MBA 7427 Sample Questions CH 7

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. . A "foreign bond" issue is:

a. one denominated in a particular currency but sold to investors in national capital
markets other than the country that issued the denominating currency.
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. one denominated in a particular currency but sold to investors in national capital
markets other than the country that issued the denominating currency.
d. one offered by a domestic borrower to investors in a national market and
denominated in that nation's currency
____ 2. A "Eurobond" issue is:
a. one denominated in a particular currency but sold to investors in national capital
markets other than the country that issued the denominating currency.
b. usually a bearer bond.
c. for example a Dutch borrower issuing dollar-denominated bonds to investors in the
U.K., Switzerland, and the Netherlands.
d. All of these.

____ 3. In any given year, what percent of new international bonds are likely to be Eurobonds rather than
foreign bonds?
a. 80%
b. 45%
c. 25%
d. 15%

____ 4. A "bearer bond" is one:

a. that shows the owner's name on the bond.
b. that shows the owner's name on the bond.
c. in which mere possession is an evidence of the ownership.
d. in which possession only does not creates an evidence of the ownership.

____ 5. A "global bond" issue:

a. is a very large international bond offering by several borrowers pooled together
b. is a very large international bond offering by a single borrower that is
simultaneously sold in several national bond markets.
c. has higher yields for the purchasers.
d. has a lower liquidity.

____ 6. In which of the following currencies can Eurobond be denominated?

a. Euro only
b. Euro and BritiAny currencyAny currencysh Pounds only
c. Currency of any country located in Europe
d. Any currency
____ 7. Shelf registration allows an issuer to:
a. Shelf registration allows an issuer to:
b. shelve a securities issue and sell the securities later.
c. shelve a securities issue and sell the securities later.
d. preregister a securities issue and then shelve the securities for later purchase.

____ 8. Taxes on interest paid by nonresidents are called:

a. interest taxes.
b. non-resident taxes.
c. non-resident interest taxes
d. withholding taxes.

____ 9. Bonds with fixed coupon payments in regular intervals and a designated maturity date are called:
a. straight-fixed rate bonds.
b. euro-medium term bonds.
c. floating-rate bonds.
d. equity-related bonds.

____ 10. Which of the following is not an example of an equity-related bond:

a. Any convertible bond.
b. Any bond with equity warrant.
c. Any corporate stripped bond.
d. Bonds with equity warrants of state companies.

____ 11. Fixed-rate notes issued by a corporation with maturities ranging from less than 1 year to about 10
years in the international bond markets are called:
a. international straight-fixed rate notes
b. euro-medium term notes.
c. euro floating-rate bonds
d. international equity-related bonds.

____ 12. Consider a bond that was issued by a Canadian corporation in CA$, pays coupon payments in CA$,
but repays the face value in Euro. Such bond is called:
a. Global bond.
b. Dual-currency bond.
c. Eurodollar bond.
d. Foreign bond.

____ 13. Bonds with coupon payments indexed to some reference rates are called:
a. straight-fixed rate bonds.
b. euro-medium term notes.
c. floating-rate notes.
d. equity-related bonds.

____ 14. Convertible bonds are a type of:

a. straight-fixed rate bonds
b. euro-medium term notes
c. floating-rate notes.
 d. equity-related bonds

____ 15. Floating-rate notes (FRN):

a. experience very volatile price changes between reset dates.
b. are typically medium-term bonds with coupon payments indexed to some
reference rate (e.g. LIBOR).
c. do not 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.
d. are typically long-term bonds with coupon payments indexed to some fixed rate

____ 16. A five-year Floating-rate note (FRN) 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:
a. $29.375
b. $30.000
c. $30.625
d. $61.250

____ 17. "Investment grade" ratings are in the following categories:

a. Moody's: AAA to BBB - S&P's: Aaa to Baa
b. Moody's: Aaa to Baa - S&P's: AAA to BBB
c. Moody's: AAA to A - S&P's: Aaa to A
d. Moody's: Aaa to A - S&P's: AAA to A

____ 18. Zero-coupon bonds issued in 1999 are due in 2009. If they are sold at 55 percent of face value, the
implied yield to maturity is (round the final percentage answer to 2 decimal places):
a. 5.50%.
b. 5.50%.
c. 8.31%.
d. cannot be determined, need more information.

____ 19. The implicit SF/$ exchange rate at maturity of a Swiss franc/U.S. dollar dual currency bonds that
pay $581.40 at maturity per SF1,000, is (round the final percentage answer to 2 decimal places):
a. SF0.58/$1.00
b. SF1.58/$1.00.
c. SF1.72/$1.00
d. SF1.95/$1.00

____ 20. Zero-coupon bonds were issued in 2005. If they are sold at 55 percent of face value, and the implied
yield to maturity is 5%, the bonds will mature in:
a. 4.5 years.
b. 10.75 years.
c. 12.25 years.
d. cannot be determined, need more information.

____ 21. Zero-coupon bonds were issued in 2005. If their implied yield to maturity is 5%, and the bonds will
mature in 20 years, at what discount from the face value will they sell? (Do not round intermediate
answers and round the final percentage answer to 2 decimal places)
 a. 10%
b. 25.42%
c. 37.69%
d. cannot be determined, need more informatio
____ 22. A five-year $1,000 face value floating-rate note (FRN) has coupons referenced to six-month dollar
LIBOR, and pays coupon interest semiannually. Assume that the last six-month LIBOR was 6.5
percent and the current six-month LIBOR is 6 percent. If the risk premium above LIBOR that the
issuer must pay is 0.25%, by how much did the coupon payment change?
a. increase by $2.5
b. decrease by $2.5
c. increase by $5
d. decrease by $5

____ 23. Which statement is NOT true about market makers?

a. Market makers stand ready to buy or sell on their own account.
b. Market makers quote two-way bid and ask prices.
c. Market makers trade with one another only.
d. Market makers only make the bid-ask spread and charge no other commission.

____ 24. An underwriting syndicate consists of all of the following except:

a. lead manager
b. managing group
c. underwriting syndicate
d. managing syndicate
MBA 7427 Sample Questions CH 7
Answer Section

MULTIPLE CHOICE

1. ANS: B PTS: 1
2. ANS: D PTS: 1
3. ANS: A PTS: 1
4. ANS: C PTS: 1
5. ANS: B PTS: 1
6. ANS: D PTS: 1
7. ANS: C PTS: 1
8. ANS: D PTS: 1
9. ANS: A PTS: 1
10. ANS: C PTS: 1
11. ANS: B PTS: 1
12. ANS: B PTS: 1
13. ANS: C PTS: 1
14. ANS: D PTS: 1
15. ANS: B PTS: 1
16. ANS: C PTS: 1
17. ANS: B PTS: 1
18. ANS: B PTS: 1
19. ANS: C PTS: 1
20. ANS: C PTS: 1
21. ANS: C PTS: 1
22. ANS: B PTS: 1
23. ANS: B PTS: 1
24. ANS: D PTS: 1