FIN 3403 EXAM 2 TEST BANK REVIEW
QUESTIONS WITH VERIFIED SOLUTIONS
Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?
coupon
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called?
face value
A bonds coupon rate is equal to the annual interest divided by which one of the following?
face value
The specified date on which the principal amount of a bond is payable is referred to as
which one of the following?
maturity
Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued
by Winston Industries. The 11.6 percent is referred to as which one of the following?
yield to maturity
The current yield is defined as the annual interest on a bond divided by which one of the
following?
Market price
An indenture is:
the legal agreement between the bond issuer and the bondholders
Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds
are sent directly to each of the individual bondholders. These direct payments are a clear
indication that the bonds can accurately be defined as being issued:
in registered form
A bond that is payable to whomever has physical possession of the bond is said to be in:
bearer form
The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These
bonds fit the definition of which one of the following terms?
debenture
, Which of the following defines a note?
I. secured
II. unsecured
III. maturity less than 10 years
IV. maturity in excess of 10 years
II and III only
A sinking fund is managed by a trustee for which one of the following purposes?
early bond redemption
A bond that can be paid off early at the issuer's discretion is referred to as being which one
of the following?
callable
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus
any accrued interest. The additional $30 is called which one of the following?
call premium
A deferred call provision is which one of the following?
prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
A call-protected bond is a bond that:
cannot be called during a certain period of time.
The items included in an indenture that limit certain actions of the issuer in order to
protect bondholder's interests are referred to as the:
protective covenants.
A bond that has only one payment, which occurs at maturity, defines which one of the
following?
zero coupon
Which one of the following is the price a dealer will pay to purchase a bond?
bid price
You want to buy a bond from a dealer. Which one of the following prices will you pay?
asked price
The difference between the price that a dealer is willing to pay and the price at which he or
she will sell is called the:
spread.
QUESTIONS WITH VERIFIED SOLUTIONS
Mary just purchased a bond which pays $60 a year in interest. What is this $60 called?
coupon
Bert owns a bond that will pay him $75 each year in interest plus a $1,000 principal
payment at maturity. What is the $1,000 called?
face value
A bonds coupon rate is equal to the annual interest divided by which one of the following?
face value
The specified date on which the principal amount of a bond is payable is referred to as
which one of the following?
maturity
Currently, the bond market requires a return of 11.6 percent on the 10-year bonds issued
by Winston Industries. The 11.6 percent is referred to as which one of the following?
yield to maturity
The current yield is defined as the annual interest on a bond divided by which one of the
following?
Market price
An indenture is:
the legal agreement between the bond issuer and the bondholders
Atlas Entertainment has 15-year bonds outstanding. The interest payments on these bonds
are sent directly to each of the individual bondholders. These direct payments are a clear
indication that the bonds can accurately be defined as being issued:
in registered form
A bond that is payable to whomever has physical possession of the bond is said to be in:
bearer form
The Leeward Company just issued 15-year, 8 percent, unsecured bonds at par. These
bonds fit the definition of which one of the following terms?
debenture
, Which of the following defines a note?
I. secured
II. unsecured
III. maturity less than 10 years
IV. maturity in excess of 10 years
II and III only
A sinking fund is managed by a trustee for which one of the following purposes?
early bond redemption
A bond that can be paid off early at the issuer's discretion is referred to as being which one
of the following?
callable
A $1,000 face value bond can be redeemed early at the issuer's discretion for $1,030, plus
any accrued interest. The additional $30 is called which one of the following?
call premium
A deferred call provision is which one of the following?
prohibition which prevents bond issuers from redeeming callable bonds prior to a specified date
A call-protected bond is a bond that:
cannot be called during a certain period of time.
The items included in an indenture that limit certain actions of the issuer in order to
protect bondholder's interests are referred to as the:
protective covenants.
A bond that has only one payment, which occurs at maturity, defines which one of the
following?
zero coupon
Which one of the following is the price a dealer will pay to purchase a bond?
bid price
You want to buy a bond from a dealer. Which one of the following prices will you pay?
asked price
The difference between the price that a dealer is willing to pay and the price at which he or
she will sell is called the:
spread.
