54) The floor value of a convertible bond
A) is the “straight bond” value.
B) is the conversion value.
C) is the minimum of the “straight bond” value and the conversion value.
D) is the maximum of the “straight bond” value and the conversion value.
55) There are two types of equity related bonds:
A) convertible bonds and dual currency bonds.
B) convertible bonds and kitchen sink bonds.
C) convertible bonds and bonds with equity warrants.
D) callable bonds and exchangeable bonds.
56) Bonds with equity warrants
A) are really the same as convertible bonds if the stated price of exercising the warrant is the par
value of the bond.
B) can be viewed as straight debt with a call option (technically a warrant) attached.
C) can only be exercised on coupon dates.
D) typically are convertible as well.
57) A convertible bond pays interest annually at a coupon rate of 5 percent on a par value of
$1,000. The bond has 10 years maturity remaining and the discount rate on otherwise identical
non-convertible debt is 6.5 percent. The bond is convertible into shares of common stock at a
conversion price of $25 per share (i.e. the bond is exchangeable for 40 shares). Today’s closing
stock price was $20. What is the floor value of this bond?
A) $800.00
B) $892.17
C) $1,250
D) none of the options
58) A convertible bond pays interest annually at a coupon rate of 5 percent on a par value of
$1,000. The bond has 10 years maturity remaining and the discount rate on other-wise identical
non-convertible debt is 5 percent. The bond is convertible into shares of common stock at a
conversion price of $25 per share (i.e., the bond is exchangeable for 40 shares). Today’s closing
stock price was $31.25. What is the floor value of this bond?
A) $800.00
B) $1,000
C) $1,250
D) none of the options
59) Consider a bond with an equity warrant. The warrant entitles the bondholder to buy 25 shares
of the issuer at €50 per share for the lifetime of the bond. The bond is a 30-year zero coupon bond
with a €1,000 par value that has a yield to maturity of i€ = 5 percent. The price of the bond is €500.
What is the value of the warrant?
A) €231.38
B) €268.62
C) €500
D) none of the options
60) Find the price of a 30-year zero coupon bond with a €1,000 par value that has a yield to
maturity of i€ = 5 percent.
A) €231.38
B) €432.20
C) €4,321.94
D) none of the options
61) U.S. citizens must pay tax on the imputed interest represented by the fact that zero coupon
bonds price gets a bit closer to par value as each year goes by. If you have a 25-year zero coupon
bond with $1,000 par value, how much imputed interest will you record in the coming year if
interest rates stay the same at ten percent?
A) $92.30
B) $10
C) $0
D) none of the options
62) Zero-coupon bonds issued in 2016 are due in 2026. If they were originally sold at 55 percent of
face value, the implied yield to maturity at issuance is
A) 1.062 percent.
B) 6.17 percent.
C) 8.31 percent.
D) cannot be determined, need more information.
63) Zero coupon bonds
A) pay interest at zero percent.
B) are sold at a discount from par value.
C) are attractive to Japanese investors who are not required to pay taxes on capital gains.
D) pay interest at zero percent and are sold at a discount from par value.
64) Zero coupon bonds
A) have no interest income.
B) are sold at a premium to par value.
C) give only capital gains income.
D) have no interest income and give only capital gains income.
65) When the bond sells at par, the implicit €/$ exchange rate at maturity of a Euro/U.S. dollar dual
currency bond that pays $651.25 at maturity per €1,000, is
A) €1.54/$1.00.
B) €1.22/$1.00.
C) €1.79/$1.00.
D) €1/$1.00.
66) When the bond sells at par, the implicit SF/$ exchange rate at maturity of a Swiss franc/U.S.
dollar dual currency bond that pays $581.40 at maturity per SF1,000, is
A) SF0.58/$1.00.
B) SF1.58/$1.00.
C) SF1.72/$1.00.
D) SF1.95/$1.00.
67) Consider a British pound—U.S. dollar dual currency bonds that pay £581.40 at maturity per
$1,000 of par value. If at maturity, the exchange rate is $1.90 = £1.00,
A) you should insist on getting paid in dollars.
B) investors holding this bond are better off for the exchange rate.
C) the issuer of the bond is worse off for the exchange rate.
D) investors holding this bond are better off for the exchange rate and the issuer of the bond is
worse off for the exchange rate.
68) Assuming that the bond sells at par, the implicit $/€ exchange rate at maturity of a Euro—U.S.
dollar dual currency bond that pays €651.25 at maturity per $1,000 of par value is
A) $1.72/€1.00.
