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Financial Systems
Financial Systems
18
Finance
Undergraduate 4
06/17/2013

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Cards

Term
If interest rates increase, the value of a bond decreases and vice versa
Definition
True
Term
Suppose two bonds of equivalent risk and maturity have different prices such that one is a premium bond and one is a discount bond. The premium bond must have a greater expected return than the discount bond.
Definition
False
Term
A bond with an 11% coupon and a 9% required return will sell at a premium to par.
Definition
True
Term
A fairly priced bond with a coupon less than the expected return must sell at a discount from par
Definition
True
Term
The longer the time to maturity the lower the security's price sensitivity to an interest rate change, ceteris paribus
Definition
False
Term
The greater a security's coupon the lower the security's price sensitivity to an interest rate change, ceteris paribus.
Definition
True
Term
For a given interest rate change, a 20 year bond's price change will be twice that of a 10 year bond's price change.
Definition
False
Term
Any security that returns a greater percentage of the price sooner is less price volatile
Definition
True
Term
A Treasury security in which periodic coupon interest payments can be separated from each other and from the principal payment is called a
Definition
STRIP
Term
Which one of the following bonds is likely to have the highest required rate of return, ceteris paribus?
Definition
AA rated callable corporate bond without a sinking fund
Term
Interest income from Treasury securities is _____, and interest income from municipal bonds is always _____.
Definition
Taxable at federal level only; exempt from federal taxes
Term
When an investment banker purchases an offering from a bond issuer and then resells it to the public this is known as a
Definition
Firm commitment
Term
The largest type of municipal bonds outstanding are _______________.
Definition
General obligation bonds
Term
Which of the following is/are true about callable bonds?
I. Must always be called at par
II. Will normally be called after interest rates drop
III. Can be called by either the bondholder or the bond issuer
IV. Have higher required returns than non-callable bonds
Definition
II and IV only
Term
Convertible bonds are
I. Options attached to bonds that give the bondholder the right to purchase stock at a preset price without giving up the bond
II. Bonds in which the issue matures (converts) a little each year
III. Bonds collateralized with certain types of automobiles
IV. Bonds that may be converted to a certain number of shares of stock determined by the conversion ratio
Definition
IV only
Term
With respect to private placements of bonds, which of the following is correct?
I. Issuers of privately placed bonds tend to be less well known than public bond issues
II. Interest rates on privately placed debt tend to be higher than for similar public issues
III. Purchasers of privately placed debt have assets of at least $100 million
IV. Once bonds have been privately placed, the original buyers must hold the bonds until maturity
Definition
I, II and III only
Term
An unsecured bond that has no specific collateral other than the general creditworthiness of the issuing firm is called a debenture.
Definition
True
Term
T-notes and T-bonds are issued in minimum denominations of $1,000 or multiples of $1,000.
Definition
True
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