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1) A 10-year bond was issued four years ago

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1) A 10-year bond was issued four years ago. The bond is denominated in US dollars, offers a coupon rate of 10% with interest paid semiannually, and is currently priced at 102% of par. The bond's:

A. tenor is six years.

B. nominal rate is 5%.

C. redemption value is 102% of the par value.

2. A sovereign bond has a maturity of 15 years. The bond is best described as a:

A. perpetual bond.

B. pure discount bond.

C. capital market security.

3. A company has issued a floating-rate note with a coupon rate equal to the three-month Libor + 65 basis points. Interest payments are made quarterly on 31 March, 30 June, 30 September, and 31 December. On 31 March and 30 June, the three-month Libor is 1.55% and 1.35%, respectively. The coupon rate for the interest payment made on 30 June is:

A. 2.00%.

B. 2.10%.

C. 2.20%.

4. The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the bondholders can be best described as a bond's:

A. covenant.

B. indenture.

C. debenture.

5. Which of the following is a type of external credit enhancement?

A. Covenants

B. A surety bond

C. Overcollaterization

6. An affirmative covenant is most likely to stipulate:

A. limits on the issuer's leverage ratio.

B. how the proceeds of the bond issue will be used.

C. the maximum percentage of the issuer's gross assets that can be sold.

7. Which of the following best describes a negative bond covenant?

The issuer is:

A. required to pay taxes as they come due.

B. prohibited from investing in risky projects.

C. required to maintain its current lines of business.

8. A South African company issues bonds denominated in pound sterling that are sold to investors in the United Kingdom. These bonds can be best described as:

A. Eurobonds.

B. global bonds.

C. foreign bonds.

9. Relative to domestic and foreign bonds, Eurobonds are most likely to be:

A. bearer bonds.

B. registered bonds.

C. subject to greater regulation.

10. An investor in a country with an original issue discount tax provision purchases a 20-year zero-coupon bond at a deep discount to par value. The investor plans to hold the bond until the maturity date. The investor will most likely report:

A. a capital gain at maturity.

B. a tax deduction in the year the bond is purchased.

C. taxable income from the bond every year until maturity.

11. A bond that is characterized by a fixed periodic payment schedule that reduces the bond's outstanding principal amount to zero by the maturity date is best described as a:

A. bullet bond.

B. plain vanilla bond.

C. fully amortized bond.

12. If interest rates are expected to increase, the coupon payment structure most likely to benefit the issuer is a:

A. step-up coupon.

B. inflation-linked coupon.

C. cap in a floating-rate note.

13. Investors who believe that interest rates will rise most likely prefer to invest in:

A. inverse floaters.

B. fixed-rate bonds.

C. floating-rate notes.

14. A 10-year, capital-indexed bond linked to the Consumer Price Index (CPI) is issued with a coupon rate of 6% and a par value of 1,000. The bond pays interest semi-annually. During the first six months after the bond's issuance, the CPI increases by 2%. On the first coupon payment date, the bond's:

A. coupon rate increases to 8%.

B. coupon payment is equal to 40.

C. principal amount increases to 1,020.

15. The provision that provides bondholders the right to sell the bond back to the issuer at a predetermined price prior to the bond's maturity date is referred to as:

A. a put provision.

B. a make-whole call provision.

C. an original issue discount provision.

16. Which of the following provisions is a benefit to the issuer?

A. Put provision

B. Call provision

C. Conversion provision

17. Relative to an otherwise similar option-free bond, a:

A. putable bond will trade at a higher price.

B. callable bond will trade at a higher price.

C. convertible bond will trade at a lower price.

18. A five-year bond has the following cash flows:

£230.97          £230.97           £230.97               £230.97           £230.97

£1,000

The bond can best be described as a:

A. bullet bond.

B. fully amortized bond.

C. partially amortized bond.

19. Which of the following bond types provides the most benefit to a bondholder when bond prices are declining?

A. Callable

B. Plain vanilla

C. Multiple put

20. Which of the following best describes a convertible bond’s conversion premium?

A. Bond price minus conversion value

B. Par value divided by conversion price

C. Current share price multiplied by conversion ratio