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Exam 10: Fixed-Income Securities

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Question 21

Multiple Choice

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Pass- through securities backed by pools of auto loans, credit card bills, and computer leases are known as

A) Treasury bonds.
B) PIK bonds.
C) ABSs.
D) Fannie Maes.

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Question 22

Multiple Choice

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Which one of the following is the most junior in terms of its claim on earnings and assets?

A) Equipment trust certificate.
B) Collateral trust bond.
C) Subordinated debenture.
D) Mortgage bond.

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Question 23

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As investors approach retirement age, they should hold more bonds and less shares.

Which of the following statements are correct concerning Eurodollar bonds? I. Initial offerings of Eurodollar bonds are sold in U.S. bond markets. II. Eurodollar bonds are denominated in dollars. III. The Eurodollar market is dominated by foreign- based investors. IV. Eurodollar bonds originate outside the United States.

A bond which has a deferred call

Discuss at least three differences between investing in shares and investing in bonds.

When the market rate of return exceeds the coupon rate, a bond will sell at

An American investor who holds euro- denominated bonds will profit if the euro weakens against the dollar.

An increase in the market rate of return on an outstanding bond will

Which of the following are advantages of owning bonds? I. Diversification properties. II. Higher long- term returns than equity holdings. III. Current income. IV. Relatively low risk.

Define zero- coupon bonds and list some advantages and some disadvantages of these instruments.

An increase in the market rate of interest can cause a bondholder to realise a capital loss on the sale of their bonds.

One of the major problems associated with mortgage- backed securities is that

Liquid yield option notes or LYONs have which of the following characteristics? I. Convertibility at a fixed conversion ratio. II. High coupon rates. III. A put feature that guarantees the right to redeem the bonds at a prespecified price. IV. Convertibility at a fixed conversion price.

What are the major factors that affect the price of convertible bonds?

Which of the following is a good reason to invest in convertible bonds?

Mortgage- backed bonds are issued primarily by state governments and are secured by home mortgages.

Bonds are typically a good investment choice for an individual who is seeking long- term preservation of capital.

Junk bond prices tend to be volatile just like common stock prices.

If you feel interest rates are going to drop significantly, you could potentially realise large capital gains by purchasing long- term zero-coupon bonds prior to the rates decreasing.