B) $1.54/€1.00.
C) $1.27/€1.00.
D) $1.62/€1.00.
69) Assuming that the bond sells at par, the implicit $/£ exchange rate at maturity of a British
pound—U.S. dollar dual currency bond that pays £581.40 at maturity per $1,000 of par value is
A) $1.95/£1.00.
B) $1.72/£1.00.
C) $1.58/£1.00.
D) $0.5814/£1.00.
70) Your firm has just issued five-year floating-rate notes indexed to six-month U.S. dollar LIBOR
plus 1/4 percent. What is the amount of the first coupon payment your firm will pay per U.S.
$1,000 of face value, if six-month LIBOR is currently 7.2 percent?
A) $36.00
B) $37.25
C) $74.50
D) none of the options
71) Which of the following is not one of the five main sovereign rating factors?
A) Religiosity assessment
B) Institutional assessment
C) Economic assessment
D) Monetary assessment
72) Which of the following best reflects a country’s ability to obtain funds from abroad necessary
to meet its public- and private-sector obligations to nonresidents?
A) Fiscal assessment
B) External assessment
C) Monetary assessment
D) Institutional assessment
73) The fiscal assessment considers
A) fiscal flexibility.
B) long-term fiscal trends and vulnerabilities.
C) debt structure.
D) all of the options
74) Which of the following factors is not considered in the fiscal assessment?
A) Equity structure
B) Fiscal flexibility
C) Debt structure
D) Funding access
75) The extent to which a sovereign’s monetary authority can fulfill its mandate while supporting
sustainable economic growth and attenuating major economic or financial shocks is best described
as the
A) external assessment.
B) monetary assessment.
C) institutional assessment.
D) fiscal assessment.
76) A potentially significant factor in slowing or preventing a deterioration of sovereign
creditworthiness in times of stress is (are)
A) stringent monetary policy.
B) flexible monetary policy.
C) large credit lines.
D) liquid assets.
77) What type of economies tend to produce higher wealth levels because they enable more
efficient allocation of resources to promote sustainable, long-term economic growth?
A) Centrally planned
B) Command
C) Market-oriented
D) none of the options
78) Which of the following reflects the sustainability of a sovereign’s deficits and debt burden?
A) Institutional assessment
B) External assessment
C) Fiscal assessment
D) Monetary assessment
79) “Investment grade” ratings are in these categories.
A) Moody’s: AAA to BBB and S&P Global Ratings: Aaa to Baa
B) Moody’s: Aaa to Baa and S&P Global Ratings: AAA to BBB
C) Moody’s: AAA to A and S&P Global Ratings: Aaa to A
D) Moody’s: Aaa to A and S&P Global Ratings: AAA to A
80) S&P Global Ratings has, for years, provided credit ratings on international bonds.
A) The ratings reflect the safety of principal for a U.S. investor.
B) Their ratings reflect the creditworthiness of the borrower and not exchange rate uncertainty.
C) Their ratings reflect creditworthiness of the lender and predict the exchange rate expected to
prevail at maturity.
D) The ratings are biased since 40 percent of Eurobond issues are rated AAA and 30 percent are
AA.
81) A disproportionate share of Eurobonds have high credit ratings in comparison to domestic and
foreign bonds. (Approximately 40 percent of Eurobond issues are rated AAA and 30 percent are
AA). Explanations for this include
A) the issuers receiving low credit ratings invoke their publication rights and have had them
withdrawn prior to dissemination.
B) the Eurobond market is accessible only to firms that have good credit ratings and name
recognition to begin with; hence, they are rated highly.
C) there is “grade inflation” on the part of the bond rating agencies which are paid by the issuers
and have to compete for business.
D) the issuers receiving low credit ratings invoke their publication rights and have had them
withdrawn prior to dissemination, and the Eurobond market is accessible only to firms that have
good credit ratings and name recognition to begin with; hence, they are rated highly.
82) The credit rating of an international borrower
A) depends on the volatility of the exchange rate.
B) depends on the volatility, but not absolute level, of the exchange rate.
C) is usually never higher than the rating assigned to the sovereign government of the country in
which it resides.
D) is unrelated to the rating assigned to the sovereign government of the country in which it
resides.
83) Investors in corporate bonds would still be interested in sovereign credit ratings
A) because the sovereign credit rating usually represents a ceiling on corporate credit ratings
within that country.
B) because they might play the TED spread.
C) because they are the rating assigned by the country’s regulators.
