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FIN 701 Exam 2 Questions with Correct Answers
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Allison just received her semiannual payment of $35 on a bond she owns. Which term refers to this payment? a. coupon b. face value c. discount d. call premium e. yield - Answer-coupon Bert owns a bond that will pay him $45 each year in interest plus a $1,000 principal payment at maturity. W...

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  • 23 août 2024
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  • 2024/2025
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FIN 701 Exam 2 Questions with Correct
Answers
Allison just received her semiannual payment of $35 on a bond she owns. Which term
refers to this payment?
a. coupon
b. face value
c. discount
d. call premium
e. yield - Answer-coupon

Bert owns a bond that will pay him $45 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called?
a. coupon
b. face value
c. discount
d. yield
e. dirty price - Answer-face value

A bond's principal is repaid on the ______ date
a. coupon
b. yield
c. maturity
d. dirty
e. clean - Answer-maturity

Which one of these equations applies to a bond that currently has a market price that
exceeds par value?
a. market value < face value
b. YTM = current yield
c. market value = face value
d. current yield > coupon rate
e. YTM < coupon rate - Answer-YTM < coupon rate

Which one of the following relationships is stated correctly?
a. the coupon rate exceeds that current yield when a bond sells at a discount
b. the call price must equal the par value
c. an increase in market rates increases the market price of a bond
d. decreasing the time to maturity increases the price of a discounted bond, all else
constant
e. increasing the coupon rate decreases the current yield, all else constant - Answer-
decreasing the time to maturity increases the price of a discounted bond, all else
constant

,The price sensitivity of a bond increases in response to a change in the market rate of
interest as the:
a. coupon rate increases
b. time to maturity decreases
c. coupon rate decreases and time to maturity increases
d. time to maturity and coupon rate both decrease
e. coupon rate and time to maturity both increase - Answer-coupon rate decreases and
time to maturity increases

Road Hazards has 12-year bonds outstanding. The interest payments on these bonds
are sent directly to each of the individual bondholders. These direct payments are a
clear indication that the bonds can accurately be defined as being issued:
a. at par
b. in registered form
c. in street form
d. as debentures
e. as callable bonds - Answer-in registered form

A sinking fund is managed by a trustee for which of the following purposes?
a. paying bond interest payments
b. early bond redemption
c. converting bonds into equity securities
d. paying preferred dividends
e. reducing bond coupon rates - Answer-early bond redemption

A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030,
plus any accrued interest. The additional $30 is called the:
a. dirty price
b. redemption value
c. call premium
d. original-issue discount
e. redemption discount - Answer-call premium

A deferred call provision:
a. requires the bond issuer to pay the current market price, minus any accrued interest,
should the bond be called
b. all the bond issuer to delay repaying a bond until after the maturity date should the
issuer so opt
c. prohibit the issuer from ever redeeming bonds prior to maturity
d. prohibits the bond issuer from redeeming callable bonds prior to a specified date
e. requires the bond issuer pay a call premium that is equal to or greater than one year's
coupon should the bond be called - Answer-prohibits the bond issuer from redeeming
the callable bonds prior to a specified date

Municipal bonds:
a. are totally risk free

, b. generally have higher coupon rates than corporate bonds
c. pay interest that is federally tax free
d. are rarely callable
e. are free of default risk - Answer-pay interest that is federally tax free

A zero coupon bond:
a. is sold at a large premium
b. pays interest that is tax deductible to the issuer at the time of payment
c. can only be issued by the US treasury
d. has more interest rate risk than a comparable coupon bond
e. provides no taxable income to the bondholder until the bond matures - Answer-has
more interest rate risk than a comparable coupon bond

Which one of the following risks would a floating rate bond tend to have less of as
compared to a fixed rate bond?
a. real rate risk
b. interest rate risk
c. default risk
d. liquidity risk
e. taxability risk - Answer-interest rate risk

A highly illiquid bond that pays no interest but might entitle its holder to rental income
from an asset is most apt to be a:
a. NoNo bond
b. put bond
c. contingent callable bond
d. structured note
e. sukuk - Answer-sukuk

The difference between the price that the dealer is willing to pay and the price at which
he/she will sell is called the:
a. equilibrium
b. premium
c. discount
d. call price
e. spread - Answer-spread

Which one of the following statements is correct?
a. The risk free rate represents the change in purchasing power
b. any return greater than the inflation rate represents the risk premium
c. historical real rates of return must be positive
d. nominal rates exceed real rates by the amount of the risk free rate
e. the real rate must be less than the nominal rate given a positive rate of inflation -
Answer-the real rate must be less than the nominal rate given the positive rate of
inflation

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