BA323 Exam 3 Questions and Correct Answers.
A bond with a BB rating has a (higher risk of default/lower risk of default) than a bond
with a BBB rating.
higher risk of default
the U.S. government borrows money by issuing _____ and ____.
treasury bills and treasury notes
indentures and loan agreements often contain protective covenants designed to protect the
interests of _________
lenders
most of the time, a floating-rate bond's coupon adjusts __________.
with a lag to some base rate
True or false: A put bond allows the holder to force the issuer to buy the bond back at
a stated price.
true
What are some features of the OTC market for bonds?
The OTC has no designated physical location.
OTC dealers are connected electronically.
What is the bid price?
It is the price an investor will receive if he or she sells a bond to a dealer.
It is the price at which a dealer is willing to buy securities.
If bonds for AT&T are quoted at 115, they can be purchased:
at 115 percent of par value plus accrued interest.
What does the dirty price represent?
, It includes the quoted price and accrued interest.
Why is the bond market less transparent than the stock market?
Many bond transactions are negotiated privately. Transactions in the bond market are privately
negotiated between parties, and there is little or no centralized reporting of transactions.
If a $1,000 face value U.S. Treasury bond is quoted at 99.5, then the bond can be purchased
at 99.5 percent of face value plus any accrued interest
The nominal rate is found by adding the ______ and the real rate of return.
inflation
What is a real rate of return?
It is a rate of return that has been adjusted for inflation.
It is a percentage change in buying power.
True or false: In general, the price that is paid for a bond will exceed its quoted price.
true. Invoice price = Dirty price = Quoted price + Accrued interest
What is the equation for approximating the nominal rate of return? R = the nominal rate
of interest r = the real rate of interest h = the inflation rate.
R=r+h
which of the following may increase the yield on corporate bonds as compensation
to investors but will not impact Treasury bond yields?
a) liquidity premium
b) default risk premium
c) inflation premium
d) interest rate risk premium
liquidity premium
default risk premium
The term structure of interest rates examines the ___
A bond with a BB rating has a (higher risk of default/lower risk of default) than a bond
with a BBB rating.
higher risk of default
the U.S. government borrows money by issuing _____ and ____.
treasury bills and treasury notes
indentures and loan agreements often contain protective covenants designed to protect the
interests of _________
lenders
most of the time, a floating-rate bond's coupon adjusts __________.
with a lag to some base rate
True or false: A put bond allows the holder to force the issuer to buy the bond back at
a stated price.
true
What are some features of the OTC market for bonds?
The OTC has no designated physical location.
OTC dealers are connected electronically.
What is the bid price?
It is the price an investor will receive if he or she sells a bond to a dealer.
It is the price at which a dealer is willing to buy securities.
If bonds for AT&T are quoted at 115, they can be purchased:
at 115 percent of par value plus accrued interest.
What does the dirty price represent?
, It includes the quoted price and accrued interest.
Why is the bond market less transparent than the stock market?
Many bond transactions are negotiated privately. Transactions in the bond market are privately
negotiated between parties, and there is little or no centralized reporting of transactions.
If a $1,000 face value U.S. Treasury bond is quoted at 99.5, then the bond can be purchased
at 99.5 percent of face value plus any accrued interest
The nominal rate is found by adding the ______ and the real rate of return.
inflation
What is a real rate of return?
It is a rate of return that has been adjusted for inflation.
It is a percentage change in buying power.
True or false: In general, the price that is paid for a bond will exceed its quoted price.
true. Invoice price = Dirty price = Quoted price + Accrued interest
What is the equation for approximating the nominal rate of return? R = the nominal rate
of interest r = the real rate of interest h = the inflation rate.
R=r+h
which of the following may increase the yield on corporate bonds as compensation
to investors but will not impact Treasury bond yields?
a) liquidity premium
b) default risk premium
c) inflation premium
d) interest rate risk premium
liquidity premium
default risk premium
The term structure of interest rates examines the ___
