Question 1

Which of the following is not mentioned in your text as a protective covenant?

Accepted Answer

A)  a limit on the amount of dividends a firm can pay 
B)  a limit on the corporate officers' salaries a firm can pay 
C)  the amount of additional debt a firm can issue 
D)  the appointment of a trustee in all bond indentures 
E)  All of the above are mentioned in the text as protective covenants.

Question 2

Which of the following would not be a likely example of a protective covenant provision?

Accepted Answer

A)  a limit on the amount of dividends a firm can pay 
B)  a limit on the corporate officers' salaries a firm can pay 
C)  the amount of additional debt a firm can issue 
D)  a call feature

Question 3

Jim purchases $10,000 par value bonds with a 10 percent coupon rate and a 7 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ____ percent.

Accepted Answer

A)  8 
B)  7 
C)  10 
D)  More information is needed to answer this question.

Question 4

Bonds are issued in the primary market through a telecommunications network.

Accepted Answer

A) True 
 B)False

Question 5

____ are not primary purchasers of bonds.

Accepted Answer

A)  Insurance companies 
B)  Finance companies 
C)  Mutual funds 
D)  Pension funds

Question 6

Rule 144A creates liquidity for securities that are privately placed.

Accepted Answer

A) True 
 B)False

Question 7

Rule 144A allows small individual investors to trade privately placed bonds (and some other securities) with each other without requiring the firms that issued the securities to register themwith the SEC.

Accepted Answer

A) True 
 B)False

Question 8

The Financial Reform Act of 2010 established the __________ to provide oversight for credit rating agencies.

Accepted Answer

A)  Federal Ratings Bureau 
B)  Office of Credit Ratings 
C)  Office of Agency Supervision 
D)  Ratings Oversight Commission

Question 9

A variable-rate bond allows

Accepted Answer

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.

Question 10

Bond dealers specialize in small transactions (less than $100,000) in order to enable small investors to trade bonds.

Accepted Answer

A) True 
 B)False

Question 11

All of the bonds issued by a particular company will have the same maturity, price, and credit rating.

Accepted Answer

A) True 
 B)False

Question 12

Bonds issued by ____ are backed by the federal government.

Accepted Answer

A)  the Treasury 
B)  AAA-rated corporations 
C)  state governments 
D)  city governments

Question 13

The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.

Accepted Answer

A) True 
 B)False

Question 14

A call provision on bonds normally

Accepted Answer

A)  allows the firm to sell new bonds at par value. 
B)  gives the firm to sell new bonds above market value. 
C)  allows the firm to sell bonds to the Treasury. 
D)  allows the firm to buy back bonds that it previously issued.

Exam 7: Bond Markets

Which of the following is not mentioned in your text as a protective covenant?

Which of the following would not be a likely example of a protective covenant provision?

Jim purchases $10,000 par value bonds with a 10 percent coupon rate and a 7 percent yield to maturity. Jim will hold the bonds until maturity. Thus, he will earn a return of ____ percent.

Bonds are issued in the primary market through a telecommunications network.

____ are not primary purchasers of bonds.

Rule 144A creates liquidity for securities that are privately placed.

Rule 144A allows small individual investors to trade privately placed bonds (and some other securities) with each other without requiring the firms that issued the securities to register themwith the SEC.

The Financial Reform Act of 2010 established the __________ to provide oversight for credit rating agencies.

A variable-rate bond allows

Bond dealers specialize in small transactions (less than $100,000) in order to enable small investors to trade bonds.

All of the bonds issued by a particular company will have the same maturity, price, and credit rating.

Bonds issued by ____ are backed by the federal government.

The primary investors in bond markets are institutional investors such as commercial banks, bond mutual funds, pension funds, and insurance companies.

A call provision on bonds normally