Question 1 (2.5 points) Federal government debt is believed to have minimal defa

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Question 1 (2.5 points)

Federal government debt is believed to have minimal default risk because the government has the power to tax and to create money.

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Question 2 (2.5 points)

If an investor is in the 25 percent income tax bracket and can earn 5 percent on a corporate bond, then 3 percent on a municipal bond is attractive.

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Question 3 (2.5 points)

Agencies of the federal government are not allowed to issue bonds.

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Question 4 (2.5 points)

Build American bonds are not exempt from federal income taxation.

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Question 5 (2.5 points)

Municipal bonds are exempt from federal income but not necessarily from state income taxation.

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Question 6 (2.5 points)

Sources of risk to investors in municipal bonds include
1. fluctuations in interest rates
2. reinvestment rate risk
3. default risk

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Question 7 (2.5 points)

Municipal bonds are considered to be safe investments because they may be readily sold with little chance of loss.

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Question 8 (2.5 points)

Municipal bonds are often examples of serial bonds.

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Question 9 (2.5 points)

Treasury bills are sold for a premium.

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Question 10 (2.5 points)

Yields on municipal bonds exceed yields on corporate bonds with the same term to maturity and credit rating.

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Question 11 (2.5 points)

The price of a convertible bond is often
1. greater than its value as stock  
2. less than its value as stock
3. greater than its value as debt
4. less than its value as debt

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Question 12 (2.5 points)

If a convertible bond is called, the bondholder must convert the bond or lose the appreciation achieved by the stock.

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Question 13 (2.5 points)

Convertible preferred stock
1. pays a fixed dividend
2. pays a variable dividend
3. may be converted into the firm's bonds
4. may be converted into the firm's stock

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Question 14 (2.5 points)

If interest rates fall, the investor will not exercise the option in a put bond.

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Question 15 (2.5 points)

When a convertible bond is called,
1. interest ceases to accrue
2. the bondholder receives the principal
3. the bondholder generally converts the bond
4. dividends are paid to the bondholder

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Question 16 (2.5 points)

If interest rates rise, the value of a convertible bond as debt increases.

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Question 17 (2.5 points)

The premium paid over a convertible bond's value as stock tends to fall as the price of the stock rises.

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Question 18 (2.5 points)

Convertible bonds tend to pay more interest than comparable non-convertible bonds.

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Question 19 (2.5 points)

When interest rates rise, the price of a put bond will tend to fluctuate more than a bond without the put option.

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Question 20 (2.5 points)

A convertible bond may be converted at the firm's option into common stock.

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Explanation / Answer

1) True

2)False

3)False

4)True

5)True

6)C

7)True

8)True

9)False

10)False

11)C

12)True

13)b

14)True

15)a

16)False

17) False

18) False

19) True

20) False

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