Question 1: A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the coupon payment after six months will be $____.
Question 2: Municipal general obligation bonds are ____. Municipal revenue bonds are ____.
- supported by the municipal government's ability to tax; supported by the municipal government's ability to tax
- supported by the municipal government's ability to tax; supported by revenue generated from the project
- always subject to federal taxes; always exempt from state and local taxes
- typically zero-coupon bonds; typically zero-coupon bonds
Question 3: In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will ____.
- remain unchanged
- fall
- rise
- none of the above
Question 4: When would a firm most likely call bonds?
- after interest rates have declined
- if interest rates do not change
- after interest rates increase
- none of the above
Question 5: Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely ____ as a result.
- rise
- decline
- be zero
- be unaffected
Question 6: Some bonds are "stripped," which means that
- they have defaulted.
- the call provision has been eliminated.
- they are transferred into principal-only and interest-only securities.
- their maturities have been reduced.
Question 7: (Financial calculator required.) Paul can purchase bonds with 15 years remaining until maturity, a par value of $1,000, and a 9 percent annual coupon rate for $1,100. Paul's yield to maturity is ____ percent.
- 9.33
- 7.84
- 9.00
- none of the above
Question 8: A ____ has first claim on specified assets, while a ____ is a debenture that has claims against a firm's assets that are junior to the claims of mortgage bonds and regular debentures.
- first mortgage bond; second mortgage bond
- first mortgage bond; debenture
- first mortgage bond; subordinated debenture
- chattel mortgage bond; subordinated debenture
- none of the above
Question 9: If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.
- more; less; lower
- more; less; higher
- less; more; higher
- none of the above
Question 10: A sinking-fund provision is a requirement that the issuing firm retire a certain amount of the bond issue each year.