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Question 1 of 10
1. Question
Regarding coupon bonds, which of the following apply?
I. The invested capital is known as coupon.
II. A fixed rate of interest is paid to the investor.
III. The interest paid on new bond issues are based on the lower rates.
IV. They are fully backed by the U.S government.Correct
Coupon bonds are debt instruments that are issued at par and pay a fixed rate of interest to the investor. This rate of interest is known as the coupon. A bond issued at a time of high interest rates will be very valuable during times of low interest rates, given that the rate is fixed and the coupon paid is based upon that rate, and coupons paid on new bond issues are based upon the lower rate.
Incorrect
Coupon bonds are debt instruments that are issued at par and pay a fixed rate of interest to the investor. This rate of interest is known as the coupon. A bond issued at a time of high interest rates will be very valuable during times of low interest rates, given that the rate is fixed and the coupon paid is based upon that rate, and coupons paid on new bond issues are based upon the lower rate.
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Question 2 of 10
2. Question
Which of the following is true about convertible bonds?
I. It may be exchanged for a stock in the issuing company.
II. When exchanged for a stock,it may not be redeemed at par value.
III. Investors pay for the option of a convertible bond by collecting a higher coupon.
IV. Convertible bonds are traditional bonds.Correct
Convertible bonds are issued at par value at some fixed rate of interest and provide current income to the holder but may be exchanged at some point for stock in the issuing company and not redeemed at par value. Investors “pay” for this attractive option, however, by collecting a lower coupon.
Incorrect
Convertible bonds are issued at par value at some fixed rate of interest and provide current income to the holder but may be exchanged at some point for stock in the issuing company and not redeemed at par value. Investors “pay” for this attractive option, however, by collecting a lower coupon.
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Question 3 of 10
3. Question
The following statements are incorrect except:
I. Bonds are credit instruments.
II. The typical par value for bonds is $1,000 per bond.
III. They are issued with a flexible coupon.
IV. Bonds that are not issued with a coupon must be issued at a discount to par value.Correct
Bonds are debt instruments issued by corporations to raise capital to finance new ventures and current operations within the company. They are issued at par value, typically $1,000 per bond, and have varying terms to maturity. Bonds are typically issued with a fixed rate of interest, or coupon. Bonds that are not issued with a coupon are usually issued at a discount to par value.
Incorrect
Bonds are debt instruments issued by corporations to raise capital to finance new ventures and current operations within the company. They are issued at par value, typically $1,000 per bond, and have varying terms to maturity. Bonds are typically issued with a fixed rate of interest, or coupon. Bonds that are not issued with a coupon are usually issued at a discount to par value.
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Question 4 of 10
4. Question
Which of the following is true?
I. Highly rated coupon bonds are generally more volatile than stocks.
II. Bond values have an inverse relationship to the yield the bond pays.
III. In a rising interest rate environment, new bonds produce higher yields for the same outlay of principal to the investor.
IV. Demand for existing bonds is decreased in a rising interest rate environment.Correct
Highly rated coupon bonds are generally less volatile than stocks and offer annual income. In a rising interest rate environment, new bonds produce higher yields for the same outlay of principal to the investor. This decreases the demand for existing bonds, and the value falls accordingly.
Incorrect
Highly rated coupon bonds are generally less volatile than stocks and offer annual income. In a rising interest rate environment, new bonds produce higher yields for the same outlay of principal to the investor. This decreases the demand for existing bonds, and the value falls accordingly.
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Question 5 of 10
5. Question
The three major bond rating agencies are:
I. Moody’s
II. Standard and Poor’s (S&P)
III. Hearst
IV. Fitch.Correct
The three major bond rating agencies are Moody’s, Standard and Poor’s (S&P), and Fitch.
Incorrect
The three major bond rating agencies are Moody’s, Standard and Poor’s (S&P), and Fitch.
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Question 6 of 10
6. Question
Which of the following does not affect bind liquidity?
I. The bond rating
II. The quality of the bond issuer
III. How mature the bond is
IV. How high the interest rate isCorrect
The following affect bond liquidity:
1. how well-known or widely owned they are
2. the bond rating (higher rating easier trades)
3. the quality of the bond issuer
4. how mature the bond is
5. how high the interest rate is
6. whether it is trading at, above, or below par
7. whether it has any call featuresIncorrect
The following affect bond liquidity:
1. how well-known or widely owned they are
2. the bond rating (higher rating easier trades)
3. the quality of the bond issuer
4. how mature the bond is
5. how high the interest rate is
6. whether it is trading at, above, or below par
7. whether it has any call features -
Question 7 of 10
7. Question
Concerning Brady bonds, which of these statements is incorrect?
