Reference no: EM131061537

Corporate and Government Bonds - Multiple Choice Questions

1. Which one of the following best defines a plain vanilla bond?

A. bond secured by agricultural or food inventory

B. bond with relatively standard features

C. unsecured debt

D. bond secured with financial collateral

E. bond that has no coupon payments

2. Which one of the following terms is defined as debt issued without specific collateral pledged as security?

A. unsecured debt

B. indenture

C. vanilla bond

D. naked bond

E. risk-free bond

3. Which one of the following is an unsecured bond issued by a corporation?

A. indenture

B. general obligation bond

C. plain vanilla bond

D. debenture

E. trust bond

4. Which one of the following is the portion of a prospectus that outlines the contractual terms of a new bond issue?

A. indenture summary

B. financial disclosure

C. covenant agreement

D. security agreement

E. trust agreement

5. What is the document called that is distributed to potential bondholders and provides detailed information on the financial position and operations of the bond issuer?

A. indenture summary

B. prospectus

C. trust statement

D. 10K

E. 10Q

6. Which one of the following is an unsecured bond that has a higher claim on a firm's assets than other unsecured bonds?

A. plain vanilla bond

B. subordinated debenture

C. refunded bond

D. senior debenture

E. collateral trust bond

7. During a bankruptcy proceeding, Bond A will be paid only if funds remain after the bonds that have a higher claim on the issuer's assets have been paid. What type of bond is Bond A?

A. plain vanilla bond

B. senior trust bond

C. junior trust bond

D. subordinated debenture

E. senior debenture

8. Which one of the following is the clause which prevents a bond issuer from issuing new debt that has seniority over current debt?

A. first-in-line

B. sinking fund

C. call provision

D. affirmation

E. negative pledge

9. Which one of the following accurately describes bond refunding?

A. replacing maturing bonds with a new bond issue

B. calling existing bonds and refinancing those bonds with new debt

C. paying off bonds early with excess cash generated by the firm

D. replacing maturing bonds with an equity issue

E. paying bonds off early to satisfy disgruntled bondholders

10. Which one of the following provisions grants the bondholder the option of selling the bond back to the issuer at a prespecified price on prespecified dates?

A. convertible

B. call

C. put

D. exchange

E. sinking fund

11. Which one of the following provisions grants the bondholder the option of exchanging a bond for a prespecified number of shares of stock of the same issuer?

A. put

B. call

C. equity

D. conversion

E. sinking

12. Which one of the following defines an in-the-money bond?

A. secured bond with collateral value that exceeds the bond's price

B. callable bond with a call price that exceeds the current market price

C. put bond with a put price that exceeds the current market price

D. convertible bond with a call price that exceeds its conversion value

E. convertible bond with a conversion value that exceeds its call price

13. Which one of the following terms is given to the value of a convertible bond that would equate to the value of a comparable nonconvertible bond?

A. out-of-the money value

B. in-the-money value

C. discounted value

D. external value

E. intrinsic value

14. What is a bond called if it can be converted into shares of stock of a firm other than the bond issuer?

A. swap bond

B. alternate bond

C. exchangeable bond

D. convertible bond

E. callable bond

15. Term bonds are defined as all bonds in a bond issue having which one of the following characteristics?

A. sequential maturity dates

B. serial maturity dates

C. multiple maturity dates

D. an identical maturity date

E. renewable maturity dates

16. Bonds issued with a regular sequence of maturity dates are called which one of the following?

A. callable bonds

B. sequential bonds

C. serial bonds

D. sinking bonds

E. put bonds

17. Which one of the following is an account used to provide for scheduled redemptions of outstanding bonds?

A. redemption fund

B. sinking fund

C. liquidation account

D. serial account

E. callable account

18. What are the various provisions within a bond indenture that are designed to protect bondholders by restricting the actions of the issuer called?

A. restrictive actions

B. prohibitions

C. negative conditions

D. protective covenants

E. restrictive amendments

19. Which one of the following identifies a new bond issue as being a private placement?

A. The proceeds of the issue are used for a single project.

B. The issue is marketed through a sole brokerage house.

C. The issue is sold only to individuals rather than to institutional investors.

D. The issue is not made available to the public.

E. The issue names a private individual as the bond trustee.

20. Adjustable-rate bonds are identified by which one of the following characteristics?

A. The coupon rate will increase should the credit rating of the bond decline.

B. Different bonds within the same issue have different coupon rates.

C. Bondholders can defer coupon payments at their discretion.

D. The amount of each coupon payment will depend on the free cash flow of the issuer.

E. The coupon rate changes in response to changes in current market rates.

21. Which one of the following is an assessment of the credit quality of a bond based on the financial condition of the bond issuer?

