FIN 350 Week 5 Quiz – Strayer



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Week 5 Quiz 4 Chapter 7 and 8

Chapter 7—Bond Markets

     1.   ____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments.
a.
Bearer
b.
Registered
c.
Treasury
d.
Corporate


                                          
          
          

     2.   The yield to maturity is the annualized discount rate that equates the future coupon and principal payments to the initial proceeds received from the bond offering.
a. True
b. False

                                          
          
          

     3.   Note maturities are usually ____, while bond maturities are ____.
a.
less than 10 years; 10 years or more
b.
10 years or more; less than 10 years
c.
less than 5 years; 5 years or more
d.
5 years or more; less than 5 years


                                          
          
          

     4.   Investors in Treasury notes and bonds receive ____ interest payments from the Treasury.
a.
annual
b.
semiannual
c.
quarterly
d.
monthly


                                          
          
          

     5.   The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit.
a.
50
b.
70
c.
10
d.
5


                                          
          
          

     6.   Interest earned from Treasury bonds is
a.
exempt from all income tax.
b.
exempt from federal income tax.
c.
exempt from state and local taxes.
d.
subject to all income taxes.


                                          
          


     7.   Treasury bond auctions are normally conducted only at the beginning of each year.
a. True
b. False

                                          
          
          

     8.   ____ bids for Treasury bonds specify a price that the bidder is willing to pay and a dollar amount of securities to be purchased.
a.
Competitive
b.
Noncompetitive
c.
Negotiable
d.
Non-negotiable


                                          
          
          

     9.   Treasury bond dealers
a.
quote an ask price for customers who want to sell existing Treasury bonds to the dealers.
b.
profit from a very wide spread between bid and ask prices in the Treasury securities market.
c.
may trade Treasury bonds among themselves.
d.
make a primary market for Treasury bonds.


                                          
          


   10.   Under the STRIP program created by the Treasury, stripped securities are created and sold by the Treasury.
a. True
b. False

                                          
          
          

   11.   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 $____.
a.
250
b.
255
c.
500
d.
510


                                          
          
          

   12.   Bonds issued by ____ are backed by the federal government.
a.
the Treasury
b.
AAA-rated corporations
c.
state governments
d.
city governments


                                          
          
          

   13.   Municipal general obligation bonds are ____. Municipal revenue bonds are ____.
a.
supported by the municipal government's ability to tax; supported by the municipal government's ability to tax
b.
supported by the municipal government's ability to tax; supported by revenue generated from the project
c.
always subject to federal taxes; always exempt from state and local taxes
d.
typically zero-coupon bonds; typically zero-coupon bonds


                                          
          


   14.   In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will ____.
a.
remain unchanged
b.
fall
c.
rise
d.
none of the above


                                          
          
          

   15.   Which of the following statements is not true regarding zero-coupon bonds?
a.
They are issued at a deep discount from par value.
b.
Investors are taxed on the total amount of interest earned at maturity.
c.
The issuing firm is permitted to deduct the amortized discount as interest expense for federal income tax purposes, even though it does not pay interest until maturity.
d.
Zero-coupon bonds are purchased mainly for tax-exempt investment accounts, such as pension funds and individual retirement accounts.
e.
All of the above are true.


                                          
          


   16.   A variable rate bond allows
a.
investors to benefit from declining rates over time.
b.
issuers to benefit from rising market interest rates over time.
c.
investors to benefit from rising market interest rates over time.
d.
none of the above.


                                          
          
          

   17.   Corporate bonds that receive a ____ rating from credit rating agencies are normally placed at ____ yields.

a.
higher; lower

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