Unit 2 q questions

Unit 2 q questions

Professional Development

15 Qs

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Unit 2 q questions

Unit 2 q questions

Assessment

Quiz

Professional Development

Professional Development

Hard

Created by

Amanda Jackson

FREE Resource

15 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following is an example of an unsecured debt security?

I. Debenture

II. Preferred stock

III. Mortgage bond

IV. Income bond

I and II

II and IV

I and III

I and IV

Answer explanation

A debenture and income bonds are examples of unsecured debt instruments. Preferred stock is an equity security and a mortgage bond is secured (collateralized) by real estate.

2.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

When interest rates in the open market move up or down, a bond's coupon rate will

move with the open-market interest rates.

be adjusted to match the open-market rates.

move inversely to the open-market interest rates.

be unaffected by the open-market interest rates.

Answer explanation

Though the price of a bond will react to market forces, such as supply and demand, and be interest-rate sensitive (inverse), the coupon is always the same: A fixed percentage of par value established by the issuer when the bond was first issued.

3.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

A customer has a short-term investment time horizon and a fairly certain need for funds she wishes to invest. Which of the following might meet those two investment objectives?

Common stock

Government Bonds

Money Market Instruments

Corporate Bonds

Answer explanation

With a short-term time horizon and an already identified need for the funds, the only choice of those listed here would be money market instruments with a fixed rate of return. Bonds are generally long-term instruments, and equity investments, such as common stock, do not offer a fixed rate of return and can be volatile.

4.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

STRIPS are delivered in

physical certificates.

book entry

bearer form

registered as to principal only form.

Answer explanation

All U.S. government issues are delivered in book entry.

5.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

T-notes are the U.S. government's

only callable debt.

long-term debt of over 10 years.

short-term debt of 1 year or less.

intermediate-term debt of 2–10 years.

Answer explanation

T-notes have maturities of 2–10 years when issued. The 10-year T-note yield is an important benchmark for interest rates.

6.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

Which of the following is a debt instrument that pays no periodic interest?

Treasury notes

Treasury STRIPS

Treasury bonds

Corporate Bonds

Answer explanation

STRIPS are Treasury bonds with the coupons removed. With no coupons, STRIPS do not make regular interest payments. Instead, they are sold at a deep discount and mature at par value.

7.

MULTIPLE CHOICE QUESTION

2 mins • 1 pt

An investor holds a 5% bond callable in six years and maturing in eight years. The bond's current yield (CY) measures its annual coupon payment relative to

its market price.

its value when callable

par value

its value at maturity

Answer explanation

The CY measures a bond's annual coupon payment (interest) relative to its market price, as shown in the following equation: annual coupon payment ÷ market price = current yield.

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