I. They are issued to developed countries.
II. They are usually issued by governments is Latin American nations.
III. Developing countries are the major beneficiaries of this bond.
IV. Brady bonds derived their name from Thomas Brady, a former US treasury secretary.Correct
Brady bonds are bonds issued developing countries, usually by the governments of Latin American nations. Brady bonds derive their name from former United States Treasury Secretary Nicholas Brady.
Incorrect
Brady bonds are bonds issued developing countries, usually by the governments of Latin American nations. Brady bonds derive their name from former United States Treasury Secretary Nicholas Brady.
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Question 8 of 10
8. Question
Implications of investing in foreign government debt does not include which of the following?.
I. Exposure to political and legislative risk which the investor is unaccustomed to.
II. Risk of debt forfeiture in the case of change in government.
III. Exposure to a tax code different from the domestic US tax code.
IV. Possibility of high interest payments in developing markets.Correct
Investors in the governmental debt of foreign countries should be cautious. Foreign countries are often characterized by cultures with which investors from the United States are not familiar. This can result in political and legislative risk to which the investor is unaccustomed. If the government experiences revolution, the new government may refuse to honor the debts of the previous leadership. Also, investors in foreign government debt must deal with a tax code different than the domestic United States tax code. Investors seeking capital appreciation and high interest payments may target governments in developing markets as the investors are more capable of absorbing loss but want maximum return.
Incorrect
Investors in the governmental debt of foreign countries should be cautious. Foreign countries are often characterized by cultures with which investors from the United States are not familiar. This can result in political and legislative risk to which the investor is unaccustomed. If the government experiences revolution, the new government may refuse to honor the debts of the previous leadership. Also, investors in foreign government debt must deal with a tax code different than the domestic United States tax code. Investors seeking capital appreciation and high interest payments may target governments in developing markets as the investors are more capable of absorbing loss but want maximum return.
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Question 9 of 10
9. Question
Foreign investors seeking capital appreciation and high interest payments;
I. should target governments in developing markets.
II. should be ready and capable to absorb loss.
III. should purchase sovereign debt from a stable government.
IV. should be risk averse to maximise profit.Correct
The ideal investor for foreign government debt ranges according to risk appetite and needs. An investor seeking exposure to foreign markets, but who is also risk averse, may purchase foreign sovereign debt from a stable, long-standing government. Investors seeking capital appreciation and high interest payments may target governments in developing markets as the investors are more capable of absorbing loss but want maximum return.
Incorrect
The ideal investor for foreign government debt ranges according to risk appetite and needs. An investor seeking exposure to foreign markets, but who is also risk averse, may purchase foreign sovereign debt from a stable, long-standing government. Investors seeking capital appreciation and high interest payments may target governments in developing markets as the investors are more capable of absorbing loss but want maximum return.
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Question 10 of 10
10. Question
Which of the following statements is false?
I. The main objective for premium bond buying should be higher current income.
II. In a decreasing interest rate environment, premium prices are offered for bonds that pay a higher coupon rate.
III. Capital appreciation should be the goal for those who invest in bonds at a premium.
IV. If a bond is held to maturity and a premium was paid for that bond, it may only be redeemed for par value.Correct
In a decreasing interest rate environment, bonds that pay a higher coupon than the current rate are in high demand. This increased demand leads investors who are seeking a higher current income to offer a premium price above par value for the bond with the higher coupon rate. If a bond is held to maturity and a premium was paid for that bond, it may only be redeemed for par value and will result in a capital loss. Capital appreciation should not be a goal for those who invest in bonds at a premium. The main objective for premium bond buying should be higher current income.
Incorrect
In a decreasing interest rate environment, bonds that pay a higher coupon than the current rate are in high demand. This increased demand leads investors who are seeking a higher current income to offer a premium price above par value for the bond with the higher coupon rate. If a bond is held to maturity and a premium was paid for that bond, it may only be redeemed for par value and will result in a capital loss. Capital appreciation should not be a goal for those who invest in bonds at a premium. The main objective for premium bond buying should be higher current income.