FIN 3403 Exam 2 Test Bank | 100% Correct
Answers | Verified | Latest 2024 Version
Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? - ✔✔coupon
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called? - ✔✔face value
A bonds coupon rate is equal to the annual interest divided by which one of the following? - ✔✔face
value
The specified date on which the principal amount of a bond is payable is referred to as which one of the
following? - ✔✔maturity
Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston
Industries. The 11.6 percent is referred to as which one of the following? - ✔✔yield to maturity
The current yield is defined as the annual interest on a bond divided by which one of the following? -
✔✔Market price
An indenture is: - ✔✔the legal agreement between the bond issuer and the bondholders
Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent
directly to each of the individual bondholders. These direct payments are a clear indication that the
bonds can accurately be defined as being issued: - ✔✔in registered form
A bond that is payable to whomever has physical possession of the bond is said to be in: - ✔✔bearer
form
The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the
definition of which one of the following terms? - ✔✔debenture
,Which of the following defines a note?
I. secured
II. unsecured
III. maturity less than 10 years
IV. maturity in excess of 10 years - ✔✔II and III only
A sinking fund is managed by a trustee for which one of the following purposes? - ✔✔early bond
redemption
A bond that can be paid off early at the issuer's discretion is referred to as being which one of the
following? - ✔✔callable
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued
interest. The additional $30 is called which one of the following? - ✔✔call premium
A deferred call provision is which one of the following? - ✔✔prohibition which prevents bond issuers
from redeeming callable bonds prior to a specified date
A call-protected bond is a bond that: - ✔✔cannot be called during a certain period of time.
The items included in an indenture that limit certain actions of the issuer in order to protect
bondholder's interests are referred to as the: - ✔✔protective covenants.
A bond that has only one payment, which occurs at maturity, defines which one of the following? -
✔✔zero coupon
Which one of the following is the price a dealer will pay to purchase a bond? - ✔✔bid price
You want to buy a bond from a dealer. Which one of the following prices will you pay? - ✔✔asked price
, The difference between the price that a dealer is willing to pay and the price at which he or she will sell
is called the: - ✔✔spread.
A bond is quoted at a price of $989. This price is referred to as which one of the following? - ✔✔clean
price
Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the: - ✔✔dirty price.
Real rates are defined as nominal rates that have been adjusted for which of the following? -
✔✔inflation
Interest rates that include an inflation premium are referred to as: - ✔✔nominal rates.
The Fisher effect is defined as the relationship between which of the following variables? - ✔✔real rates,
inflation rates, and nominal rates
The pure time value of money is known as the: - ✔✔term structure of interest rates.
Which one of the following premiums is compensation for expected future inflation? - ✔✔inflation
The interest rate risk premium is the: - ✔✔compensation investors demand for accepting interest rate
risk.
A Treasury yield curve plots Treasury interest rates relative to which one of the following? - ✔✔maturity
Which one of the following risk premiums compensates for the possibility of nonpayment by the bond
issuer? - ✔✔default risk
Answers | Verified | Latest 2024 Version
Mary just purchased a bond which pays $60 a year in interest. What is this $60 called? - ✔✔coupon
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called? - ✔✔face value
A bonds coupon rate is equal to the annual interest divided by which one of the following? - ✔✔face
value
The specified date on which the principal amount of a bond is payable is referred to as which one of the
following? - ✔✔maturity
Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued by Winston
Industries. The 11.6 percent is referred to as which one of the following? - ✔✔yield to maturity
The current yield is defined as the annual interest on a bond divided by which one of the following? -
✔✔Market price
An indenture is: - ✔✔the legal agreement between the bond issuer and the bondholders
Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds are sent
directly to each of the individual bondholders. These direct payments are a clear indication that the
bonds can accurately be defined as being issued: - ✔✔in registered form
A bond that is payable to whomever has physical possession of the bond is said to be in: - ✔✔bearer
form
The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These bonds fit the
definition of which one of the following terms? - ✔✔debenture
,Which of the following defines a note?
I. secured
II. unsecured
III. maturity less than 10 years
IV. maturity in excess of 10 years - ✔✔II and III only
A sinking fund is managed by a trustee for which one of the following purposes? - ✔✔early bond
redemption
A bond that can be paid off early at the issuer's discretion is referred to as being which one of the
following? - ✔✔callable
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus any accrued
interest. The additional $30 is called which one of the following? - ✔✔call premium
A deferred call provision is which one of the following? - ✔✔prohibition which prevents bond issuers
from redeeming callable bonds prior to a specified date
A call-protected bond is a bond that: - ✔✔cannot be called during a certain period of time.
The items included in an indenture that limit certain actions of the issuer in order to protect
bondholder's interests are referred to as the: - ✔✔protective covenants.
A bond that has only one payment, which occurs at maturity, defines which one of the following? -
✔✔zero coupon
Which one of the following is the price a dealer will pay to purchase a bond? - ✔✔bid price
You want to buy a bond from a dealer. Which one of the following prices will you pay? - ✔✔asked price
, The difference between the price that a dealer is willing to pay and the price at which he or she will sell
is called the: - ✔✔spread.
A bond is quoted at a price of $989. This price is referred to as which one of the following? - ✔✔clean
price
Pete paid $1,032 as his total cost of purchasing a bond. This price is referred to as the: - ✔✔dirty price.
Real rates are defined as nominal rates that have been adjusted for which of the following? -
✔✔inflation
Interest rates that include an inflation premium are referred to as: - ✔✔nominal rates.
The Fisher effect is defined as the relationship between which of the following variables? - ✔✔real rates,
inflation rates, and nominal rates
The pure time value of money is known as the: - ✔✔term structure of interest rates.
Which one of the following premiums is compensation for expected future inflation? - ✔✔inflation
The interest rate risk premium is the: - ✔✔compensation investors demand for accepting interest rate
risk.
A Treasury yield curve plots Treasury interest rates relative to which one of the following? - ✔✔maturity
Which one of the following risk premiums compensates for the possibility of nonpayment by the bond
issuer? - ✔✔default risk
