Question 1

In general, foreign-pay bonds provide ________ rates of return and ________ diversification effects for U.S.investors.

Accepted Answer

A)  non-competitive; positive
B)  competitive; positive
C)  non-competitive; negative
D)  competitive; negativeE) C) and D)
F) A) and D)

Question 2

Describe some of the relatively new investment instruments derived from securitized debt.

Accepted Answer

The oldest form of securitized debt is t...

Question 3

Which one of the following statements concerning a global view of the bond market is correct?

Accepted Answer

A)  The United States today accounts for about seventy-five percent of the available fixed-income securities worldwide.
B)  U.S.pay bonds distribute both interest and principal payments in euros.
C)  Foreign bonds, like junk bonds, have high default risk.
D)  Exchange rate fluctuations influence the returns earned on foreign-pay bond holdings.E) None of the above
F) A) and B)

Question 4

Which of the following factors are included in the rating analysis of a corporate bond?
I.the issue's indenture provisions
II.the liquidity position of the issuing company
III.the issuing company's relative debt burden
IV.the stability of the company's earnings

Accepted Answer

A)  I and II only
B)  I, II and III only
C)  II, III and IV only
D)  I, II, III and IVE) All of the above
F) None of the above

Question 5

Securitization is the practice of

Accepted Answer

A)  bundling loans into large pools and dividing them into bond-like securities.
B)  selling government debt in the private sector.
C)  increasing the safety of asset backed securities by insuring them.
D)  protecting the privacy of borrowers whose loans have been sold to a third party.E) A) and B)
F) A) and C)

Question 6

Subordinated debentures

Accepted Answer

A)  have a lower claim on assets than simple debentures.
B)  are secured by some physical asset.
C)  are financial assets held in trust by a third party.
D)  are the safest form of corporate bonds.E) A) and C)
F) None of the above

Question 7

When the market rate of return exceeds the coupon rate, a bond will sell at

Accepted Answer

A)  par.
B)  face value.
C)  a premium.
D)  a discount.E) B) and D)
F) B) and C)

Question 8

Most bonds pay interest

Accepted Answer

A)  annually.
B)  semi-annually.
C)  quarterly.
D)  monthly.E) A) and B)
F) A) and C)

Question 9

When bonds are initially added to an all-equity portfolio the

Accepted Answer

A)  level of risk of the portfolio is impacted more than the rate of return.
B)  rate of return on the portfolio is impacted more than the level of risk.
C)  level of risk and the rate of return are equally impacted.
D)  rate of return is not impacted but the level of risk is lowered.E) None of the above
F) A) and B)

Question 10

An American investor who holds euro-denominated bonds will profit if the euro weakens against the dollar.

Accepted Answer

A) True 
 B)False

Question 11

Under which bond provision is the issuer required to retire portions of the bond issue prior to maturity?

Accepted Answer

A)  call feature
B)  refunding provision
C)  subordination clause
D)  sinking fund featureE) B) and D)
F) None of the above

Question 12

PIK-bonds

Accepted Answer

A)  are relatively safe investments.
B)  initially pay interest payments in the form of additional debt.
C)  are collateralized by home mortgages.
D)  pay monthly interest payments.E) A) and D)
F) A) and C)

Question 13

Interest rates and bond prices are positively related.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements about bond rating agencies is true?

Accepted Answer

A)  Bonds are rated by an agency of the federal government.
B)  Bonds rated AAA are guaranteed by the company that issues the rating.
C)  During the financial crisis of 2007-2009 it became clear that rating agencies severely underestimated the risks of some issues.
D)  Bond rating agencies are paid by investors and receive no compensation from the bonds' issuer.E) None of the above
F) All of the above

Question 15

Which one of the following statements concerning Treasury bonds is correct?

Accepted Answer

A)  The par values of all Treasury bonds are adjusted periodically in response to changes in the rate of inflation.
B)  Treasury bonds have maturity dates ranging from two to ten years.
C)  Interest earned on Treasury bonds is tax-exempt at the federal level.
D)  All Treasury securities are backed by the "full faith and credit" of the U.S.government.E) None of the above
F) B) and D)

Question 16

Securitization is the process of creating marketable securities from various types of loans.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is a good reason to invest in convertible bonds?

Accepted Answer

A)  They often have higher than normal coupon rates.
B)  They offer protection against rising interest rates.
C)  They tend to be issued by stable, low-risk companies.
D)  They offer predictable income and a chance to profit from an increase in the stock price.E) B) and D)
F) B) and C)

Question 18

If a bond rating moves from a BB to a BBB rating

Accepted Answer

A)  the bond will still be classified as junk.
B)  it must also move from a Ba to a Baa rating.
C)  the market yield on the bond will rise.
D)  the market price of the bond will rise.E) C) and D)
F) B) and D)

Question 19

The practice of bundling mortgages or other types of loans into pools and selling pieces of the pool as bond-like instruments to investors is known as

Accepted Answer

A)  securitization.
B)  privatization.
C)  collateralization.
D)  fractionalization.E) None of the above
F) C) and D)

Question 20

A debenture is secured only by the issuer's promise to repay the debt.

Accepted Answer

A) True 
 B)False

Exam 10: Fixed-Income Securities

Which of the following is a good reason to invest in convertible bonds?

Correct AnswerverifiedShow Answer

Which one of the following statements concerning a global view of the bond market is correct?

Correct AnswerverifiedShow Answer

In general, foreign-pay bonds provide ________ rates of return and ________ diversification effects for U.S.investors.

Correct AnswerverifiedShow Answer

Subordinated debentures

Correct AnswerverifiedShow Answer

Which of the following statements about bond rating agencies is true?

Correct AnswerverifiedShow Answer

If a bond rating moves from a BB to a BBB rating

Correct AnswerverifiedShow Answer

Which of the following factors are included in the rating analysis of a corporate bond? I.the issue's indenture provisions II.the liquidity position of the issuing company III.the issuing company's relative debt burden IV.the stability of the company's earnings

Correct AnswerverifiedShow Answer

Which one of the following statements concerning Treasury bonds is correct?

Correct AnswerverifiedShow Answer

When the market rate of return exceeds the coupon rate, a bond will sell at

Correct AnswerverifiedShow Answer

When bonds are initially added to an all-equity portfolio the

Correct AnswerverifiedShow Answer

PIK-bonds

Correct AnswerverifiedShow Answer

Securitization is the process of creating marketable securities from various types of loans.

Correct AnswerverifiedShow Answer

Securitization is the practice of

Correct AnswerverifiedShow Answer

A debenture is secured only by the issuer's promise to repay the debt.

Correct AnswerverifiedShow Answer

An American investor who holds euro-denominated bonds will profit if the euro weakens against the dollar.

Correct AnswerverifiedShow Answer

Under which bond provision is the issuer required to retire portions of the bond issue prior to maturity?

Correct AnswerverifiedShow Answer

Describe some of the relatively new investment instruments derived from securitized debt.

Correct AnswerverifiedThe oldest form of securitized debt is t...View AnswerShow Answer

The practice of bundling mortgages or other types of loans into pools and selling pieces of the pool as bond-like instruments to investors is known as

Correct AnswerverifiedShow Answer

Most bonds pay interest

Correct AnswerverifiedShow Answer

Interest rates and bond prices are positively related.

Correct AnswerverifiedShow Answer

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In general, foreign-pay bonds provide rates of return and diversification effects for U.S.investors.

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The oldest form of securitized debt is t...
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