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FIN350 Quiz 2 Monday First Name - Last Name - Version B
FIN350 Quiz 2 Monday First Name - Last Name - Version B
1. If a bond issued by First Boston Bank has a Standard & Poor's credit rating of A-, it
is referred to as a(n) ___.
a.Barry's bond
b. Investment grade bond.
c.James Bond.
d. Junk bond
e.Callable bond
2. Morin Company's bonds mature in 8 years, have a par value of $1,000, and make an
annual coupon interest payment of $65. The market requires an interest rate of 8.2%
on these bonds. What is the bond's price?
a. $972.48
b. $925.62
c. $948.76
d. $903.04
e. $996.79
3.Which of the following bonds would have the greatest percentage increase in value if
all interest rates in the economy fall by 1%? (Hint: No need to calculate numbers.
which one has the largest maturity risk?)
4. What is the current yield for the following bond? (Coupon (%) refers to coupon rate. Par value
is $1000. Bond price is quoted as a percentage of the par value.)
A) 4.863%
B) 4.875%
C) 4.866%
D)10.018%
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5. Below is the term structure for treasury securities as of February 2, 2012. The
yield curve is :
A) normal
B) inverted
C) downward sloping
Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 3
02/02/11 0.15 0.16 0.18 0.28 0.67 1.12 2.10 2.84 3.52 4.39 4
6. If currently the Treasury yield curve is a normal yield curve, what is the yield to
maturity on a 9-year Treasury bond, relative to that on a 4-year Treasury note?
8. The long-term bonds issued by state and local governments in the United
States are called:
A. Junk bonds.
B. Treasury bonds.
C. Floating rate bonds.
D. Municipal bonds.
E. Strips bonds.
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9. In finance, a ________bond is a type of bond that can be converted into shares
of stock in the issuing company, usually at some pre-announced ratio. It is a
hybrid security with debt- and equity-like features. A convertible bond typically
has a ____yield to maturity than that of an otherwise comparable bond.
A) callable; lower
B) indexed bond; higher
C) municipal; higher
D) convertible; lower
11. A bond has a $1,000 par value, makes annual interest payments of $100, has 5 years
to maturity, cannot be called, and is not expected to default. The bond should sell
at a premium if market interest rates are below 10% and at a discount if interest
rates are greater than 10%.
a. False
b. True
12. Risk premiums for different types of bond should be: (IP=inflation premium,
MRP=maturity risk premium, DRP=default risk premium, LP=liquidity
premium.)
IP MRP DRP LP
A)
S-T Treasury ü ü
L-T Treasury ü
S-T Corporate ü ü ü
L-T Corporate ü ü ü ü
IP MRP DRP LP
B)
S-T Treasury ü
L-T Treasury ü ü
S-T Corporate ü ü ü
L-T Corporate ü ü ü ü
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C)
IP MRP DRP LP
S-T Treasury ü ü
L-T Treasury ü ü
S-T Corporate ü ü ü
L-T Corporate ü ü ü
14. Please use the following information to value a 10% coupon rate, four
years maturity bond, if the term structure is:
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15. The discount rate that makes the present value of a bond’s payments equal to its price
is termed the:
A) yield to maturity.
B) capital gain yield.
C) current yield.
D) coupon rate
16. Which of the following stock likely has a low but positive (larger than 0 but smaller
than 1) beta?
A) a utility firm (for example, PG&E)
B) a company that makes luxurious clothes or a high-tech firm
C) a debt-collection firm (that may generate more profit in recession)
17. The resign of a CEO from Coldman Saches, or the winning or losing a big contract
in Dull Computer Inc. is some event that can be characterized as
a. Beta risk.
b. diversifiable risk.
c. Systematic risk that can be diversified away.
d. Market risk.
19. Over the next year, if stock HT’s expected return is 12%, stock COLL’s expected
return is 2%, what could be the expected return of a portfolio that allocates 40% fund
on HT and 60% on COLL?
a. 5%
b. 8.2%
c. 10%
d. 6%
e. 7%
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21. Which of the following statements best describes what would be expected to
happen as you randomly select stocks and add them to your portfolio?
a. Adding more such stocks will reduce the portfolio’s diversifiable (firm
specific) risk.
b. Adding more such stocks will have no effect on the portfolio’s firm specific
risk.
c. Adding more such stocks will always increase the portfolio’s expected return.
d. Adding more such stocks will always reduce the portfolio’s market risk.
25. Interest income on which of the following securities may be exempt from
federal tax?
A) municipal bonds
B) callable bonds
C) junk bonds
D) float-rate bonds
E) treasury bond
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