Essay FIN 390 WEEK 6 QUIZ DEVRY
FIN 390 WEEK 6 QUIZ DEVRY
Question 15 pts
(TCO 7) What is the primary risk that a bondholder faces?
| Risk of the issuing firm declaring bankruptcy | |
| A downturn in the economy causing the firm to lose money |
| Interest rate risk | |
| None of the above |
Question 25 pts
(TCO 7) To calculate a bond’s duration, you must
| average the present values of all the coupon payments. | |
| take a weighted average of the present values of all the cash inflows. |
| divide the face value by the PV of the coupon annuity. | |
| None of the above |
Question 35 pts
(TCO 7) Cash flow matching isn’t the ideal solution to reduce bond portfolio interest rate risk because
| some firms can’t afford to buy the extra zero-coupon bonds. | |
| the Federal Reserve may raise interest rates beyond the coupon rate. |
| this strategy puts constraints on the bonds that the investor may wish to buy. | |
| None of the above |
Question 45 pts
(TCO 7) Why do investors like convexity?
| Because the potential price drop is greater than price gain when yields rise | |
| Because the bonds displaying it are usually priced at a premium |
| Because they have more potential upside than potential downside | |
| None of the above |
Question 55 pts
(TCO 7) Passive bond managers prefer to
| manage the prices of the bonds in their portfolios. | |
| manage only the interest rate risk of their fixed-income securities. |
| Both of the above | |
| None of the above |
Question 65 pts
(TCO 9) Which of the following possible provisions of a bond indenture is designed to ease the burden of principal repayment by spreading it out over several years?
| Callable feature | |
| Convertible feature |
| Subordination clause | |
| Sinking fund |
Question 75 pts
(TCO 9) Bonds issued in the United States are _____, and most bonds issued overseas are
| bearer bonds; registered. | |
| Registered bonds; bearer bonds. |
| the covariance of the risk-free rate; the rate of inflation. | |
| None of the above |
Question 85 pts
(TCO 9) A convertible bond has a par value of $1,000 but its current market price is $950. The current price of the issuing company’s stock is $19, and the conversion ratio is 40 shares. The bond’s conversion premium is
| $50.00. | |
| $190.00. |
| $200.00. | |
| $240.00. |
Question 95 pts
(TCO 7) Bond portfolio immunization techniques balance _____ and
_____ risk.
| price; reinvestment | |
| price; liquidity |
| credit; reinvestment | |
| credit; liquidity |
Question 105 pts
(TCO 5) A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be _____ if its yield is 9%.
| 7 | |
| 9 |
| 9.39 | |
| 12.11 |
Question 115 pts
(TCO 7) A company has current assets of: cash $500, accounts receivable $200, and inventory $400. The company also has current liabilities of: accounts payable $300 and notes payable $600. What is the company’s quick ratio?
| .78 | |
| .88 |
| .90 | |
| .55 |
Question 125 pts
(TCO 7) You earn 6% on your corporate bond portfolio this year, and you are in a 25% federal tax bracket and an 8% state tax bracket. Your after tax return is _____. (Assume that federal taxes are not deductible against state taxes and vice versa.)
| 4.5% | |
| 4.14% |
| 4.02% | |
| 3.12% |
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