41) Which one of the following descriptors is used to identify a bond that pays one single
payment at maturity?
A) zero coupon
B) imputed value
C) solo
D) STRIP
E) term
42) Which one of the following is the difference between the price a bond dealer is willing to pay
to buy and the price at which he or she is willing to sell?
A) commission
B) imputed cost
C) imputed interest
D) bid-ask spread
E) ask price
43) What is the lowest accepted competitive bid in a U.S. Treasury auction called?
A) selected price
B) base price
C) stop-out bid
D) imputed bid
E) set bid
44) Which one of the following is the risk that a bond issuer will cease paying the interest and
principal payments as scheduled?
A) interest rate risk
B) default risk
C) market risk
D) conversion risk
E) earnings risk
45) Municipal bonds that are secured by the full faith and credit of the issuer are referred to as
which one of the following?
A) general obligation bonds
B) local taxation bonds
C) fully funded bonds
D) revenue bonds
E) private activity bonds
46) Which one of the following is a municipal bond that is secured by the income collected from
a specific project?
A) agency bond
B) general obligation bond
C) development bond
D) contingency bond
E) revenue bond
47) Which one of the following is a municipal bond that is secured by both the revenues from a
project and also by the taxing authority of the municipality?
A) mixed bond
B) general obligation bond
C) hybrid bond
D) dual bond
E) multiple bond
48) Which one of the following is a taxable municipal bond used to finance a facility used by a
private business?
A) private activity bond
B) private revenue bond
C) private corporate bond
D) private agency bond
E) private income bond
49) Which of the following features apply to T-bills?
I. original maturities of 4, 13, or 26 weeks
II. minimum face value of $10,000
III. sold at a discount
IV. semiannual interest payments
A) IV only
B) I and III only
C) I and IV only
D) II and III only
E) II and IV only
50) Which one of the following statements applies to U.S. Treasury bonds?
A) They have original maturities of 1 to 10 years.
B) They have a minimum face value of $100,000.
C) They are zero-coupon securities.
D) They pay a fixed coupon payment semiannually.
E) They are adjusted semiannually for inflation.
51) You just purchased a 5-year STRIPS security that was created from a 30-year T-bond. How
many payments will you receive?
A) 1
B) 10
C) 11
D) 60
E) 61
52) Which one of the following statements related to TIPS is correct assuming an inflationary
environment?
A) TIPS have a maturity value of $1,000.
B) TIPS pay an interest payment based on the latest T-bill rate.
C) TIPS pay a fixed coupon rate.
D) The principal amount of a TIPS is adjusted annually for inflation.
E) The interest rate is adjusted semiannually for inflation.
53) Which of the following statements correctly apply to TIPS?
I. They are quoted as a percentage of the current accrued principal.
II. They pay a variable interest rate that responds to movements in the inflation rate.
III. They are backed by the full faith and credit of the U.S. government.
IV. They adjust for inflation on an annual basis.
A) I and III only
B) II and IV only
C) III and IV only
D) I, II, and III only
E) II, III, and IV only
54) Which one of the following applies to U.S. Treasury auctions?
A) Every bidder has a choice of submitting either a competitive or a noncompetitive bid.
B) The purchase price paid by all bidders is the highest bid price.
C) Each bidder with an accepted bid will pay the individual price he or she bid.
D) All noncompetitive bids are accepted automatically.
E) Noncompetitive bids are ignored unless there are not enough competitive bids to buy the
entire issue.
55) What price will a noncompetitive bidder pay for a security being purchased through a U.S.
Treasury auction?
A) highest competitive bid price
B) highest noncompetitive bid price
C) stop-out bid price
D) average of all bid prices
E) lowest competitive bid price
56) U.S. government agency bonds pay interest which is subject to which of the following taxes?
A) federal only
B) state only
C) state and local only
D) state and federal only
E) state, local, and federal
57) Kathy lives in State A and owns a municipal bond issued by State B. The interest earned on
this bond is most apt to be exempt from taxation at which of the following levels?
A) local only
B) state only
C) federal only
D) local and state only
E) federal, state, and local
58) Which one of the following generally applies to municipal bonds?
