1. The phenomenon known as "flight to quality" causes yields on government bond and corporate bonds: to rise in tandem. to fall in tandem. to move in opposite directions. to become less volatile.
2. The bond market is considered bearish when: market interest rates are low or falling. market interest rates are high or rising. the risk-free rate of return exceeds the required rate of return. more bonds are called than issued over a given period of time.
3. A single bond issue with multiple maturity dates is called a: callable bond. premium bond. serial bond. term bond. Question 16 Under which bond provision is the issuer required to retire portions of the bond issue prior to maturity? Question 16 options: call feature refunding provision subordination clause sinking fund feature
4. Most bonds pay interest : annually. semi-annually. quarterly. monthly.
5. A bond which has a deferred call : does not have to be redeemed when it reaches maturity. can be retired at any time prior to maturity provided six months notice is given. cannot be retired for a specific period of time after which it can be retired at any time. can be retired at any time during the initial call period but after that time can not be redeemed prior to maturity.
6. Debt securities issued by the Federal Home Loan Bank, the Student Loan Marketing Association and the Government National Mortgage Association are known as : agency bonds. organizational bonds. municipal bonds. Treasury bonds.
7. The required return on a bond is equal to : the real rate of return plus a risk premium plus an expected inflation premium. the real rate of return plus the coupon rate plus an inflation rate. the risk-free rate plus a risk premium plus an expected inflation premium. the real rate plus a risk premium.
8. The single most important factor that influences the behavior of market interest rates is: inflation. business profits. the supply of new bonds. the stock market.
9. Long-term bonds are ________ than short-term bonds: less risky more liquid subject to more uncertainty less sensitive to interest rate changes
10. A $1,000 par value, 12-year annual bond carries a coupon rate of 7%. If the current yield of this bond is 7.995%, its market price to the nearest dollar is: $876. $925. $1,075. $1,125.
11. The current yield on a bond is most similar to: the discount rate on a Treasury Bill. the effective annual rate on a certificate of deposit. the dividend yield on a stock. the internal rate of return if the bond is held to maturity.
12. Yield-to-call is : commonly used for bonds with deferred-call provisions. calculated using the time to call and the par value of the bond. based solely on the call premium and ignores interest payments. always less than the yield-to-maturity.