D) none of the options
84) One of the five main sovereign rating factors, institutional assessment, comprises an analysis
of how a government’s institutions and policymaking affect a sovereign’s credit fundamentals by
A) delivering sustainable public finances.
B) promoting balanced economic growth.
C) responding to economic or political shocks.
D) all of the options
85) The key driver of a sovereign’s economic assessment is
A) income levels.
B) growth prospects.
C) economic diversity and volatility.
D) all of the options
86) In any year, the Eurobond segment of the international bond market accounts for
approximately what percent of new bond offering?
A) 10 percent
B) 25 percent
C) 50 percent
D) 80 percent
87) The underwriting syndicate of a bond offering is
A) a group of investment banks, merchant banks, and the merchant banking arms of commercial
banks that agree to buy the bond from the issuer and then resell it.
B) a group of investment fund managers, brokers, and dealers who specialize in the secondary
bond market.
C) a group of investment banks, merchant banks, and the merchant banking arms of commercial
banks that specialize in some phase of a public issuance.
D) none of the options
88) Underwriters for an international bond issue will commit their own capital to buy the issue
from the borrower at a discount from the issue price. The discount, or underwriting spread, is
typically
A) in the 1 to 1.5 percent range.
B) in the 2 to 2.5 percent range.
C) in the 3 to 3.5 percent range.
D) in the 4 to 4.5 percent range.
89) Underwriters for a domestic bond issue will commit their own capital to buy the issue from the
borrower at a discount from the issue price. The discount, or underwriting spread, is typically
A) in the 1 to 1.5 percent range.
B) in the 2 to 2.5 percent range.
C) in the 3 to 3.5 percent range.
D) in the 4 to 4.5 percent range.
90) The role of an underwriter is to
A) help negotiate terms with the borrower.
B) ascertain market conditions.
C) manage the issuance.
D) all of the options
91) The secondary market for Eurobonds
A) is an over-the-counter market.
B) is an organized exchange.
C) has never developed—there is only a primary market for Eurobonds.
D) none of the options
92) Eurobond market makers and dealers are members of the ________, a self-regulatory body
based in Zurich.
A) International Currency Market Association (ICMA)
B) International Bond Marketers Association (IBMA)
C) International Bond Regulators Association (IBRA)
D) International Capital Market Association (ICMA)
93) In the bond market, there are brokers and market makers. Which of the following are true?
A) Brokers accept buy or sell orders from market makers and then attempt to find a matching party
for the other side of the trade; they may also trade for their own account.
B) Brokers charge a small commission for their services to the market maker that engaged them.
C) Brokers do not deal directly with retail clients.
D) all of the options
94) Market makers in the secondary bond market
A) stand ready to buy or sell for their own account.
B) quote bid and ask spreads.
C) trade directly with one another, through a broker or with retail customers.
D) all of the options
95) With regard to clearing procedures for bond transactions
A) it is a system for transferring ownership of bonds.
B) it is a system for ensuring payment from buyers to sellers.
C) most Eurobond trades clear through two major clearing systems.
D) all of the options
96) With regard to clearing procedures for bond transactions, when a transaction is conducted,
electronic book entries are made that transfer book ownership of the bond certificates from the
seller to the buyer and transfer funds from the purchaser’s cash account to the seller’s. However,
A) physical transfer of the bonds seldom takes place.
B) the physical transfer of the bonds takes place as much as 3 days later.
C) the physical transfer of the bonds takes place as much as 6 weeks later.
D) the physical transfer of bonds only occurs if the depository banks that physically store bond
certificates are different for the buyer and seller.
97) Two major clearing systems for international bond transactions are
A) Euroclear and Clearstream International.
B) Euroclear and Clearasil.
C) Deutsche Börse Clearing and Cedel International.
D) none of the options
98) A bond market index
A) is a reference rate, like LIBOR, that adjustable rate bonds use to set the coupon.
B) is analogous to a stock market index, but with bond price data instead of stock price data.
C) represents a price-weighted average of all bonds that exist.
D) none of the options
99) The J. P. Morgan and Company Global Government Bond Index is ________ representation of
the individual country government bond indexes.
A) a value weighted
B) a price weighted
C) an unweighted
D) none of the options
100) The Wall Street Journal publishes daily values of yields to maturity for Japanese, German,
British, and Canadian Government bonds.
A) Bond market participants can thereby compare the yield curve of the various countries.
B) Bond market participants can thereby compare the term structure of interest rates of the various
countries.
C) Bond market participants can thereby compare the yield curve of the various countries, as well
as the term structure of interest rates of the various countries.
D) none of the options