Question #1 of 44 Question ID: 1458426

In the United States, debenture is defined as:

A) a bond secured by specific assets.

B) a short-term debt instrument.
C) an unsecured bond.

Question #2 of 44 Question ID: 1458442

The coupon rate of a fixed income security is stated as 90-day LIBOR plus 125 basis points.
This security is most accurately described as a(n):

A) floating-rate note.
B) reference-rate note.
C) variable-rate note.

Question #3 of 44 Question ID: 1458430

Which of the following issues is most accurately described as a eurobond?

A) Brazilian firm’s U.S. dollar-denominated bonds sold to investors in Canada.

B) European Union firm’s Japanese yen-denominated bonds sold to investors in Japan.
South Korean firm’s euro-denominated bonds sold to investors in the European
C)
Union.

Question #4 of 44 Question ID: 1458437

Consider a floating rate issue that has a coupon rate that is reset on January 1 of each year.
The coupon rate is defined as one-year London Interbank Offered Rate (LIBOR) + 125 basis
points and the coupons are paid semi-annually. If the one-year LIBOR is 6.5% on January 1,
which of the following is the semi-annual coupon payment received by the holder of the
issue in that year?

A) 3.250%.
B) 3.875%.
C) 7.750%.

Question #5 of 44 Question ID: 1462912

A non-amortizing fixed income security is most accurately described as:

A) a bullet bond.
B) a balloon bond.
C) a mortgage bond.

Question #6 of 44 Question ID: 1458429

To reduce the cost of long-term borrowing, a corporation with a below average credit rating
could:

A) decrease credit enhancement.

B) issue commercial paper.
C) issue securitized bonds.

Question #7 of 44 Question ID: 1458455

PRC International just completed a $234 million floating rate convertible bond offering. As
stated in the indenture, the interest rate on the bond is the lesser of 90-day LIBOR or 10%.
The indenture also requires PRC to retire $5.6 million per year with the option to retire as
much as $10 million. Which of the following embedded options is most likely to benefit the
investor? The:

A) 10% cap on the floating interest rate.

B) conversion option on the convertible bonds.
C) sinking fund provision for principal repayment.

Question #8 of 44 Question ID: 1462914

An investor most concerned with reinvestment risk would be least likely to:

A) prefer a lower coupon bond to a higher coupon bond.

B) prefer a noncallable bond to a callable bond.
C) eliminate reinvestment risk by holding a coupon bond until maturity.

Question #9 of 44 Question ID: 1458434

A company desiring to issue a fixed-income security has placed $10 million worth of loan
receivables in a special purpose entity (SPE) that is independent of the issuer. The credit
rating agencies suggest the company secure a third-party guarantee in order to have the
security rated AAA. After completing the transfer of assets to the SPE and obtaining a letter
of credit from a national bank, the company issues the AAA rated security. The securities are
most likely:

A) global bonds.
B) asset-backed securities.
C) commercial paper.

Question #10 of 44 Question ID: 1462915

What effects will an increase in yield volatility have on the values of a putable bond and a
callable bond?

A) One bond will increase in value and the other will decrease.
B) Both bonds will decrease in value.
C) Both bonds will increase in value.

Question #11 of 44 Question ID: 1458427

Which of the following entities play a critical role in the ability to create a securitized bond
with a higher credit rating than the corporation?

A) Special purpose entities.

B) Rating agencies.
C) Investment banks.

Question #12 of 44 Question ID: 1458441

A bond whose periodic payments are all equal is said to have a(n):

A) bullet structure.
B) balloon structure.
C) amortizing structure.

Question #13 of 44 Question ID: 1458419

An analyst observes a 5-year, 10% coupon bond with semiannual payments. The face value
is £1,000. How much is each coupon payment?

A) £100.
B) £50.
C) £25.
Question #14 of 44 Question ID: 1458443

Consider $1,000,000 par value, 10-year, 6.5% coupon bonds issued on January 1, 20X5. The
market rate for similar bonds is currently 5.7%. A sinking fund provision requires the
company to redeem $100,000 of the principal each year. Bonds called under the terms of
the sinking fund provision will be redeemed at par. A bondholder would:

be indifferent between having her bonds called under the sinking fund provision or
A)
not called.
B) prefer not to have her bonds called under the sinking fund provision.
C) prefer to have her bonds called under the sinking fund provision.

Question #15 of 44 Question ID: 1458453

Which of the following embedded options in a fixed income security can be exercised by the
issuer?

A) Call option.
B) Conversion option.
C) Put option.

Question #16 of 44 Question ID: 1458451

As compared to an equivalent noncallable bond, a callable bond's yield should be:

A) higher.
B) lower.
C) the same.

Question #17 of 44 Question ID: 1458428

Which of the following is least likely an example of an external credit enhancement?

A) Bank guarantee.
B) An excess spread account.
C) Letter of credit.

