Question 1

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) B) and C)

Question 2

Bondholders usually have capital gains when interest rates are rising.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements are correct concerning municipal bonds?
I. Yields on municipal bonds are usually lower than yields on Treasury bonds.
II. Municipal bonds are most appealing to individuals with high incomes.
III. Interest on a municipal bond is exempt from federal income tax.
IV. Municipal bonds are less risky than Treasury bonds.

Accepted Answer

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

Question 4

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) A) and B)
F) A) and C)

Question 5

If you expect market interest rates to rise, you should purchase

Accepted Answer

A)   short term, low coupon bonds.
B)   short term, high coupon bonds.
C)   long term, low coupon bonds.
D)   long term, high coupon bonds.E) B) and C)
F) B) and D) B

Question 6

If you want to reduce the price volatility of your bond portfolio, you should shorten the time- to-maturity of your portfolio.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following events would benefit the holder of Eurodollar bonds issued by a foreign government?

Accepted Answer

A)   The foreign currency appreciates against the dollar.
B)   The foreign currency depreciates against the dollar.
C)   Interest rates move higher in the issuing country.
D)   Interest rates move lower in the issuing country.E) A) and C)
F) All of the above

Question 8

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) A) and B)
F) B) and D)

Question 9

The various CMO tranches can have significantly different degrees of prepayment risk.

Accepted Answer

A) True 
 B)False

Question 10

For a U.S. investor, Eurobonds are subject to foreign exchange risk.

Accepted Answer

A) True 
 B)False

Question 11

A bond's rating will be affected by bond features as well as by the financial stability of the issuer.

Accepted Answer

A) True 
 B)False

Question 12

When the economy is moving toward a recession, the yield on riskier bonds will tend to

Accepted Answer

A)   rise.
B)   fall.
C)   stagnate.
D)   become volatile.E) A) and D)
F) None of the above A

Question 13

Most bonds pay interest quarterly.

Accepted Answer

A) True 
 B)False

Question 14

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) A) and D)
F) A) and C)

Question 15

A bond quoted at a price of 101.2

Accepted Answer

A)   is a deep discount bond.
B)   yields 10.12%.
C)   yields 12%.
D)   has a coupon rate that exceeds the market rate.E) B) and C)
F) A) and D)

Question 16

The biggest risk with foreign pay bonds issued by the German government is the risk of default.

Accepted Answer

A) True 
 B)False

Question 17

Bonds are rated by

Accepted Answer

A)   Moody's.
B)   Fitch's.
C)   Standard & Poor's.
D)   All of the aboveE) B) and C)
F) A) and D)

Question 18

Equinox Corporation issued a 4% bond four years ago at par value. The market interest rate on comparable bonds today is 3.5%.

Accepted Answer

A)   This bond sells at a discount and the coupon rate is higher than the yield.
B)   This bond sells at a premium and the coupon rate is lower than the yield.
C)   This bond sells at a discount and the coupon rate is lower than the yield.
D)   This bond sells at a premium and the coupon rate is higher than the yield.E) B) and C)
F) A) and D)

Question 19

Most bonds pay interest

Accepted Answer

A)   annually.
B)   semi-annually.
C)   quarterly.
D)   monthly.E) None of the above
F) A) and C) B

Question 20

When term bonds are issued, a portion of the bonds will mature at a series of dates rather than all at once.

Accepted Answer

A) True 
 B)False

Exam 10: Fixed-Income Securities

Securitization is the practice of

Correct Answer
verified

Bondholders usually have capital gains when interest rates are rising.

Correct Answer
verified

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

Correct Answer
verified

If you expect market interest rates to rise, you should purchase

Correct Answer
verified
B

If you want to reduce the price volatility of your bond portfolio, you should shorten the time- to-maturity of your portfolio.

Correct Answer
verified

Which of the following events would benefit the holder of Eurodollar bonds issued by a foreign government?

Correct Answer
verified

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 Answer
verified

The various CMO tranches can have significantly different degrees of prepayment risk.

Correct Answer
verified

For a U.S. investor, Eurobonds are subject to foreign exchange risk.

Correct Answer
verified

A bond's rating will be affected by bond features as well as by the financial stability of the issuer.

Correct Answer
verified

When the economy is moving toward a recession, the yield on riskier bonds will tend to

Correct Answer
verified
A

Most bonds pay interest quarterly.

Correct Answer
verified

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

Correct Answer
verified

A bond quoted at a price of 101.2

Correct Answer
verified

The biggest risk with foreign pay bonds issued by the German government is the risk of default.

Correct Answer
verified

Bonds are rated by

Correct Answer
verified

Equinox Corporation issued a 4% bond four years ago at par value. The market interest rate on comparable bonds today is 3.5%.

Correct Answer
verified

Most bonds pay interest

Correct Answer
verified
B

When term bonds are issued, a portion of the bonds will mature at a series of dates rather than all at once.

Correct Answer
verified

Exam 10: Fixed-Income Securities

Securitization is the practice of

Correct AnswerverifiedShow Answer

Bondholders usually have capital gains when interest rates are rising.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If you expect market interest rates to rise, you should purchase

Correct AnswerverifiedB

If you want to reduce the price volatility of your bond portfolio, you should shorten the time- to-maturity of your portfolio.

Correct AnswerverifiedShow Answer

Which of the following events would benefit the holder of Eurodollar bonds issued by a foreign government?

Correct AnswerverifiedShow 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

The various CMO tranches can have significantly different degrees of prepayment risk.

Correct AnswerverifiedShow Answer

For a U.S. investor, Eurobonds are subject to foreign exchange risk.

Correct AnswerverifiedShow Answer

A bond's rating will be affected by bond features as well as by the financial stability of the issuer.

Correct AnswerverifiedShow Answer

When the economy is moving toward a recession, the yield on riskier bonds will tend to

Correct AnswerverifiedA

Most bonds pay interest quarterly.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bond quoted at a price of 101.2

Correct AnswerverifiedShow Answer

The biggest risk with foreign pay bonds issued by the German government is the risk of default.

Correct AnswerverifiedShow Answer

Bonds are rated by

Correct AnswerverifiedShow Answer

Equinox Corporation issued a 4% bond four years ago at par value. The market interest rate on comparable bonds today is 3.5%.

Correct AnswerverifiedShow Answer

Most bonds pay interest

Correct AnswerverifiedB

When term bonds are issued, a portion of the bonds will mature at a series of dates rather than all at once.

Correct AnswerverifiedShow Answer

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B

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A

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B

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