A. protective covenant

B. risk analysis

C. credit rating

D. serial report

E. in-the-money status

22. What are the restrictions on investment portfolios that require that all securities held within the portfolio meet a specified level of safety called?

A. protective covenants

B. negative restrictions

C. prudent investment guidelines

D. safety monitors

E. risk ranges

23. Bonds with relatively high coupons due to their speculative credit ratings are called which one of the following?

A. investment-grade bonds

B. high-yield bonds

C. prudent risk bonds

D. floating-rate bonds

E. covenant bonds

24. Which of the following are common characteristics associated with corporate bonds?

I. specified cash flows
II. equity ownership
III. call feature
IV. set maturity date

A. I and II only

B. I and IV only

C. II and III only

D. I, II, and IV only

E. I, III, and IV only

25. Which one of the following parties is the largest holder of U.S. corporate bonds?

A. pension funds

B. life insurance companies

C. banks

D. foreign investors

E. individual investors

26. Which one of the following features of corporate bonds has the greatest appeal to pension fund investors?

A. call provision

B. convertible provision

C. zero repayment risk

D. prospectus availability

E. predictable cash flows

27. A pension fund purchases bonds so that the payments from the bonds provide sufficient cash inflow in a timely manner to offset the cash outflows from the pension fund. What is this investment strategy called?

A. cash flow matching

B. cash diversification

C. cash stabilization

D. in-out investing

E. plain vanilla matching

28. Which of the following features would you expect a plain vanilla bond to have?

I. semi-annual coupon payments
II. $1,000 face value
III. stated maturity date
IV. multiple bonds within one issue

A. I and II only

B. II and III only

C. II, III, and IV only

D. I, II, and III only

E. I, II, III, and IV

29. The entire formal contract between a bond issuer and the bondholders is found in which one of the following documents?

A. prospectus

B. prospectus summary

C. indenture agreement

D. indenture summary

E. trust certificate

30. Which one of the following statements related to callable bonds is correct?

A. Callable bonds are issued at the call price.

B. Callable bonds can be called at any time.

C. Callable bonds are generally called at the market price at the time of the call.

D. Callable bonds are more apt to be called if market interest rates decline.

E. Callable bonds are generally priced higher than comparable noncallable bonds.

31. How much will you be paid if you own a bond that is called under a make-whole call provision?

A. the face value

B. an amount equal to the par value plus the total amount of the remaining interest payments

C. the present value of all future bond payments that will not be paid because of the call

D. the current market value plus a prespecified call premium

E. an amount equal to the normal maturity value of the bond

32. After the call protection period, which one of the following basically serves as the upper price limit on a callable bond?

