1. Bond duration is a measure of time
a. True
b. False
2. When there are large movements in the required yield, duration is not adequate to approximate the price reaction.
a. True
b. False
3. A bond may NOT have a duration that is grater than its maturity.
a. True
b. False
4. Two bonds with the same duration may have different convexity.
a. True
b. False
5. Which of the agencies below is NOT part of the Big Three credit rating agencies?
a. Moody's
b. Standard& Poor's
c. Weiss Ratings
d. Fitch Rating
6.Treasury securities are priced based on:
a. the yield curve
b. the theoratical spot rates
c. the par coupon rate
7.Federal agency securities are explicitly backed by the full faith and credit of the U.S. government.
a. True
b. False
8. A corporate bond rated ‘Bb' is an insvestment grade bond
a. True
b. False
9. The swap curve is used as a benchmark in many countries outside the US
a. True
b. False
10. Because of the tax - exempt feature of municipal bonds, yield on municipal bonds may be less than Treasuries with the same maturity.
a. True
b. False
11. For a bond with an option that is favorable to the investor, interest rate on issue may be less than on a comparable benchmark issue.
a. True
b. False
12. In chapter 11 bankruptcy rearganization the absolute priority rule is often violated
a. True
b. False
13. In company ‘XYZ' is experiencing severe financial difficulties and is considering filing for bankruptcy.XYZ's management is determined that it can return the company back to profitability if it is allowed to reorganize and renegotiate with its creditors. The company will most likely file for what type of bankruptcy:
a. chap 1
b. chap 6
c.chap 7
d.chap 11
14. There are some institutional investors who may not participate in the high yield debt market.
a. True
b. False
15. A bond may only have a single call price
a. True
b. False
16. A non refundable bond offers the same protections as a non-calleble bond
a. True
b. False
17.Generally, make-whole call provisions are less favorable to the investor than traditional call provisons.
a. True
b. False
18. Investment grade bond issues that were later downgraded to non-investment grade (junk) bonds are commonly known as:
a.dark angels
b. fallen angels.
c.junk hybrids
d.bankruptcy candidates
19.Deferred coupon bonds that give the issuer the option to make a coupon payment with cash or with similar bond is known as:
a. step-up bonds
b.deferred-interest bonds
c.payment-in kind bonds
20. Medium-term notes are usually sold in small amounts on continuos or intermitten basis
a. True
b. False
21. Structured notes can be highly customizable.
a. True
b. False
22. In most cases companies issue commercial paper with a maturity of at least 1 year
a. True
b. False
23.Yankee bonds are generally traded outside of the U.S.
a. True
b. False
24.The vast majority international bonds are based on a floating rate
a. True
b. False
25. A bond that is subject to foreign exchange risk may lead to a a highher eturn
a. True
b. False
26. Which statement below is not correct?
a. Eurobonds can be issued in various currencies
b. Eurobonds are typically less liquid than Yankee bonds.
c. Eurobonds pay semi-annual coupons
d.Eurobonds typically have weaker owner than U.S. domestic bonds.
27.Which bond warrant entities the warrant owner to buy additional bonds from the same price from the same price and yield.
a. Equity warrant
b. Debt warrant
c.Currency warrant
28. A bond that is issued simultaneously in several bond markets throughout the which can be issued in any currency is:
a.Global bond
b.Euro medium-term note
c. Convertible bond
d.Yankee bond
29. Covered bonds are NOT investment grade bonds.
a. True
b. False
30. Political risk is of higher concern to an investor when considering th purchase------market bonds.
a. True
b. False
31.Credit analysts are typically not concerned about the strategic direction of the company,because it does not reflect the company's current financial position.
a. True
b. False
Solve the problems
1. A 20-year %7 coupon bond is trading at 10% yield. Currently the price of the bond is 81.60. When the yield of the bond increases by 20 basis points the new price is 80.04, when the yield of the bond decreases by 20 basis points, the new price of the bond is 83.27. Calculate the approximate duration and approximate convexity measure of the bond.
2. Suppose that the coupon rate for a tips is 5%. Suppose further that an investor purchases $20,000 of par value (initial principle) of this issue today and that the annual inflation rate is 3 % for the first 6 months and 5% (annually) for the second 6 months of the year. Calculate the total dollar coupon interest that will be paid at the end of the first year.
Note: TIPS makes semi-annual coupon payments.