Grading
SummaryQuestion Type: # Of Questions: True/False 11 Multiple Choice 18 Essay 1
Grade Details – All QuestionsQuestion 1.
Question : Yankee bonds are issued by the U.S. government, but sold only to
foreign investors.
Student Answer: True False
Question 2. Question : Treasury strip bonds
are popular because
Student Answer: I and III only
I, II and III only
I, II and IV only
I, II, III and IV
Question 3. Question : Which of the following
statements concerning equipment trust certificates are correct?
Student Answer: I and IV only
II and IV only
I and III only
I, III and IV only
Question 4. Question : In an inflationary
environment, the interest payments on Treasury inflation-indexed obligations
increase over time.
Student Answer: True False
Question 5. Question : Bondholders can earn
income both from interest and from capital gains.
Student Answer: True False
Question 6. Question : Discuss at least three
differences between investing in stocks and investing in bonds.
Student Answer: 1.Corporations are obliged to
pay a fixed interest rate on bonds while dividends on share are discretionary.
2. Interest paid on bonds provide a tax-shield while dividend payments do not.
3. Interest on Bonds are a predictable constant stream that would not change
while dividend payments can vary. Instructor Explanation: Students may discuss
any of the following:Bonds provide a predictable stream of income that will not
change until the bonds mature, while stock dividends can be reduced or even
eliminated.Corporations have a legal obligation to pay interest and principle,
but there is no legal obligation to pay dividends.Stocks can lose value
permanently, but the value of bonds will always rise (or fall) to face value
when they mature unless the corporation fails and the bonds default.Because
bond prices depend primarily on interest rates, they move within a much
narrower range and change less quickly than stock prices.On the negative side,
bonds values do not share in the growth of a company and over the long term,
average returns on bonds are lower than on stocks.
Points Received: (not graded) Comments:
Question 7. Question : Collateralized mortgage
obligations are relatively safe investments except
Student Answer: when interest rates rise.
when inflation is high.
when home prices decline.
when mortgage holders refinance frequently.
Question 8. Question : Investment-grade bonds
are more interest rate sensitive than junk bonds.
Student Answer: True False
Question 9. Question : Which one of the following
statements concerning a global view of the bond market is correct?
Student Answer: The United States today
accounts for about seventy-five percent of the available fixed-income
securities worldwide. U.S. pay bonds distribute both interest and principal
payments in euros.
Foreign bonds, like junk bonds, have high
default risk.
Exchange rate fluctuations influence the
returns earned on foreign-pay bond holdings.
Question 10. Question : If a bond rating moves
from a BB to a BBB rating
Student Answer: the bond will still be
classified as junk.
it must also move from a Ba to a Baa rating.
the market yield on the bond will rise.
the market price of the bond will rise.
Question 11. Question : Under normal economic
conditions, the major source of risk faced by investors who purchase investment
grade bonds is
Student Answer: purchasing power risk.
interest rate risk.
liquidity risk.
default risk.
Question 12. Question : The initial call price
of an 8% bond could be as high as $1,080.
Student Answer: True False
Question 13. Question : A bond which has a
deferred call
Student Answer: 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.
Question 14. Question : Which of the following
factors are included in the rating analysis of a corporate bond?
Student Answer: I and II only
I, II and III only
II, III and IV only
I, II, III and IV
Question 15. Question : Which one of the
following combination of features causes bond prices to be the most volatile?
Student Answer: low coupon, short maturity
high coupon, short maturity
low coupon, long maturity
high coupon, long maturity
Question 16. Question : Convertible bonds are
especially attractive when stock prices are falling.
Student Answer: True False
Question 17. Question : The Franklin Company
issued a 6% bond three years ago at par value. The market interest rate on
comparable bonds today is 5%. The Franklin Company bond currently pays ________
a year in interest and the bond sells at a ________.
Student Answer: $60; discount
$60; premium
$50; discount
$50; premium
Question 18. Question : Each interest payment
on a 6%, semi-annual bond is $60.
