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Chapter 7 Exam Questions With Verified
Answers
What do fixed income securities consist of? - answer✔debit instruments and preferred stock
What is a bond? - answer✔a debt security in which a borrower promises to pay a specified
interest rate and principal at a future date.
_______________________ are not completely risk-less, since their prices will decline when the
interest rate rises - answer✔treasury bonds
What is a treasury bond? - answer✔a marketable, fixed-interest U.S. government debt security
with a maturity of more than 10 years.
What is a municipal bond? - answer✔loans investors make to local governments. They are issued
by cities, states, counties, or other local governments.
What is a corporate bond? - answer✔a bond issued by a corporation in order to raise financing
for a variety of reasons such as to ongoing operations, M&A, or to expand business.
Describe par value? - answer✔refers to a bonds face value and the amount of money that the
issuing entity borrows and promises to repay on the maturity date
Describe "default" - answer✔a bond issuer is said to be in default if it does not pay the interest or
the principal in accordance with the terms of the indenture agreement or if it violates one or more
of the issuers restrictive covenants
What is an indenture? - answer✔the contract that describes the terms of a borrowing
arrangement between a firm that sells a bond issue and the investors who purchase the bond
What is a convertibility provision? - answer✔allows a bondholder or preferred stockholder to
convert their bond or preferred share, respectively, into a specified number or value of common
shares.
What is a floating rate bond? - answer✔a bond for which the interest rate changes based on a
benchmark interest rate
Chapter 7 Exam Questions With Verified
Answers
What do fixed income securities consist of? - answer✔debit instruments and preferred stock
What is a bond? - answer✔a debt security in which a borrower promises to pay a specified
interest rate and principal at a future date.
_______________________ are not completely risk-less, since their prices will decline when the
interest rate rises - answer✔treasury bonds
What is a treasury bond? - answer✔a marketable, fixed-interest U.S. government debt security
with a maturity of more than 10 years.
What is a municipal bond? - answer✔loans investors make to local governments. They are issued
by cities, states, counties, or other local governments.
What is a corporate bond? - answer✔a bond issued by a corporation in order to raise financing
for a variety of reasons such as to ongoing operations, M&A, or to expand business.
Describe par value? - answer✔refers to a bonds face value and the amount of money that the
issuing entity borrows and promises to repay on the maturity date
Describe "default" - answer✔a bond issuer is said to be in default if it does not pay the interest or
the principal in accordance with the terms of the indenture agreement or if it violates one or more
of the issuers restrictive covenants
What is an indenture? - answer✔the contract that describes the terms of a borrowing
arrangement between a firm that sells a bond issue and the investors who purchase the bond
What is a convertibility provision? - answer✔allows a bondholder or preferred stockholder to
convert their bond or preferred share, respectively, into a specified number or value of common
shares.
What is a floating rate bond? - answer✔a bond for which the interest rate changes based on a
benchmark interest rate
