INV 101 - Chapters 9 & 10

1. Which of the following entities raises external capital to finance their operations by issuing a combination of equity and debt securities?

• Companies

• Governments

• Both companies and governments

2. Which of the following classifications of debt securities is backed by collateral?

• Secured debt

• Subordinated debt

• Senior unsecured debt

3. Which of the following characteristics most likely remains unchanged during the life of an inflation-linked bond?

• Par value

• Coupon rate

• Coupon payments

4. Which debt security promises its investors only one payment over the life of the bond?

• Fixed-rate bond

• Zero-coupon bond

• Floating-rate bond

5. Which of the following provisions in a debt security is a right of the issuer?

• Put

• Call

• Conversion

6. A key reason that issuers include a call provision in a bond is to:

• Retire an outstanding issue if market interest rates decline

• Not have to pay a premium if the bond is retired before maturity

• Provide bondholders the opportunity to sell the bond if rates rise

7. Ratings assigned to debt securities by credit rating agencies help investors assess:

• Default risk

• Inflation risk

• Interest rate risk

8. Ratings assigned to debt securities by credit rating agencies help investors assess:

• Lower credit risk should be discounted by using higher discount rates

• Higher credit risk should be discounted by using lower discount rates

• Higher credit risk should be discounted by using higher discount rates

9. ABC Company issued a 10-year bond at a price of $1,000. A month after issuance, the market price of the bond had dropped to $980. Over the month, the yield to maturity on the bond:

• Increased

• Decreased

• Stayed the same

10. Compared with its underlying securities, an asset-backed security provides:

• Less diversification, but more liquidity

• Less liquidity, but more diversification

• More diversification and more liquidity