FM 4 - 5

Which sentence is not true for the unsecured bonds?

• Unsecured bonds are issued without any pledged assets

• Unsecured bonds are secured by the prestige of the issuing organizations      

• Unsecured bonds are secured by the common assets of the issuers in the event of bankruptcy

• Unsecured bonds will receive nothing from issuers in the case of bankruptcy

Which of the following sentences is true for Treasury Inflation protected securities (TIPS)?

• Coupon rate is set at a fixed rate, and the principal is fixed

• Coupon rate is adjusted for inflation, and the principal is fixed

• Coupon rate is set at a fixed rate, and the principal is adjusted semiannually for inflation

• Coupon rate is adjusted for inflation, and the principal is adjusted for inflation

Which sentence is not true for high yield bond?

• The firm issuing the bond is of high quality

• The bond is rated below investment grade by the credit rating agencies

• This type of bonds is riskier than low yield bond

• B&C

Par value of bond is …

• The amount on which the issuer sell bond to investor

• The amount on which the issuer has to be repaid at the end of the term

• The buying price of the bonds at the time of issuance

• The amount paid to bond holder between two interest payment times

Why are bonds considered to be more stable and less risky than stocks?

• Bonds do not gain any kind of ownership rights to the issuer, unlike in the case of equities

• Bonds have priority on payment over the dividends paid to shareholders

• Bonds have a greater claim on remaining assets than a shareholder in the case of liquidation

• B and C

Term to maturity of bond is…

• The period calculated from selling date to the Maturity date

• 1 year

• The period calculated from buying date to selling date

• The period calculated from issue date to maturity date

As compared to non-convertible bonds, yield on convertible bond is

• Relatively lower

• Relatively higher

• Relatively zero

• Relatively discounted

Which of the following statement is not correct?

• Bond is a type of securities that certify the legitimate rights and interests owners for a part of the issuer’s equity

• A debt instrument issued for a period of more than one year with the purpose of rasing capital by borrowing

• Bond is a promise to repay the principal along with interest (coupons) on a specified date (maturity)

• Bond usually has fixed interest (coupons) rate over its term to maturity

Which type of bond is issued by local authorities?

• Short-term bond

• Municipal bond

• Government bond

• Corporate bond

Junk bonds which are rated lower than triple B are also classified as:

• High yield bonds

• Low yield bonds

• Zero floating bonds

• High floating rate bonds