2
FIN 402 Exam 1 Multiple Choice questions with accurate
|| || || || || || || || ||
solutions
50-1
A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a
|| || || || || || || || || || || || || || || || ||
coupon rate of 10% with interest paid semiannually, and is currently priced at 102%. The
|| || || || || || || || || || || || || || ||
bonds:
A. Tenor is 6 years
|| || || ||
B. nominal rate is 5%
|| || || ||
C. redemption value is 102% of the par value - ✔✔Tenor is 6 years
|| || || || || || || || || || || || ||
50-3
A company has issued a floating rate note with a coupon rate equal to the 3-month Libor +
|| || || || || || || || || || || || || || || || || ||
65 bps. Interest payments are made quarterly on 31 March, 30 June, 30 September, and 31
|| || || || || || || || || || || || || || || ||
December. On 31 March and 30 June, the 3-month Libor is 1.55% and 1.35%, respectfully.
|| || || || || || || || || || || || || || ||
The coupon rate for the interest payment made on 30 June is:
|| || || || || || || || || || ||
A. 2% ||
B. 2.1%
||
C. 2.2% - ✔✔2.2%
|| || ||
50-4
The legal contract that describes the form of the bond, the obligations of the issuer, and the
|| || || || || || || || || || || || || || || || ||
rights of the bondholders can be best described as a bond's:
|| || || || || || || || || ||
A. Covenant
||
B. indenture
||
C. debenture - ✔✔indenture
|| || ||
,2
50-6
An affirmative covenant is most likely to stipulate:
|| || || || || || ||
A. Limits on the issuer's leverage ratio
|| || || || || ||
B. how the proceeds of the bond issue will be used
|| || || || || || || || || ||
C. the maximum percentage of the issuer's gross assets that can be sold - ✔✔how the
|| || || || || || || || || || || || || || || ||
proceeds of the bond issue will be used || || || || || || ||
50-7
Which of the following best describes a negative bond covenant? The issuer is:
|| || || || || || || || || || || ||
A. Required to pay taxes as they come due
|| || || || || || || ||
B. prohibited from investing in risky projects
|| || || || || ||
C. required to maintain its current lines of business - ✔✔prohibited from investing in risky
|| || || || || || || || || || || || || || ||
projects
50-9
Relative to domestic and foreign bonds, Eurobonds are most likely to be:
|| || || || || || || || || || ||
A. Bearer bonds
|| ||
B. registered bonds
|| ||
C. subject to greater regulation - ✔✔bearer bonds
|| || || || || || ||
50-10
An investor in a country with an original issue discount tax provision purchases a 20-year
|| || || || || || || || || || || || || || ||
zero-coupon bond at a deep discount to par value. The investor plans to hold the bond until
|| || || || || || || || || || || || || || || || ||
the maturity date. The investor will most likely report:
|| || || || || || || ||
A. A capital gain at maturity
|| || || || ||
B. a tax deduction in the year the bond was purchased
|| || || || || || || || || ||
, 2
C. taxable income from the bond every year until maturity - ✔✔taxable income from the
|| || || || || || || || || || || || || || ||
bond every year until maturity
|| || || ||
50-11
A bond that is characterized by a fixed periodic payment schedule that reduces the bonds
|| || || || || || || || || || || || || || ||
outstanding principal amount to zero by the maturity date is best described as a:
|| || || || || || || || || || || || ||
A. Bullet bond
|| ||
B. plain vanilla bond
|| || ||
C. fully amortized - ✔✔fully amortized
|| || || || ||
50-15
The provision that provides bondholders the right to sell the bond back to the issuer at the
|| || || || || || || || || || || || || || || || ||
predetermined price prior to the bond's maturity date is referred to as: || || || || || || || || || || ||
A. A put provision
|| || || ||
B. a make-whole call provision
|| || || ||
C. an original issue discount provision - ✔✔a put provision
|| || || || || || || || ||
50-16
Which of the following provisions is a benefit to the issuer?
|| || || || || || || || || ||
A. Put provision
|| ||
B. call provision
|| ||
C. conversion provision - ✔✔call provision
|| || || || ||
50-20
Which of the following type of debt obligation most likely protects bondholders when the
|| || || || || || || || || || || || || ||
assets serving as collateral are non-performing?
