Chapter 12

Question 1

In any given year, about what percent of outstanding bonds are likely to be international rather than domestic bonds?

Answer 1

30%

Question 2

B. One denominated in a particular currency but sold to investors in national capital markets other than the country that issued the denominating currency.
C. for example, a German MNC issuing dollar-denominated bonds to U.S. investors

Answer 2

Foreign Bond

Question 3

The four currencies in which the majority of domestic and international bonds are
denominated are

Answer 3

D. U.S. dollar, the euro, the pound sterling, and the yen.

Question 4

C. possession is evidence of ownership.

Answer 4

bearer bond

Question 5

shows the owner’s name on the bond.
B. the owner’s name is recorded by the issuer.
C. the owner’s name is assigned to a bond serial number recorded by the issuer.

Answer 5

register bond

Question 6

Eurobonds are usually

Answer 6

bearer bonds

Question 7

Because __________ do not have to meet national security regulations, name recognition
of the issuer is an extremely important factor in being able to source funds in the international capital market.

Answer 7

Eurobond

Question 8

allows an issuer to preregister a securities issue, and then “shelve” the securities for later
sale.

Answer 8

Self Registration

Question 9

is a very large international bond offering by a single borrower that is simultaneously sold in several national bond markets

Answer 9

Global Bound

Question 10

The vast majority of new international bond offerings

Answer 10

A. are straight fixed-rate notes.

Question 11

40. In contrast to many domestic bonds, which make _________ coupon payments, coupon interest on Eurobonds is typically paid _________

Answer 11

A. semiannual, annually

Question 12

Bonds that a designated maturity date at which the principal of the bond issue is promised to be repaid. During the life of the bond, fixed coupon payments, which are a percentage of the face value, are paid as interest to the bondholders.

Answer 12

Straight Fixed- rate bond

Question 13

are typically fixed-rate corporate notes issued with maturities ranging from less than a year to about ten years

Answer 13

Euro-medium term notes

Question 14

55. There are two types of equity related bonds

Answer 14

C. convertible bonds and bonds with equity warrants.

Question 15

B. can be viewed as straight debt with a call option (technically a warrant) attached.

Answer 15

Bonds with equity warranta

Question 16

B. are typically medium-term bonds with coupon payments indexed to some reference rate (e.g. LIBOR).
C. appeal to investors with strong need to preserve the principal value of the investment
should they need to liquidate prior to the maturity of the bonds.

Answer 16

Floating Rate Notes

Question 17

are a form of adjustable rate bond.

Answer 17

Floating Rate NOtes

Question 18

A five-year floating-rate note has coupons referenced to six-month dollar LIBOR, and
pays coupon interest semiannually. Assume that the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period’s coupon rate on a $1,000 face value FRN will be:

Answer 18

C. $30.625

Question 19

A ten-year Floating-rate note (FRN) has coupons referenced to 3-month pound LIBOR, and pays coupon interest quarterly. Assume that the current 3-month LIBOR is 3 percent. If the risk premium above LIBOR that the issuer must pay is 1/8 percent, the next period’s coupon rate on a £1,000 face value FRN will be

Answer 19

D. £7.8125

Question 20

The floor value of a convertible bond

Answer 20

A. is the “straight bond” value.
B. is the conversion value.
C. is the minimum of a) and b).
D. is the maximum of a) and b).

Question 21

Find the price of a 30-year zero coupon bond with a €1,000 par value that has a yield to maturity of i€ = 5 percent

Answer 21

A. €231.38

Question 22

Zero-coupon bonds issued in 2006 are due in 2016. If they were originally sold at 55
percent of face value, the implied yield to maturity at issuance is

Answer 22

B. 6.16%.

Question 23

A. pay interest at zero percent.

B. are sold at a discount from par value.

Answer 23

Zero Coupon Bond

Question 24

A. have no interest income.

C. gave only capital gains income

Answer 24

Zero Coupn Bond

Question 25

issue allows the investor to exchange the bond for a predetermined number of equity shares of the issuer.

Answer 25

Convertible bond

Question 26

is usually never higher than the rating assigned to the sovereign government of the country in which it resides.

Answer 26

The credit rating of an international borrower

Question 27

a group of investment banks, merchant banks, and the merchant banking arms of
commercial banks that specialize in some phase of a public issuance.

Answer 27

The underwriting syndicate of a bond

Question 28

Underwriters for a domestic bond issue will commit their own capital to buy the issue
from the borrower at a discount from the issue price. The discount, or underwriting spread, is typically

Answer 28

A. in the 1 to 1.5 percent

Question 29

Underwriters for an international bond issue will commit their own capital to buy the issue from the borrower at a discount from the issue price. The discount, or underwriting spread, is
typically

Answer 29

B. in the 2 to 2.5 percent range.

Question 30

B. in the 2 to 2.5 percent range.

Answer 30

The secondary market for Eurobonds

Question 31

Eurobond market makers and dealers are members of the ______________, a selfregulatory body based in Zurich.

Answer 31

D. International Capital Market Association (ICMA)

Question 32

A. stand ready to buy or sell for their own account.
B. quote bid and ask spreads.
C. trade directly with one another, through a broker or with retail customers.

Answer 32

Market makers in the secondary bond market

Question 33

Two major clearing systems for international bond transactions are

Answer 33

A. Euroclear and Clearstream International.

Question 34

. Euroclear and Clearstream International.

Answer 34

A bond market index

Question 35

The J.P. Morgan and Company Global Government Bond Index is __________
representation of the individual country government bond indexes.

Answer 35

A. a value weighted