Mastery Exams UPDATED ACTUAL Questions and CORRECT Answers
#36
20 year maturity
The best answer is D.
A 7% general obligation bond is issued with 20 years to This is a very diflcult question. Since the bond has a
maturity. A customer buys the bond on a 7.50% basis. The stated rate of interest of 7%, but is priced to yield 7.50%,
bond contract allows the issuer to call the bonds in 5 years the bond is being sold at a discount. The amount of the
at 102 1/2, with the call premium declining by 1/2 point discount to which this equates is about $140 (you do
a year thereafter. The bond is puttable in 5 years at par. not need to know how to do this, but you do need to
The price of the bond to a customer would be calculated understand the concept that follows). The dollar price of
based on the: the bond would be $860 to yield 7.50% to maturity. Under
MSRB rules, bonds are priced on a worst case basis,
meaning in this case where the discount ($140 in this
case) is earned over the longest period of time. This occurs
if the bonds are held to maturity. If the bonds are called
earlier, the yield actually improves on the bonds, since the
customer earns the discount faster.
40
Ford Motor Company has issued 8% convertible deben-
tures, convertible at a 10:1 ratio. Currently the debenture
is trading at 94. The stock is trading at $80. What is the
Ford Motor Company has issued 8% convertible deben- conversion price of the stock?
tures, convertible at a 10:1 ratio. Currently the debenture A. $10
is trading at 94. The stock is trading at $80. What is the B. $80
conversion price of the stock? C. $94
D. $100
The best answer is D.
The bond is convertible into common at a 10:1 ratio,
, based on the par value of the bond. The conversion price
formula is: 1000/10
46
All of the following securities are quoted on a yield basis
EXCEPT:
American Depositary Receipts
The best answer is C.
Money market instruments are original issue discount
All of the following securities are quoted on a yield basis obligations quoted on a yield basis that are priced at a dis-
EXCEPT: count to par (with the exception of negotiable certificate
of deposit that are priced at par plus accrued interest).
The discount from par is the interest earned. American
Depositary Receipts are not a money market instrument.
They are essentially shares of a foreign company, traded
domestically similar to equity securities. They are dollar
price quoted in 1/8ths.
The exercise price of a warrant is set at a premium to the
Which of the following statements are TRUE regarding stock's current market price
warrants? Warrants are exercised when the exercise price is below
the market price
Warrants are considered to be an equity-related security
Warrants allow the holder to buy the stock of that issuer at
Which of the following statements are TRUE regarding
a fixed price
warrants?
Warrants are attractive to speculators because of the lever-
age that they offer
full faith and credit of Toga County Corporation
The payment of interest and principal on these bonds is
secured by the:
The best answer is A.
Since these bonds are debentures, they are backed solely
#36
20 year maturity
The best answer is D.
A 7% general obligation bond is issued with 20 years to This is a very diflcult question. Since the bond has a
maturity. A customer buys the bond on a 7.50% basis. The stated rate of interest of 7%, but is priced to yield 7.50%,
bond contract allows the issuer to call the bonds in 5 years the bond is being sold at a discount. The amount of the
at 102 1/2, with the call premium declining by 1/2 point discount to which this equates is about $140 (you do
a year thereafter. The bond is puttable in 5 years at par. not need to know how to do this, but you do need to
The price of the bond to a customer would be calculated understand the concept that follows). The dollar price of
based on the: the bond would be $860 to yield 7.50% to maturity. Under
MSRB rules, bonds are priced on a worst case basis,
meaning in this case where the discount ($140 in this
case) is earned over the longest period of time. This occurs
if the bonds are held to maturity. If the bonds are called
earlier, the yield actually improves on the bonds, since the
customer earns the discount faster.
40
Ford Motor Company has issued 8% convertible deben-
tures, convertible at a 10:1 ratio. Currently the debenture
is trading at 94. The stock is trading at $80. What is the
Ford Motor Company has issued 8% convertible deben- conversion price of the stock?
tures, convertible at a 10:1 ratio. Currently the debenture A. $10
is trading at 94. The stock is trading at $80. What is the B. $80
conversion price of the stock? C. $94
D. $100
The best answer is D.
The bond is convertible into common at a 10:1 ratio,
, based on the par value of the bond. The conversion price
formula is: 1000/10
46
All of the following securities are quoted on a yield basis
EXCEPT:
American Depositary Receipts
The best answer is C.
Money market instruments are original issue discount
All of the following securities are quoted on a yield basis obligations quoted on a yield basis that are priced at a dis-
EXCEPT: count to par (with the exception of negotiable certificate
of deposit that are priced at par plus accrued interest).
The discount from par is the interest earned. American
Depositary Receipts are not a money market instrument.
They are essentially shares of a foreign company, traded
domestically similar to equity securities. They are dollar
price quoted in 1/8ths.
The exercise price of a warrant is set at a premium to the
Which of the following statements are TRUE regarding stock's current market price
warrants? Warrants are exercised when the exercise price is below
the market price
Warrants are considered to be an equity-related security
Warrants allow the holder to buy the stock of that issuer at
Which of the following statements are TRUE regarding
a fixed price
warrants?
Warrants are attractive to speculators because of the lever-
age that they offer
full faith and credit of Toga County Corporation
The payment of interest and principal on these bonds is
secured by the:
The best answer is A.
Since these bonds are debentures, they are backed solely