A. present value of all future bond payments discounted at the current market rate of interest

B. face value of the bond

C. call price of the bond

D. current market price of the bond

E. current market price of a comparable noncallable bond

33. Which one of the following statements related to a put bond is correct?

A. Put bonds are generally redeemed at a premium over par value.

B. Put bonds can be redeemed at any time once the put protection period has elapsed.

C. The put feature effectively sets the ceiling price for the bond.

D. The put feature helps protect bondholders from the risk associated with rising interest rates.

E. A putable bond is generally priced lower than a comparable nonputable bond.

34. Which one of the following statements related to convertible bonds is correct?

A. Bondholders forego higher coupon rates in exchange for the conversion option.

B. Convertible bonds are generally issued such that the conversion value is equal to the par value.

C. The conversion price is equal to the bond's market value divided by the conversion ratio.

D. The conversion value is equal to the bond's market price multiplied by the conversion ratio.

E. Bonds should be converted as soon as the conversion value exceeds the face value.

35. Which one of the following statements related to convertible bonds is correct?

A. Convertible bonds have a maximum value equal to the bond's intrinsic value.

B. Convertible bonds have limited downside risk with unlimited upside potential.

C. A convertible bond is in-the-money when its call price is greater than its conversion value.

D. Convertible bonds must be converted prior to or on the maturity date.

E. Convertible bonds must be converted once they are called.

36. Which one of these statements regarding corporate bond credit ratings is correct?

A. Bonds rated Ba3 or above by Moody's are considered investment-grade bonds.

B. All bonds issued by the same issuer will have the same credit rating.

C. A bond's credit spread may be a better indicator of a bond's risk than its rating.

D. Bond ratings are based solely on the seniority of the bond issue and the protective covenants by which it is covered.

E. Credit ratings are assigned to the bond issuer, not the bond issue.

37. Which one of the following is another name for a junk bond?

A. high-yield

B. convertible

C. private placement

D. subordinated

E. called

38. What is the method of selling Treasury bills at less than face value called?

A. imputed basis

B. par value method

C. discount basis

D. STRIP basis

E. face value method

39. What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value?

A. assumed interest

B. imputed interest

C. imaginary interest

D. convergent interest

E. original-issue interest

40. Which one of the following is the Treasury program allowing interest and principal payments from Treasury notes or bonds to be sold separately?

A. EDGAR

B. TRSTRP

C. TRIPS

D. TZEROES

E. STRIPS

41. Which one of the following descriptors is used to identify a bond that pays one single payment at maturity?

A. zero coupon

B. imputed value

C. solo

D. STRIP

E. term

42. Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell?

A. commission

B. imputed cost

C. imputed interest

D. bid-ask spread

E. ask price

43. What is the lowest accepted competitive bid in a U.S. Treasury auction called?

A. selected price

B. base price

C. stop-out bid

D. imputed bid

E. set bid

44. Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

A. interest rate risk

B. default risk

C. market risk

D. conversion risk

E. earnings risk

45. Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

A. general obligation bonds

B. local taxation bonds

C. fully funded bonds

D. revenue bonds

E. private activity bonds

46. Which one of the following is a municipal bond that is secured by the income collected from a specific project?

A. agency bond

B. general obligation bond

C. development bond

D. contingency bond

E. revenue bond

47. Which one of the following is a municipal bond that is secured by both the revenues from a project and also by the taxing authority of the municipality?

A. mixed bond

B. general obligation bond

C. hybrid bond

D. dual bond

E. multiple bond

48. Which one of the following is a taxable municipal bond used to finance a facility used by a private business?

A. private activity bond

B. private revenue bond

C. private corporate bond

D. private agency bond

E. private income bond

49. Which of the following features apply to T-bills?

I. original maturities of 4, 13, or 26 weeks
II. minimum face value of $10,000
III. sold at a discount
IV. semiannual interest payments

A. IV only

B. I and III only

C. I and IV only

D. II and III only

E. II and IV only

50. Which one of the following statements applies to U.S. Treasury bonds?

A. They have original maturities of 1 to 10 years.

B. They have a minimum face value of $100,000.

C. They are zero-coupon securities.

D. They pay a fixed coupon payment semiannually.

E. They are adjusted semiannually for inflation.

51. You just purchased a 5-year STRIPS security that was created from a 30-year T-bond. How many payments will you receive?

A. 1

B. 10

C. 11

D. 60

E. 61

52. Which one of the following statements related to TIPS is correct assuming an inflationary environment?

A. TIPS have a maturity value of $1,000.

B. TIPS pay an interest payment based on the latest T-bill rate.

C. TIPS pay a fixed coupon rate.

D. The principal amount of a TIPS is adjusted annually for inflation.

E. The interest rate is adjusted semiannually for inflation.

53. Which of the following statements correctly apply to TIPS?

I. They are quoted as a percentage of the current accrued principal.
II. They pay a variable interest rate that responds to movements in the inflation rate.
III. They are backed by the full faith and credit of the U.S. government.
IV. They adjust for inflation on an annual basis.

A. I and III only

B. II and IV only

C. III and IV only

D. I, II, and III only

E. II, III, and IV only

54. Which one of the following applies to U.S. Treasury auctions?

A. Every bidder has a choice of submitting either a competitive or a noncompetitive bid.

B. The purchase price paid by all bidders is the highest bid price.

C. Each bidder with an accepted bid will pay the individual price he or she bid.

D. All noncompetitive bids are accepted automatically.

E. Noncompetitive bids are ignored unless there are not enough competitive bids to buy the entire issue.

55. What price will a noncompetitive bidder pay for a security being purchased through a U.S. Treasury auction?

A. highest competitive bid price

B. highest noncompetitive bid price

C. stop-out bid price

D. average of all bid prices

E. lowest competitive bid price

56. U.S. government agency bonds pay interest which is subject to which of the following taxes?

A. federal only

B. state only

C. state and local only

D. state and federal only

E. state, local, and federal

57. Kathy lives in State A and owns a municipal bond issued by State B. The interest earned on this bond is most apt to be exempt from taxation at which of the following levels?