Student Answer: True False
Question 19. Question : One of the major
problems associated with mortgage-backed securities is that
Student Answer: the principal portion of each
payment is considered taxable income.
they are refundable.
they are self-liquidating.
they are serial issues.
Question 20. Question : When bonds are
initially added to an all-equity portfolio the
Student Answer: level of risk of the portfolio
is impacted more than the rate of return.
rate of return on the portfolio is impacted
more than the level of risk.
level of risk and the rate of return are
equally impacted.
rate of return is not impacted but the level
of risk is lowered.
Question 21. Question : Which of the following
types of risk affect bonds?
Student Answer: III and IV only
II, III and IV only
I, III and IV only
I, II, III and IV
Question 22. Question : Which one of the
following variables has the greatest effect on bond prices?
Student Answer: economic growth
interest rates
inflation
stock market returns
Question 23. Question : In general,
foreign-pay bonds provide ________ rates of return and ________ diversification
effects for U.S. investors.
Student Answer: non-competitive; positive
competitive; positive
non-competitive; negative
competitive; negative
Question 24. Question : Which of the following
characteristics apply to collateralized mortgage obligations?
Student Answer: I and II only
I and III only
I, II and III only
II, III and IV only
Question 25. Question : The risk premium
component of a bond’s market interest rate is related to the characteristics of
the particular bond and its issuer.
Student Answer: True False
Question 26. Question : The par value of a
Treasury inflation-indexed obligation is established as $1,000 over the life of
the bond.
Student Answer: True False
Question 27. Question : When the economy is
moving toward a recession, the yield on riskier bonds will tend to
Student Answer: rise.
fall.
stagnate.
become volatile.
Question 28. Question : Municipal bonds are
most attractive to residents of states with high income tax rates.
Student Answer: True False
Question 29. Question : The first tranche of a
collateralized mortgage obligation has
Student Answer: the greatest default risk.
the greatest interest rate risk.
the greatest prepayment risk.
the greatest total risk.
Question 30. Question : Mortgage-backed
securities are self-liquidating.
Student Answer: True False
Grading
SummaryQuestion Type: # Of Questions: True/False 11 Multiple Choice 18 Essay 1
Grade Details – All QuestionsQuestion 1.
Question : Yankee bonds are issued by the U.S. government, but sold only to
foreign investors.
Student Answer: True False
Question 2. Question : Treasury strip bonds
are popular because
Student Answer: I and III only
I, II and III only
I, II and IV only
I, II, III and IV
Question 3. Question : Which of the following
statements concerning equipment trust certificates are correct?
Student Answer: I and IV only
II and IV only
I and III only
I, III and IV only
Question 4. Question : In an inflationary
environment, the interest payments on Treasury inflation-indexed obligations
increase over time.
Student Answer: True False
Question 5. Question : Bondholders can earn
income both from interest and from capital gains.
Student Answer: True False
Question 6. Question : Discuss at least three
differences between investing in stocks and investing in bonds.
Student Answer: 1.Corporations are obliged to
pay a fixed interest rate on bonds while dividends on share are discretionary.
2. Interest paid on bonds provide a tax-shield while dividend payments do not.
3. Interest on Bonds are a predictable constant stream that would not change
while dividend payments can vary. Instructor Explanation: Students may discuss
any of the following:Bonds provide a predictable stream of income that will not
change until the bonds mature, while stock dividends can be reduced or even
eliminated.Corporations have a legal obligation to pay interest and principle,
but there is no legal obligation to pay dividends.Stocks can lose value
permanently, but the value of bonds will always rise (or fall) to face value
when they mature unless the corporation fails and the bonds default.Because
bond prices depend primarily on interest rates, they move within a much
narrower range and change less quickly than stock prices.On the negative side,
bonds values do not share in the growth of a company and over the long term,
average returns on bonds are lower than on stocks.
Points Received: (not graded) Comments:
Question 7. Question : Collateralized mortgage
obligations are relatively safe investments except
Student Answer: when interest rates rise.
when inflation is high.
when home prices decline.
when mortgage holders refinance frequently.
