loss for the new owner?

Please explain why the percentage gain is different from the percentage loss.

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Question 12

20pts

(TCO 7) What would be the expected change to a 30-year bond's market price or value if its YTM increases to 9.4%?Its YTM is now 8.5%, it has an 8% annual coupon, $1,000 face value, it is currently priced at $897.26, and its duration is8 years.

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Question 13

20pts

(TCO 2) Given the data below, calculate the expected return, variance, and standard deviation of the following company. In a recessionary economy, which is expected to occur with a 30% probability, the expected returns would be -5%.

In an expanding economy with an expected probability of occurrence of 20%, the expected return would be 10%.

In a normal economy, expected to occur 50% of the time, the expected return would be 5%.

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Question 14

20pts

(TCO 6) Calculate thefive ratios for the following company info.

Income StatementBalance Sheet

Revenue10,000AssetsLiab. + OE

EBIT$2,000cash$1,000a/p$2,000

Interest$500A/R$10,000Bonds payable$50,000

Earnings B4 Tax $1,500Equip$25,000equity$84,000

EAT (at 30%)$1,050Bldg$100,000

Total$136,000$136,000

- return on sales

- ROA

- ROE

- fixed asset turnover

- times interest earned

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Question 15

20pts

(TCOs 1, 5, and 6) Calculate the appropriate selling price of a 30-year 5% coupon, $100 corporate bond that was purchased5 years ago. Marketplace interest rates are averaging 8%.

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Question 16

20pts

(TCOs 1, 8, and 9) An investor is considering a bond that currently sells at a discount ($953) to the face value of $1,000. The coupon rate is 9.25% paid semiannually. If there are 15 years left on the bond, what is the yield to maturity?

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Question 17

30pts

(TCO 5) Explain the difference between active portfolio management and passive management.