Bond Basics Flashcards

You may prefer our related Brainscape-certified flashcards:
1
Q

Which of the following would be a quote for a US government bond?

105.625
105-20
105 5/8
105 10/16

A

105-20

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Which of the following would be a quote for a US Government bond with a dollar price of $1,012.50?

101.25
101-8
101 1/4
101 4/16

A

101-8

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

How are Treasury Notes quoted?

A

Whole and Fractional

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

A municipal dealer buys a $1,000 par 30 year, 12% bond on a 12% basis. The dealer reoffers the bond, marking it up by 40 basis points. The yield at which the dealer is reoffering the bond is:

A

11.60%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

In 2020, a customer buys 1 PDQ 10%, $1,000 par debenture, M ‘35, at 115. The interest payment dates are Jan 1st and Jul 1st. The nominal yield on the bond is

A

10.00%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Which statement is TRUE about bond price changes that result from interest rate movements?

A- Short term bond prices move more slowly than long term bond prices
B- Long term bond prices move more slowly than short term bond prices
C- Both short term and long term prices move at equivalent rates
D- No relationship exists between short term and long term bond price movements

A

A- Short term bond prices move more slowly than long term bond prices

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

In 2020, a customer buys 5 GE 10% debentures, M ‘40. The interest payment dates are Feb 1st and Aug 1st. The current yield on the bonds is 11.76%. The bonds are callable as of 2030 at 103. The bond is trading:

A- at a premium
B- at a discount
C- at par
D- in the money

A

B- at a discount

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

The current yield on a bond is

A

stated interest rate/ bond market value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

A corporation has issued 8% AA rated sinking fund debentures at par. Three years later, similar issues are being offered in the primary market at 7%. Which statement is TRUE about the outstanding 8% issue?

A- the dollar price of the bond will be at a discount to par and the current yield will be higher than the nominal yield
B- The dollar price of the bond will be at a discount to par and the current yield will be lower than the nominal yield
C- The dollar price of the bond will be at a premium to par and the current yield will be lower than the nominal yield
D- The dollar rice of the bond will be at a premium to par and the current yield will be higher than the nominal yield

A

C- The dollar price of the bond will be at a premium to par and the current yield will be lower than the nominal yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

A 9%, $1,000 par corporate bond is trading at $1,100. What is the current yield?

A

8.18%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

In 2020, a customer buys 1 PDQ 10%, $1,000 par debenture, M ‘35, at 115. The interest payment dates are Jan 1st and Jul 1st. The current yield on the bond is:

A

8.70%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

If a bond is trading at a premium, which statement is TRUE?

A- The current yield will be higher than the nominal yield
B- The yield to maturity will be higher than the nominal yield
C- The yield to maturity will be lower than the current yield
D- The nominal yield and current yield will be the same

A

C- The yield to maturity will be lower than the current yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

When a bond trades at a premium, which bond yield will be the lowest?

A

Basis (or yield to maturity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

The City of Peoria, Illinois has outstanding $100,000,000 of 7% General Obligation bonds, M ‘39. The bonds are callable at 103, beginning 1/1/19. The bonds are currently trading at 104 ½. The call premium on the bonds is:

A- 1 1/2 points
B- 3 points
C- 4 1/2 points
D- 5 1/2 points

A

B- 3 points

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Bonds with a call feature benefit the:

A

Issuer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When interest rates have fallen, an issuer will:

A

call the outstanding high interest rate bonds and issue new bonds with lower interest rates

17
Q

Which statement is TRUE regarding the effect of market interest rate movements on callable and puttable bond prices?

A- When interest rates fall, the call price tends to set a ceiling on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond
B- When interest rates fall, the call price tends to set a floor on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond
C- When interest rates rise, the put price tends to set a ceiling on the market price of the bond and when interest rates fall, the call price tends to set a ceiling on the market price of the bond
D- When interest rates rise, the put price tends to set a floor on the market price of the bond and when interest rates fall, the call price tends to set a floor on the market price of the bond

A

A- When interest rates fall, the call price tends to set a ceiling on the market price of the bond and when interest rates rise, the put price tends to set a floor on the market price of the bond

18
Q

Which of the following Moody’s MIG ratings is used for the lowest investment grade paper?

A- MIG 1
B- MIG 2
C- MIG 3
D- SG

A

B- MIG 2

19
Q

The risk that rising interest rates will cause bond prices to fall is

A

Interest Rate Risk

20
Q

What will not affect the marketability of a corporate bond?

A

Bond denominations

21
Q

Which of the following will increase the marketability risk of a bond?

A- Active trading in that security
B- The presence of numerous bids
C- Round lot size transaction amount
D- Large block size transaction amount

A

D- Large block size transaction amount

22
Q

Reinvestment risk occurs in investment time horizons during which market interest rates are

A

falling

23
Q

Securities subject to reinvestment risk are those that are

A

long term and make periodic payments to investors