quiz 7 finance 385 june 2015

Question 11 pts Skip to question text.

A ten-year, inflation-indexed bond has a par value of $10,000 and a coupon rate of 5 percent. During the first six months since the bond was issued, the inflation rate was 2 percent. Based on this information, the coupon payment after six months will be $____.

	250
	255

	500
	510

 

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Question 21 pts

Municipal general obligation bonds are ____. Municipal revenue bonds are ____.

	supported by the municipal government's ability to tax; supported by the municipal government's ability to tax
	supported by the municipal government's ability to tax; supported by revenue generated from the project

	always subject to federal taxes; always exempt from state and local taxes
	typically zero-coupon bonds; typically zero-coupon bonds

 

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Question 31 pts

In general, variable-rate municipal bonds are desirable to investors who expect that interest rates will ____.

	remain unchanged
	fall

	rise
	none of the above

 

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Question 41 pts

When would a firm most likely call bonds?

	after interest rates have declined
	if interest rates do not change

	after interest rates increase
	none of the above

 

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Question 51 pts

Assume that you purchased corporate bonds one year ago that have no protective covenants. Today, it is announced that the firm that issued the bonds plans a leveraged buyout. The market value of your bonds will likely ____ as a result.

	rise
	decline

	be zero
	be unaffected

 

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Question 61 pts

Some bonds are "stripped," which means that

	they have defaulted.
	the call provision has been eliminated.

	they are transferred into principal-only and interest-only securities.
	their maturities have been reduced.

 

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Question 71 pts

(Financial calculator required.) Paul can purchase bonds with 15 years remaining until maturity, a par value of $1,000, and a 9 percent annual coupon rate for $1,100. Paul's yield to maturity is ____ percent.

	9.33
	7.84

	9.00
	none of the above

 

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Question 81 pts

A ____ has first claim on specified assets, while a ____ is a debenture that has claims against a firm's assets that are junior to the claims of mortgage bonds and regular debentures.

	first mortgage bond; second mortgage bond
	first mortgage bond; debenture

	first mortgage bond; subordinated debenture
	chattel mortgage bond; subordinated debenture

none of the above

 

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Question 91 pts

If a firm believes that it will have sufficient cash flows to cover interest payments, it may consider using ____ debt and ____ equity, which implies a ____ degree of financial leverage.

	more; less; lower
	more; less; higher

	less; more; higher
	none of the above

 

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Question 101 pts

A sinking-fund provision is a requirement that the issuing firm retire a certain amount of the bond issue each year.

	True
	False