Chapter 7—Bond Markets

1. ____ require the owner to clip coupons attached to the bonds and send them to the issuer to receive coupon payments. a. Bearer b. Registered c. Treasury d. Corporate ANS: A PTS: 1 2. The yield to maturity is the annualized discount rate that equates the future coupon and principal payments to the initial proceeds received from the bond offering. a. True b. False ANS: T PTS: 1 3. Note maturities are usually ____, while bond maturities are ____. a. less than 10 years; 10 years or more b. 10 years or more; less than 10 years c. less than 5 years; 5 years or more d. 5 years or more; less than 5 years ANS: A PTS: 1 4. Investors in Treasury notes and bonds receive ____ interest payments from the Treasury. a. annual b. semiannual c. quarterly d. monthly ANS: B PTS: 1 5. The Treasury has relied heavily on ____-year bonds to finance the U.S. budget deficit. a. 50 b. 70 c. 10 d. 5 ANS: C PTS: 1 6. Interest earned from Treasury bonds is a. exempt from all income tax. b. exempt from federal income tax. c. exempt from state and local taxes. d. subject to all income taxes. ANS: C PTS: 17. Treasury bond auctions are normally conducted only at the beginning of each year. a. True b. False ANS: F PTS: 1 8. ____ bids for Treasury bonds specify a price that the bidder is willing to pay and a dollar amount of securities to be purchased. a. Competitive b. Noncompetitive c. Negotiable d. Non-negotiable ANS: A PTS: 1 9. Treasury bond dealers a. quote an ask price for customers who want to sell existing Treasury bonds to the dealers. b. profit from a very wide spread between bid and ask prices in the Treasury securities market. c. may trade Treasury bonds among themselves. d. make a primary market for Treasury bonds. ANS: C PTS: 1 10. Under the STRIP program created by the Treasury, stripped securities are created and sold by the Treasury. a. True b. False ANS: F PTS: 1 11. 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 $____. a. 250 b. 255 c. 500 d. 510 ANS: B PTS: 1 12. Bonds issued by ____ are backed by the federal government. a. the Treasury b. AAA-rated corporations c. state governments d. city governments ANS: A PTS: 113. Municipal general obligation bonds are ____. Municipal revenue bonds are ____. a. supported by the municipal government's ability to tax; supported by the municipal government's ability to tax b. supported by the municipal government's ability to tax; supported by revenue generated from the project c. always subject to federal taxes; always exempt from state and local taxes d. typically zero-coupon bonds; typically zero-coupon bonds ANS: B PTS: 1