|| || || || ||
A. Covered bonds
|| ||
FIN 402 Exam 1 Multiple Choice questions with accurate
|| || || || || || || || ||
solutions
50-1
A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a
|| || || || || || || || || || || || || || || || ||
coupon rate of 10% with interest paid semiannually, and is currently priced at 102%. The
|| || || || || || || || || || || || || || ||
bonds:
A. Tenor is 6 years
|| || || ||
B. nominal rate is 5%
|| || || ||
C. redemption value is 102% of the par value - ✔✔Tenor is 6 years
|| || || || || || || || || || || || ||
50-3
A company has issued a floating rate note with a coupon rate equal to the 3-month Libor +
|| || || || || || || || || || || || || || || || || ||
65 bps. Interest payments are made quarterly on 31 March, 30 June, 30 September, and 31
|| || || || || || || || || || || || || || || ||
December. On 31 March and 30 June, the 3-month Libor is 1.55% and 1.35%, respectfully.
|| || || || || || || || || || || || || || ||
The coupon rate for the interest payment made on 30 June is:
|| || || || || || || || || || ||
A. 2% ||
B. 2.1%
||
C. 2.2% - ✔✔2.2%
|| || ||
50-4
The legal contract that describes the form of the bond, the obligations of the issuer, and the
|| || || || || || || || || || || || || || || || ||
rights of the bondholders can be best described as a bond's:
|| || || || || || || || || ||
A. Covenant
||
B. indenture
||
C. debenture - ✔✔indenture
|| || ||
,2
50-6
An affirmative covenant is most likely to stipulate:
|| || || || || || ||
A. Limits on the issuer's leverage ratio
|| || || || || ||
B. how the proceeds of the bond issue will be used
|| || || || || || || || || ||
C. the maximum percentage of the issuer's gross assets that can be sold - ✔✔how the
|| || || || || || || || || || || || || || || ||
proceeds of the bond issue will be used || || || || || || ||
50-7
Which of the following best describes a negative bond covenant? The issuer is:
|| || || || || || || || || || || ||
A. Required to pay taxes as they come due
|| || || || || || || ||
B. prohibited from investing in risky projects
|| || || || || ||
C. required to maintain its current lines of business - ✔✔prohibited from investing in risky
|| || || || || || || || || || || || || || ||
projects
50-9
Relative to domestic and foreign bonds, Eurobonds are most likely to be:
|| || || || || || || || || || ||
A. Bearer bonds
|| ||
B. registered bonds
|| ||
C. subject to greater regulation - ✔✔bearer bonds
|| || || || || || ||
50-10
An investor in a country with an original issue discount tax provision purchases a 20-year
|| || || || || || || || || || || || || || ||
zero-coupon bond at a deep discount to par value. The investor plans to hold the bond until
|| || || || || || || || || || || || || || || || ||
the maturity date. The investor will most likely report:
|| || || || || || || ||
A. A capital gain at maturity
|| || || || ||
B. a tax deduction in the year the bond was purchased
|| || || || || || || || || ||
, 2
C. taxable income from the bond every year until maturity - ✔✔taxable income from the
|| || || || || || || || || || || || || || ||
bond every year until maturity
|| || || ||
50-11
A bond that is characterized by a fixed periodic payment schedule that reduces the bonds
|| || || || || || || || || || || || || || ||
outstanding principal amount to zero by the maturity date is best described as a:
|| || || || || || || || || || || || ||
A. Bullet bond
|| ||
B. plain vanilla bond
|| || ||
C. fully amortized - ✔✔fully amortized
|| || || || ||
50-15
The provision that provides bondholders the right to sell the bond back to the issuer at the
|| || || || || || || || || || || || || || || || ||
predetermined price prior to the bond's maturity date is referred to as: || || || || || || || || || || ||
A. A put provision
|| || || ||
B. a make-whole call provision
|| || || ||
C. an original issue discount provision - ✔✔a put provision
|| || || || || || || || ||
50-16
Which of the following provisions is a benefit to the issuer?
|| || || || || || || || || ||
A. Put provision
|| ||
B. call provision
|| ||
C. conversion provision - ✔✔call provision
|| || || || ||
50-20
Which of the following type of debt obligation most likely protects bondholders when the
|| || || || || || || || || || || || || ||
assets serving as collateral are non-performing?
|| || || || ||
A. Covered bonds
|| ||