A. local only

B. state only

C. federal only

D. local and state only

E. federal, state, and local

58. Which one of the following generally applies to municipal bonds?

A. noncallable

B. risk-free

C. high credit rating

D. zero coupon

E. par value of $1,000

59. A moral obligation bond is which type of a bond?

A. municipal revenue

B. municipal GO

C. municipal hybrid

D. U.S. Treasury

E. U.S. agency

60. Which of the following uses of proceeds from private activity bonds will most likely qualify those bonds as federally tax-exempt?

I. public airport runway
II. baseball stadium
III. multifamily housing project
IV. mass rail transit

A. I and II only

B. I and III only

C. II and III only

D. II and IV only

E. I, III, and IV only

61. A bond that is currently selling for $933.38 has a conversion price of $40.00. If the par value is $1,000, what is the conversion ratio?

A. 23

B. 24

C. 25

D. 26

E. 27

62. A bond has a par value of $1,000 and a market value of $833.40. The conversion price is $45.45. What is the conversion ratio?

A. 21

B. 22

C. 23

D. 24

E. 25

63. A bond has a conversion price of $47.62, a par value of $1,000, and a market price of $833.40. What is the conversion ratio?

A. 20

B. 21

C. 22

D. 23

E. 24

64. What is the conversion ratio of a $1,000 par value bond that is selling for $888.96 and has a conversion price of $58.82?

A. 15

B. 16

C. 17

D. 18

E. 19

65. A convertible bond has a par value of $1,000 and a market price of $1,116.76. If the conversion ratio is 19, what is the conversion price?

A. $43.48

B. $45.45

C. $47.62

D. $52.63

E. $55.56

66. A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio of 14. What is the conversion price?

A. $55.56

B. $58.82

C. $62.50

D. $66.67

E. $71.43

67. A bond is currently priced at $1,076.88 and has a par value of $1,000. If the conversion ratio is 25, what is the conversion price?

A. $35.71

B. $36.92

C. $38.46

D. $40.00

E. $41.67

68. A bond has a conversion ratio of 24 and a market price of $1,080. If the par value is $1,000, what is the conversion price?

A. $40.00

B. $41.67

C. $42.60

D. $43.20

E. $43.80

69. A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The stock is selling for $46.14. What is the conversion value?

A. $1,009.16

B. $1,015.08

C. $1,038.60

D. $1,049.35

E. $1,053.50

70. A $1,000 par value bond has a market price of $986 and a conversion ratio of 15. The stock is selling for $60.74. What is the conversion value?

A. $903.17

B. $911.10

C. $925.60

D. $930.57

E. $946.49

71. A bond has a par value of $1,000 and a market price of $1,087.20. The conversion price is $40 and the stock price is $41.75. What is the conversion value?

A. $1,043.75

B. $1,250.00

C. $1,481.10

D. $1,500.00

E. $1,652.00

72. A 4.5 percent, semi-annual coupon bond has a face value of $1,000 and a time to maturity of 4 years. The bonds are convertible into shares of common stock at a conversion price of $42.50. The stock price currently is $40.70. Similar, non-convertible bonds have a yield to maturity of 4.5 percent. The intrinsic value of this bond is _____ and the conversion value is _____.

A. $832.62; $982.80

B. $961.06; $957.65

C. $1,014.16; $1,017.50

D. $1,014.16; $982.80

E. $1,006.96; $1,017.50

73. A semi-annual coupon bond has a 6.5 percent coupon rate, a $1,000 face value, a current value of $1,054.54, and 4 years until the first call date. What is the call price if the yield to call is 6.7 percent?

A. $1,000

B. $1,020

C. $1,040

D. $1,060

E. $1,080

74. A bond has 6 years until it can be called, a 7 percent coupon, and a $1,000 face value. The bond has a market value of $1,031.90 and a yield to call of 7.35 percent. What is the call premium?

A. $45

B. $55

C. $65

D. $75

E. $85

75. A bond has a face value of $1,000 and a call price of $1,030. The bond is callable in 3.5 years and pays a 5 percent, semi-annual coupon. What is the current price if the yield to call is 6 percent?

