• 23 DEC 20
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    answer sheet that you should submit to your Unit

    UNIT #4A WEEKLY QUIZ ANSWER SHEET

    DIRECTIONS: Here is the Unit #4 Weekly Quiz Answer Sheet that you should submit to your Unit #4 Homework Assignment Folder.

    Please submit your Unit #4 Quiz Answer Sheet in MS Word format with the following file name: LastNameFirstInitial_Unit 04_QuizAnswerSheet.docx. For example, if you name is John Smith, the file name of your Answer Sheet should be SmithJ_Unit04_QuizAnswerSheet.docx.

    If you have any questions or comments, please do not hesitate to contact me.

    NAME: _____________________________________

    Question Number

    Question

    1

    How can you describe bond issuers?

    Government

    Corporate (public and private)

    Household

    Foreign

    Bond issuers include:

    1 and 2

    1, 2, and 3

    2, 3, and 4

    1, 2 and 4

    2

    Which bond has the most interest rate risk?

    A 3-month Treasury bill

    A zero-coupon 30-year Treasury STRIP

    A 6% 30-year Treasury bond

    A 3% 5-year Treasury note

    3

    Jane, a financial professional, has a client in the 35% marginal income tax bracket who would like to purchase a bond for her investment portfolio. After making her calculations for the highest after-tax yield, which of the following bonds should Jane recommend to her client?

    5.5% corporate debenture

    4.00% general obligation municipal bond

    2.55% U.S. Treasury note

    3.75% private activity municipal bond

    4

    All of the following are true, EXCEP:

    Bond prices increase when interest rates decrease

    YTM increases bring about proportionally smaller price changes than YTM decreased of the same magnitude

    The maturity of a bond has an increasing effect on price sensitivity

    Price risk decreases inversely with coupon

    5

    Which of the following risk factors are the most important for purchasers of long-term high-grade bonds?

    The ability to pay interest when due

    The ability to pay principal upon maturity

    Limited marketability

    Purchasing power risk

    6

    Which of the following is not the Face Value (usually $1,000 in the US) of a bond?

    Nominal value

    Coupon rate

    Maturity value

    Par value

    7

    Term structure interest rates are also known as:

    Yield curve

    Yield to maturity

    Investor expectation line

    Liquidity preference curve

    8

    Rose wants to buy a second home that will eventually become her retirement home and does not want a mortgage to finance this second home. She plans to spend approximately $130,000 in 10 years on this purchase. She has two zero-coupon bonds that mature in 10 years each with cash values of $1,157.98 and face values of $2,500. In 10 years, she will use them as part of her $130,000. The bonds have a semi-annual effective interest rate of 3.923%. What is Rose’s required monthly deposit at the beginning of each month in order to accumulate the $130,000 she needs to buy her home at an assumed interest rate of 10% on her investment?

    $543.39

    $618.17

    $629.38

    $605.17

    9

    Which of the following is true about the impact of expected interest rate increases:

    Banks would be unaffected

    Utilities would pass on the cost

    Due to the nature of cyclical industries, they would not be disturbed

    Investors would avoid fixed assets

    10

    The difference between a general obligation and a revenue bond is:

    A general obligation bond is backed by the full faith, credit and “taxing power” of the government unit

    For a revenue bond, the repayment of the issue is fully dependent on the revenue-generating capability of a specific project or venture

    General obligation bonds are usually of high quality because of the taxing power behind most of them

    All of the above

    11

    Your company is going to start a new project using retained earnings. Which of the following is true:

    There is no way to calculate the Weighted Average Cost of Capital (WACC) before the project begins.

    There will be no project risk so the required rated of return is very low.

    The required rate of return is the company’s WACC

    Use the company’s book value to determine WACC

    12

    Interest payments and bond prices are stated as percentages of par

    1% or 1 point for a bond = $10.00

    An 1/8 of a point for a bond = $1.25

    Mrs. Smith owns a 5% bond; this means that she receives $50 per year in interest. She paid a price of 92 ½ for the bond. How much is this in dollars?

    $9,250.00

    $925.00

    $92.50

    $9.25

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