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1 How can you describe bond issuers?

1 How can you describe bond issuers?1. Government2. Corporate (public and private)3. Household4. ForeignBond issuers include:A. 1 and 2B. 1, 2, and 3C. 2, 3, and 4D. 1, 2 and 4 2 Which bond has the most interest rate risk?A. A 3-month Treasury billB. A zero-coupon 30-year Treasury STRIPC. A 6% 30-year Treasury bondD. A 3% 5-year Treasury noteJane, a financial professional, has a client in the 35% marginal income tax bracket whowould like to purchase a bond for her investment portfolio. After making her calculationsfor the highest after-tax yield, which of the following bonds should Jane recommend toher client?A. 5.5% corporate debentureB. 4.00% general obligation municipal bondC. 2.55% U.S. Treasury noteD. 3.75% private activity municipal bond 3 1 4 All of the following are true, EXCEP:A. Bond prices increase when interest rates decreaseB. YTM increases bring about proportionally smaller price changes than YTMdecreased of the same magnitudeC. The maturity of a bond has an increasing effect on price sensitivityD. Price risk decreases inversely with coupon 5 Which of the following risk factors are the most important for purchasers of long-termhigh-grade bonds?A. The ability to pay interest when dueB. The ability to pay principal upon maturityC. Limited marketabilityD. Purchasing power risk 6 Which of the following is not the Face Value (usually $1,000 in the US) of a bond?A. Nominal valueB. Coupon rateC. Maturity valueD. Par value 7 Term structure interest rates are also known as:A. Yield curveB. Yield to maturityC. Investor expectation lineD. Liquidity preference curve 8Rose wants to buy a second home that will eventually become her retirement home and does notwant a mortgage to finance this second home. She plans to spend approximately $130,000 in 10years on this purchase. She has two zero-coupon bonds that mature in 10 years each with cashvalues of $1,157.98 and face values of $2,500. In 10 years, she will use them as part of her$130,000. The bonds have a semi-annual effective interest rate of 3.923%. What is Rose’srequired monthly deposit at the beginning of each month in order to accumulate the $130,000 sheneeds to buy her home at an assumed interest rate of 10% on her investment?A.B.C.D. 9 $543.39$618.17$629.38$605.17 Which of the following is true about the impact of expected interest rate increases:A. Banks would be unaffectedB. Utilities would pass on the costC. Due to the nature of cyclical industries, they would not be disturbedD. Investors would avoid fixed assets 2 10 11 12 The difference between a general obligation and a revenue bond is:A. A general obligation bond is backed by the full faith, credit and “taxing power” ofthe government unitB. For a revenue bond, the repayment of the issue is fully dependent on therevenue-generating capability of a specific project or ventureC. General obligation bonds are usually of high quality because of the taxing powerbehind most of themD. All of the aboveYour company is going to start a new project using retained earnings. Which of thefollowing is true:A. There is no way to calculate the Weighted Average Cost of Capital (WACC)before the project begins.B. There will be no project risk so the required rated of return is very low.C. The required rate of return is the company’s WACCD. Use the company’s book value to determine WACCInterest payments and bond prices are stated as percentages of par 1% or 1 point for a bond = $10.00 An 1/8 of a point for a bond = $1.25Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. Shepaid a price of 92 ½ for the bond. How much is this in dollars?A. $9,250.00B. $925.00C. $92.50D. $9.25 3

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