A. $912.36

B. $927.19

C. $966.25

D. $993.24

E. $1,009.01

76. You own a bond that has a face value of $1,000 and a conversion ratio of 26. You have just received notification that the bond is being called at a premium of $40. The stock price is $41.20 a share. You should _____ your bond because the conversion value is _____.

A. convert; less than the call price by $40.00

B. convert; greater than the call price by $31.20

C. convert; greater than the call price by $4.75

D. not convert; less than the call price by $31.20

E. not convert; greater than the call price by $40.00

77. Slater Mines just called its outstanding bonds at a call price of $1,025. The bonds have a conversion price of $33.33 and a par value of $1,000. The stock price is currently $33.10. In response to this call, the bondholders should _____ because _____.

A. accept the call; the call price exceeds the conversion value

B. accept the call; they have no other choice

C. convert their bonds; the conversion price exceeds the par value by $37.90

D. convert their bonds; the conversion price exceeds the call price by $12.90

E. elect to continue holding their bonds; they want to continue receiving the interest payments

78. A Treasury bond has a face value of $25,000 and a quoted price of 102:20. What is the bond's dollar price?

A. $25,002.80

B. $25,102.18

C. $25,656.25

D. $25,787.50

E. $31,475.00

79. A Treasury bond has a quoted bid price of 100:10 and a quoted ask price of 100:11. What is the amount you will receive if you sell your bond that has a par value of $20,000?

A. $20,016.00

B. $20,050.00

C. $20,062.60

D. $20,100.08

E. $21,600.00

80. A Treasury bond has a yield to maturity of 5.2 percent, a time to maturity of 8 years, and a coupon rate of 7 percent. What is the bond price?

A. $940.65

B. $946.95

C. $1,054.55

D. $1,116.59

E. $1,169.56

81. A Treasury bond has a dollar price of $1,015.63. What would you expect the bond quote to be?

A. 101:05

B. 101:15

C. 101:16

D. 101:18

E. 101:22

82. A Treasury note has 3.5 years left to maturity, a yield to maturity of 4.25 percent, and a coupon rate of 4.40 percent. What is the price of the bond?

A. $1,004.83

B. $1,005.53

C. $1,006.56

D. $1,007.58

E. $1,008.96

83. A Treasury bond matures in 13 years, has a 5.25 percent coupon, and a quoted price of 98:01. What is the yield to maturity?

A. 5.25 percent

B. 5.34 percent

C. 5.46 percent

D. 5.55 percent

E. 5.68 percent

84. A Treasury bond has a 3.4 percent coupon, a quoted price of 101:06, and 9 years to maturity. What is the yield to maturity?

A. 3.25 percent

B. 3.93 percent

C. 4.03 percent

D. 4.90 percent

E. 5.92 percent

85. A STRIPS matures in 6 years, has a face value of $17,000, and has a yield to maturity of 4.8 percent. What is the price?

A. $10,854.59

B. $11,010.43

C. $11,284.75

D. $11,322.01

E. $12,789.38

86. A STRIPS has a yield to maturity of 6.2 percent, a par value of $25,000, and a time to maturity of 10 years. What is the price?

A. $4,100.87

B. $5,792.80

C. $9,967.50

D. $10,698.08

E. $13,575.84

87. A STRIPS has a $9,000 par value and a market value of $7,050. The time to maturity is 5 years. What is the yield to maturity?

A. 2.07 percent

B. 3.00 percent

C. 4.94 percent

D. 5.00 percent

E. 5.07 percent

88. A STRIPS that matures in 8 years is selling for $11,490. The par value is $15,000. What is the yield to maturity?

A. 3.36 percent

B. 4.67 percent

C. 5.25 percent

D. 6.54 percent

E. 6.75 percent

89. You own a principal STRIPS which is based on a 4.5 percent coupon Treasury bond that matures in 20 years. The STRIPS is priced at $22,868 and has a par value of $50,000. What is the yield to maturity on the STRIPS?

A. 3.79 percent

B. 3.90 percent

C. 3.93 percent

D. 3.95 percent

E. 3.99 percent

90. The Federal Reserve is offering Treasury bills with a par value of $25 billion for sale. They have received $7 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are: (Qty in billions)

What price will Bidder A pay per bond, assuming that bid is accepted?

