How much will you be paid if you own a bond that is called under a make-whole call provision?

31.    How much will you be paid if you own a bond that is called under a make-whole call provision?

 

A.     the face value

B.     an amount equal to the par value plus the total amount of the remaining interest payments

C.     the present value of all future bond payments that will not be paid because of the call

D.     the current market value plus a prespecified call premium

E.     an amount equal to the normal maturity value of the bond

 Answer

the present value of all future bond payments that will not be paid because of the call

32.    After the call protection period, which one of the following basically serves as the upper price limit on a callable bond?

 

A.     present value of all future bond payments discounted at the current market rate of interest

B.     face value of the bond

C.     call price of the bond

D.     current market price of the bond

E.     current market price of a comparable noncallable bond

 Answer

C.     call price of the bond

 

33.    Which one of the following statements related to a put bond is correct?

 

A.     Put bonds are generally redeemed at a premium over par value.

B.     Put bonds can be redeemed at any time once the put protection period has elapsed.

C.     The put feature effectively sets the ceiling price for the bond.

D.     The put feature helps protect bondholders from the risk associated with rising interest rates.

E.     A putable bond is generally priced lower than a comparable nonputable bond.

 Answer

The put feature helps protect bondholders from the risk associated with rising interest rates.

 

34.    Which one of the following statements related to convertible bonds is correct?

 

A.     Bondholders forego higher coupon rates in exchange for the conversion option.

B.     Convertible bonds are generally issued such that the conversion value is equal to the par value.

C.     The conversion price is equal to the bond's market value divided by the conversion ratio.

D.     The conversion value is equal to the bond's market price multiplied by the conversion ratio.

E.     Bonds should be converted as soon as the conversion value exceeds the face value.

 

35.    Which one of the following statements related to convertible bonds is correct?

 

A.     Convertible bonds have a maximum value equal to the bond's intrinsic value.

B.     Convertible bonds have limited downside risk with unlimited upside potential.

C.     A convertible bond is in-the-money when its call price is greater than its conversion value.

D.     Convertible bonds must be converted prior to or on the maturity date.

E.     Convertible bonds must be converted once they are called.

 

36.    Which one of these statements regarding corporate bond credit ratings is correct?

 

A.     Bonds rated Ba3 or above by Moody's are considered investment-grade bonds.

B.     All bonds issued by the same issuer will have the same credit rating.

C.     A bond's credit spread may be a better indicator of a bond's risk than its rating.

D.     Bond ratings are based solely on the seniority of the bond issue and the protective covenants by which it is covered.

E.     Credit ratings are assigned to the bond issuer, not the bond issue.

 

37.    Which one of the following is another name for a junk bond?

 

A.     high-yield

B.     convertible

C.     private placement

D.     subordinated

E.     called

 

38.    What is the method of selling Treasury bills at less than face value called?

 

A.     imputed basis

B.     par value method

C.     discount basis

D.     STRIP basis

E.     face value method

 

39.    What is the interest on a Treasury bill called when it is determined by the size of the bill's discount from face value?

 

A.     assumed interest

B.     imputed interest

C.     imaginary interest

D.     convergent interest

E.     original-issue interest

 

40.    Which one of the following is the Treasury program allowing interest and principal payments from Treasury notes or bonds to be sold separately?

 

A.     EDGAR

B.     TRSTRP

C.     TRIPS

D.     TZEROES

E.     STRIPS

 

41.    Which one of the following descriptors is used to identify a bond that pays one single payment at maturity?

 

A.     zero coupon

B.     imputed value

C.     solo

D.     STRIP

E.     term

 

42.    Which one of the following is the difference between the price a bond dealer is willing to pay to buy and the price at which he or she is willing to sell?

 

A.     commission

B.     imputed cost

C.     imputed interest

D.     bid-ask spread

E.     ask price

 

43.    What is the lowest accepted competitive bid in a U.S. Treasury auction called?

 

A.     selected price

B.     base price

C.     stop-out bid

D.     imputed bid

E.     set bid

 

44.    Which one of the following is the risk that a bond issuer will cease paying the interest and principal payments as scheduled?

 

A.     interest rate risk

B.     default risk

C.     market risk

D.     conversion risk

E.     earnings risk

 

45.    Municipal bonds that are secured by the full faith and credit of the issuer are referred to as which one of the following?

 

A.     general obligation bonds

B.     local taxation bonds

C.     fully funded bonds

D.     revenue bonds

E.     private activity bonds

                                        

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