Question 8. Question : Investment-grade bonds
are more interest rate sensitive than junk bonds.
Student Answer: True False
Question 9. Question : Which one of the following
statements concerning a global view of the bond market is correct?
Student Answer: The United States today
accounts for about seventy-five percent of the available fixed-income
securities worldwide. U.S. pay bonds distribute both interest and principal
payments in euros.
Foreign bonds, like junk bonds, have high
default risk.
Exchange rate fluctuations influence the
returns earned on foreign-pay bond holdings.
Question 10. Question : If a bond rating moves
from a BB to a BBB rating
Student Answer: the bond will still be
classified as junk.
it must also move from a Ba to a Baa rating.
the market yield on the bond will rise.
the market price of the bond will rise.
Question 11. Question : Under normal economic
conditions, the major source of risk faced by investors who purchase investment
grade bonds is
Student Answer: purchasing power risk.
interest rate risk.
liquidity risk.
default risk.
Question 12. Question : The initial call price
of an 8% bond could be as high as $1,080.
Student Answer: True False
Question 13. Question : A bond which has a
deferred call
Student Answer: 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.
Question 14. Question : Which of the following
factors are included in the rating analysis of a corporate bond?
Student Answer: I and II only
I, II and III only
II, III and IV only
I, II, III and IV
Question 15. Question : Which one of the
following combination of features causes bond prices to be the most volatile?
Student Answer: low coupon, short maturity
high coupon, short maturity
low coupon, long maturity
high coupon, long maturity
Question 16. Question : Convertible bonds are
especially attractive when stock prices are falling.
Student Answer: True False
Question 17. Question : The Franklin Company
issued a 6% bond three years ago at par value. The market interest rate on
comparable bonds today is 5%. The Franklin Company bond currently pays ________
a year in interest and the bond sells at a ________.
Student Answer: $60; discount
$60; premium
$50; discount
$50; premium
Question 18. Question : Each interest payment
on a 6%, semi-annual bond is $60.
Student Answer: True False
Question 19. Question : One of the major
problems associated with mortgage-backed securities is that
Student Answer: the principal portion of each
payment is considered taxable income.
they are refundable.
they are self-liquidating.
they are serial issues.
Question 20. Question : When bonds are
initially added to an all-equity portfolio the
Student Answer: level of risk of the portfolio
is impacted more than the rate of return.
rate of return on the portfolio is impacted
more than the level of risk.
level of risk and the rate of return are
equally impacted.
rate of return is not impacted but the level
of risk is lowered.
Question 21. Question : Which of the following
types of risk affect bonds?
Student Answer: III and IV only
II, III and IV only
I, III and IV only
I, II, III and IV
Question 22. Question : Which one of the
following variables has the greatest effect on bond prices?
Student Answer: economic growth
interest rates
inflation
stock market returns
Question 23. Question : In general,
foreign-pay bonds provide ________ rates of return and ________ diversification
effects for U.S. investors.
Student Answer: non-competitive; positive
competitive; positive
non-competitive; negative
competitive; negative
Question 24. Question : Which of the following
characteristics apply to collateralized mortgage obligations?
Student Answer: I and II only
I and III only
I, II and III only
II, III and IV only
Question 25. Question : The risk premium
component of a bond’s market interest rate is related to the characteristics of
the particular bond and its issuer.
Student Answer: True False
Question 26. Question : The par value of a
Treasury inflation-indexed obligation is established as $1,000 over the life of
the bond.
Student Answer: True False
Question 27. Question : When the economy is
moving toward a recession, the yield on riskier bonds will tend to
Student Answer: rise.
fall.
stagnate.
become volatile.
Question 28. Question : Municipal bonds are
most attractive to residents of states with high income tax rates.
Student Answer: True False
Question 29. Question : The first tranche of a
collateralized mortgage obligation has
Student Answer: the greatest default risk.
the greatest interest rate risk.
the greatest prepayment risk.
the greatest total risk.
Question 30. Question : Mortgage-backed
securities are self-liquidating.
Student Answer: True False