A. $9,600

B. $9,650

C. $9,675

D. $9,700

E. $9,750

91. The Federal Reserve is offering Treasury bills with a par value of $30 billion for sale. They have received $11 billion of noncompetitive bids. The competitive bids for a $10,000 par value bond are:

How much money will the Federal Reserve raise from this offering?

A. $29.55 billion

B. $29.40 billion

C. $29.10 billion

D. $29.33 billion

E. $29.25 billion

 

92. A municipal bond is yielding 4.8 percent. Jeremy has a marginal tax rate of 24 percent. What is his equivalent taxable yield?

A. 2.18 percent

B. 4.58 percent

C. 6.15 percent

D. 6.32 percent

E. 7.18 percent

93. You have a marginal tax rate of 32 percent and an average tax rate of 28 percent. Municipal bonds in your area are yielding 4.25 percent. What is your equivalent taxable yield?

A. 5.16 percent

B. 5.93 percent

C. 5.13 percent

D. 6.25 percent

E. 6.47 percent

94. Municipal bonds are yielding 4.8 percent currently. Alicia has a marginal tax rate of 35 percent and Yvonne has a marginal tax rate of 22 percent. Alicia's equivalent taxable yield is _____ percent and Yvonne's is _____ percent.

A. 7.50; 5.86

B. 7.39; 6.15

C. 6.53; 5.86

D. 6.53; 6.15

E. 8.29; 5.07

95. Municipal bonds are yielding 4.4 percent if they are insured and 4.7 percent if they are uninsured. Your marginal tax rate is 28 percent. Your equivalent taxable yield on the insured bonds is _____ percent and on the uninsured bonds is _____ percent.

A. 5.89; 6.27

B. 6.11; 6.53

C. 6.31; 6.81

D. 6.67; 7.10

E. 6.76; 7.10

96. You own a corporate bond which is yielding 8.2 percent. What is your after-tax yield if your marginal tax rate is 28 percent?

A. 5.90 percent

B. 7.52 percent

C. 8.20 percent

D. 10.58 percent

E. 11.55 percent

97. Laura has an average tax rate of 22 percent and a marginal tax rate of 28 percent. What is her after-tax yield on a corporate bond which has a 6.7 percent yield?

A. 4.82 percent

B. 5.09 percent

C. 5.47 percent

D. 6.00 percent

E. 11.34 percent

98. Jeff owns a taxable bond portfolio which is yielding 8.76 percent. His after-tax yield is 6.57 percent. What is his marginal tax rate?

A. 25 percent

B. 28 percent

C. 31 percent

D. 32 percent

E. 34 percent

99. A corporate bond is yielding 6.8 percent and a municipal bond is yielding 4.75 percent. What is the critical marginal tax rate?

A. 28 percent

B. 30 percent

C. 33 percent

D. 35 percent

E. 38 percent

 

100. Sonya has a marginal tax rate of 36 percent. A corporate bond is yielding 7.4 percent and a municipal bond is yielding 3.6 percent. Sonya should invest in the _____ bond because the critical marginal tax rate is _____ percent.

A. corporate; 17

B. corporate; 34

C. corporate; 51

D. municipal; 43

E. municipal; 51

101. Lester is considering a municipal bond yielding 5.5 percent and a corporate bond yielding 8.2 percent. His marginal tax rate is 28 percent. He should invest in the _____ bond because the critical marginal tax rate is _____ percent.

A. corporate; 26

B. corporate; 29

C. corporate; 33

D. municipal; 35

E. municipal; 37

102. A $5,000 face value municipal bond matures in 14 years and is priced at $4,862. The coupon rate is 4.5 percent with interest paid semiannually. What is the yield to maturity on the bond?

A. 4.77 percent

B. 5.14 percent

C. 5.40 percent

D. 5.61 percent

E. 5.97 percent

103. A $5,000 face value municipal bond matures in 6 years and has a market value of $5,110. The coupon rate is 3.5 percent with interest paid semiannually. What is the yield to maturity?

A. 2.92 percent

B. 3.10 percent

C. 3.73 percent

D. 5.13 percent

E. 6.38 percent

Essay Questions

104. Explain how the imputed interest is computed on a U.S. Treasury bill.

105. What is the advantage of purchasing a STRIPS over a Treasury note?

106. Why would an investor prefer a TIPS which offers a lower coupon rate over a comparable T-note with a higher coupon rate?

107. How is the minimal value for a convertible bond determined?