Question 1

The risk on an agency bond is

Accepted Answer

A)  high. 
B)  zero. 
C)  moderate. 
D)  low. 
A)  high. 
B)  zero. 
C)  moderate. 
D)  low. D

Question 2

(I)To sell an old bond when interest rates have risen,the holder will have to discount the bond until the yield to the buyer is the same as the market rate.
(II)The risk that the value of a bond will fall when market interest rates rise is called interest-rate risk.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. C

Question 3

The primary reason that individuals and firms choose to borrow long-term is to

Accepted Answer

A)  reduce the risk that interest rates will fall before they pay off their debt. 
B)  reduce the risk that interest rates will rise before they pay off their debt. 
C)  reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments. 
D)  reduce total interest payments over the life of the debt. 
A)  reduce the risk that interest rates will fall before they pay off their debt. 
B)  reduce the risk that interest rates will rise before they pay off their debt. 
C)  reduce monthly interest payments, as interest rates tend to be higher on short-term than long-term debt instruments. 
D)  reduce total interest payments over the life of the debt. B

Question 4

The security with the longest maturity is a Treasury

Accepted Answer

A)  note. 
B)  bond. 
C)  acceptance. 
D)  bill. 
A)  note. 
B)  bond. 
C)  acceptance. 
D)  bill.

Question 5

Compared to money market securities,capital market securities have

Accepted Answer

A)  more liquidity. 
B)  longer maturities. 
C)  lower yields. 
D)  less risk. 
A)  more liquidity. 
B)  longer maturities. 
C)  lower yields. 
D)  less risk.

Question 6

Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation.

Accepted Answer

A) True 
 B)False

Question 7

(I)Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation.
(II)General obligation bonds do not have specific assets pledged as security or a specific source of revenue allocated for their repayment.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 8

Individuals and households frequently purchase capital market securities through financial institutions such as

Accepted Answer

A)  mutual funds. 
B)  pension funds. 
C)  money market mutual funds. 
D)  all of the above. 
E)  only A and B of the above. 
A)  mutual funds. 
B)  pension funds. 
C)  money market mutual funds. 
D)  all of the above. 
E)  only A and B of the above.

Question 9

What are Treasury STRIPS?

Accepted Answer

Tresury strips are fixed income security

Question 10

(I)The coupon rate is the rate of interest that the issuer of the bond must pay.
(II)The coupon rate on old bonds fluctuates with market interest rates so they will remain attractive to investors.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 11

Why don't federal,state,and local governments issue equity claims?

Accepted Answer

Federal, state, and local governments do

Question 12

The secondary market is where new issues of stocks and bonds are introduced.

Accepted Answer

A) True 
 B)False

Question 13

What is the difference between a general obligation bond and a revenue bond?

Accepted Answer

To mitigate the hazards of high-risk ass

Question 14

Corporate bonds are less risky if they are ________ bonds and municipal bonds are less risky if they are ________ bonds.

Accepted Answer

A)  secured; revenue 
B)  secured; general obligation 
C)  unsecured; revenue 
D)  unsecured; general obligation 
A)  secured; revenue 
B)  secured; general obligation 
C)  unsecured; revenue 
D)  unsecured; general obligation

Question 15

Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.

Accepted Answer

A) True 
 B)False

Question 16

(I)Securities that have an original maturity greater than one year are traded in money markets.
(II)The best known money market securities are stocks and bonds.

Accepted Answer

A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false. 
A)  (I) is true, (II) false. 
B)  (I) is false, (II) true. 
C)  Both are true. 
D)  Both are false.

Question 17

Most municipal bonds are revenue bonds rather than general obligation bonds.

Accepted Answer

A) True 
 B)False

Question 18

Restrictive covenants can

Accepted Answer

A)  limit the amount of dividends the firm can pay. 
B)  limit the ability of the firm to issue additional debt. 
C)  restrict the ability of the firm to enter into a merger agreement. 
D)  do all of the above. 
E)  do only A and B of the above. 
A)  limit the amount of dividends the firm can pay. 
B)  limit the ability of the firm to issue additional debt. 
C)  restrict the ability of the firm to enter into a merger agreement. 
D)  do all of the above. 
E)  do only A and B of the above.

Question 19

Most corporate bonds have a face value of $1,000,are sold at a discount,and can only be redeemed at the maturity date.

Accepted Answer

A) True 
 B)False

Question 20

Call provisions will be exercised when interest rates ________ and bond values ________.

Accepted Answer

A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall 
A)  rise; rise 
B)  fall; rise 
C)  rise; fall 
D)  fall; fall

Exam 12: The Bond Market

The risk on an agency bond is

(I)To sell an old bond when interest rates have risen,the holder will have to discount the bond until the yield to the buyer is the same as the market rate. (II)The risk that the value of a bond will fall when market interest rates rise is called interest-rate risk.

The primary reason that individuals and firms choose to borrow long-term is to

The security with the longest maturity is a Treasury

Compared to money market securities,capital market securities have

Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation.

(I)Municipal bonds that are issued to pay for essential public projects are exempt from federal taxation. (II)General obligation bonds do not have specific assets pledged as security or a specific source of revenue allocated for their repayment.

Individuals and households frequently purchase capital market securities through financial institutions such as

What are Treasury STRIPS?

(I)The coupon rate is the rate of interest that the issuer of the bond must pay. (II)The coupon rate on old bonds fluctuates with market interest rates so they will remain attractive to investors.

Why don't federal,state,and local governments issue equity claims?

The secondary market is where new issues of stocks and bonds are introduced.

What is the difference between a general obligation bond and a revenue bond?

Corporate bonds are less risky if they are ________ bonds and municipal bonds are less risky if they are ________ bonds.

Debentures are long-term unsecured bonds that are backed only by the general creditworthiness of the issuer.

(I)Securities that have an original maturity greater than one year are traded in money markets. (II)The best known money market securities are stocks and bonds.

Most municipal bonds are revenue bonds rather than general obligation bonds.

Restrictive covenants can

Most corporate bonds have a face value of $1,000,are sold at a discount,and can only be redeemed at the maturity date.

Call provisions will be exercised when interest rates ________ and bond values ________.

Why Study Financial Markets and Institutions?

Overview of the Financial System

What Do Interest Rates Mean and What Is Their Role in Valuation?

Why Do Interest Rates Change?

How Do Risk and Term Structure Affect Interest Rates?

Are Financial Markets Efficient?

Why Do Financial Institutions Exist?

Why Do Financial Crises Occur and

Central Banks and the Federal Reserve System

Conduct of Monetary Policy: Tools, Goals, Strategy, and Tactics

The Money Markets

The Stock Market

The Mortgage Markets

The Foreign Exchange Market

The International Financial System

Banking and the Management of Financial Institutions

Financial Regulation

Banking Industry: Structure and Competition

The Mutual Fund Industry

Insurance Companies and Pension Funds

Investment Banks, Security Brokers and Dealers, and Venture Capital Firms

Risk Management in Financial Institutions

Hedging with Financial Derivatives

Financial Crises In Emerging Market Economies

Savings Associations and Credit Unions

Finance Companies

Filters

Corporate bonds are less risky if they are bonds and municipal bonds are less risky if they are bonds.

Call provisions will be exercised when interest rates and bond values .