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Exam 10: Fixed-Income Securities

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Question 51

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Debentures are secured by

A) the issuer's good name.
B) earnings from the project the debentures were issued to finance.
C) financial assets held in trust by a third party.
D) physical assets like real estate.

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Question 52

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What are the major factors that affect the price of convertible bonds?

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When the stock's market price is at or a...

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Question 53

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Which one of the following statements correctly describes the major drawback of a zero-coupon bond?

Bonds are least likely to be called if

Treasury strip bonds are popular because I. they are high-quality bonds. II. they have a wide range of maturities. III. they are very liquid. IV. their income is not taxed until the bonds mature.

Which of the following statements concerning mortgage backed securities are correct? I. They are secured by a pool of residential mortgages. II. A portion of the income stream is a non-taxable return of capital. III. They are backed by the full faith and credit of the U.S. government. IV. Their maturity depends on prepayments of the mortgages in the pool.

When convertible bonds are first issued: I. the conversion price of the stock is higher than the market price. II. the market price of the stock is higher than the conversion price. III. the coupon rate is higher than if the bond were not convertible. IV. the coupon rate is lower than if the bond were not convertible.

Which one of the following statements correctly describes the unique feature of GNMA pass-through securities?

Bond prices are stable over any five- to ten-year period.

The initial call price of an 8% bond could be as high as $1,080.

Convertible bonds will retain their value as bonds even if stock prices are falling.

Mortgage-backed bonds are issued primarily by state governments and are secured by home mortgages.

The biggest risk with foreign bonds is the risk of default.

A type of bond that is issued and traded outside the United States and which is denominated in U.S. dollars but is not registered with the SEC is

A bond quoted at a price of 101.2

Pass-through securities backed by pools of auto loans, credit card bills, and computer leases are known as

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 ________.

Which one of the following variables has the greatest effect on bond prices?

The holder of a serial bond receives both semi-annual interest and principal payments over the life of the bond.

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