A) noncallable
B) risk-free
C) high credit rating
D) zero coupon
E) par value of $1,000
59) A moral obligation bond is which type of a bond?
A) municipal revenue
B) municipal GO
C) municipal hybrid
D) U.S. Treasury
E) U.S. agency
60) Which of the following uses of proceeds from private activity bonds will most likely qualify
those bonds as federally tax-exempt?
I. public airport runway
II. baseball stadium
III. multifamily housing project
IV. mass rail transit
A) I and II only
B) I and III only
C) II and III only
D) II and IV only
E) I, III, and IV only
61) A bond that is currently selling for $925.44 has a conversion price of $50.00. If the par value
is $1,000, what is the conversion ratio?
A) 20
B) 21
C) 22
D) 23
E) 24
62) A bond has a par value of $1,000 and a market value of $833.40. The conversion price is
$45.45. What is the conversion ratio?
A) 21
B) 22
C) 23
D) 24
E) 25
63) A bond has a conversion price of $47.62, a par value of $1,000, and a market price of
$833.40. What is the conversion ratio?
A) 20
B) 21
C) 22
D) 23
E) 24
64) What is the conversion ratio of a $1,000 par value bond that is selling for $888.96 and has a
conversion price of $66.67?
A) 15
B) 16
C) 17
D) 18
E) 19
65) A convertible bond has a par value of $1,000 and a market price of $1,116.76. If the
conversion ratio is 19, what is the conversion price?
A) $43.48
B) $45.45
C) $47.62
D) $52.63
E) $55.56
66) A convertible bond has a par value of $1,000, a market value of $875, and a conversion ratio
of 14. What is the conversion price?
A) $55.56
B) $58.82
C) $62.50
D) $66.67
E) $71.43
67) A bond is currently priced at $1,076.88 and has a par value of $1,000. If the conversion ratio
is 37, what is the conversion price?
A) $35.71
B) $37.04
C) $38.46
D) $40.00
E) $41.67
68) A bond has a conversion ratio of 24 and a market price of $1,080. If the par value is $1,000,
what is the conversion price?
A) $40.00
B) $41.67
C) $42.60
D) $43.20
E) $43.80
69) A bond has a conversion ratio of 22, a $1,000 par value, and a market price of $1,038. The
stock is selling for $46.14. What is the conversion value?
A) $1,009.16
B) $1,015.08
C) $1,038.60
D) $1,049.35
E) $1,053.50
70) A $1,000 par value bond has a market price of $991 and a conversion ratio of 17. The stock
is selling for $55.20. What is the conversion value?
A) $903.17
B) $911.10
C) $925.60
D) $938.40
E) $946.49
71) A bond has a par value of $1,000 and a market price of $1,087.20. The conversion price is
$40 and the stock price is $41.75. What is the conversion value?
A) $1,043.75
B) $1,250.00
C) $1,481.10
D) $1,500.00
E) $1,652.00
72) A 4.5 percent, semi-annual coupon bond has a face value of $1,000 and a time to maturity of
4 years. The bonds are convertible into shares of common stock at a conversion price of $42.50.
The stock price currently is $40.70. Similar, non-convertible bonds have a yield to maturity of
4.5 percent. The intrinsic value of this bond is ________ and the conversion value is ________.
A) $832.62; $982.80
B) $961.06; $957.65
C) $1,014.16; $1,017.50
D) $1,014.16; $982.80
E) $1,006.96; $1,017.50
73) A semi-annual coupon bond has a 6 percent coupon rate, a $1,000 face value, a current value
of $1,036.09, and 3 years until the first call date. What is the call price if the yield to call is 6.5
percent?
A) $1,000
B) $1,020
C) $1,040
D) $1,060
E) $1,080
74) A bond has 6 years until it can be called, a 7 percent coupon, and a $1,000 face value. The
bond has a market value of $1,031.90 and a yield to call of 7.35 percent. What is the call
premium?
A) $45
B) $55
C) $65
D) $75
E) $85
75) A bond has a face value of $1,000 and a call price of $1,030. The bond is callable in 3.5
years and pays a 5 percent, semi-annual coupon. What is the current price if the yield to call is 6
percent?
A) $912.36
B) $927.19
C) $966.25
D) $993.24
E) $1,009.01