Coupon payment after six months

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Reference no: EM13790329

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 $____.

  • 250
  • 255
  • 500
  • 510

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.

  • True
  • False

Reference no: EM13790329

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