Question #18 of 44 Question ID: 1458439

Which of the following statements regarding a sinking fund provision is most accurate?

A) It permits the issuer to retire more than the stipulated amount if they choose.
It requires that the issuer retire a portion of the principal through a series of
B)
principal payments over the life of the bond.
It requires that the issuer set aside money based on a predefined schedule to
C)
accumulate the cash to retire the bonds at maturity.

Question #19 of 44 Question ID: 1458425

Restrictions on asset sales and additional borrowings by a bond issuer are best
characterized as:

A) affirmative covenants.
B) positive covenants.
C) negative covenants.

Question #20 of 44 Question ID: 1458456

Which of the following embedded bond options tends to benefit the borrower?

A) Conversion option.
B) Interest rate cap.
C) Put option.
Question #21 of 44 Question ID: 1458433

Which of the following securities is least likely classified as a eurobond? A bond that is
denominated in:

A) euros and issued in Germany.

B) euros and issued in the United States.
C) U.S. dollars and issued in Japan.

Question #22 of 44 Question ID: 1458444

An investor holds $100,000 (par value) worth of TIPS currently trading at par. The coupon
rate of 4% is paid semiannually, and the annual inflation rate is 2.5%. What coupon payment
will the investor receive at the end of the first six months?

A) $2,000.
B) $2,025.
C) $2,050.

Question #23 of 44 Question ID: 1458449

A corporation has borrowed $10 million. It will repay this by making payments of $1.3 million
each year for 9 years and a payment of $8 million at the end of the 10th year. This type of
bond is referred to as:

A) a balloon bond.
B) a partially amortizing bond.
C) a bullet bond.

Question #24 of 44 Question ID: 1458417

Every six months a bond pays coupon interest equal to 3% of its par value. This bond is a:

A) 3% semiannual coupon bond.

B) 6% annual coupon bond.
C) 6% semiannual coupon bond.

Question #25 of 44 Question ID: 1458435

Which of the following statements with regard to floating rate notes that have caps and
floors is most accurate?

A floor is a disadvantage to both the issuer and the bondholder while a cap is an
A)
advantage to both the issuer and the bondholder.
A cap is a disadvantage to the bondholder while a floor is a disadvantage to the
B)
issuer.
C) A cap is an advantage to the bondholder while a floor is an advantage to the issuer.

Question #26 of 44 Question ID: 1458416

A bond is trading at a premium if its:

A) price is greater than its par value.

B) redemption value is greater than its face value.
C) yield is greater than its coupon rate.

Question #27 of 44 Question ID: 1458436

Allcans, an aluminum producer, needs to issue some debt to finance expansion plans, but
wants to hedge its bond interest payments against fluctuations in aluminum prices. Jerrod
Price, the company's investment banker, suggests a commodity index floater. This type of
bond is least likely to provide which of the following advantages?

A) Payment structure helps protect Allcan's credit rating.

B) The bond's coupon rate is linked to the price of aluminum.
C) Allows Allcans to set coupon payments based on business results.

Question #28 of 44 Question ID: 1458424

A covenant that requires the issuer not to let the insurance coverage lapse on assets
pledged as collateral is an example of a(n):

A) affirmative covenant.
B) inhibiting covenant.
C) negative covenant.

Question #29 of 44 Question ID: 1458445

Treasury Inflation Protected Securities, which provide investors with protection against
inflation by adjusting the par value and keeping the coupon rate fixed, are best described as:

A) capital-indexed bonds.
B) indexed-annuity bonds.
C) interest-indexed bonds.

Question #30 of 44 Question ID: 1458450

Which of the following statements about the call feature of a bond is most accurate? An
embedded call option:

A) describes the maturity date of the bond.

stipulates whether and under what circumstances the issuer can redeem the bond
B)
prior to maturity.
stipulates whether and under what circumstances the bondholders can request an
C)
earlier repayment of the principal amount prior to maturity.
Question #31 of 44 Question ID: 1458422

Features specified in a bond indenture least likely include the bond's:

A) coupon rate and maturity date.

B) issuer and rating.
C) par value and currency.

Question #32 of 44 Question ID: 1458454

The indenture of a callable bond states that the bond may be called on the first business day
of any month after the first call date. The call option embedded in this bond is a(n):

A) American style call option.

B) Bermuda style call option.
C) European style call option.

Question #33 of 44 Question ID: 1458440

Which of the following statements about U.S. Treasury Inflation Protection Securities (TIPS) is
most accurate?

A) The inflation-adjusted principal value cannot be less than par.

B) The coupon rate is fixed for the life of the issue.
C) Adjustments to principal values are made annually.

Question #34 of 44 Question ID: 1458431

Securitized bonds are most likely to be issued by:

A) banking institutions.
B) special purpose entities.
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C) supranational entities.

Question #35 of 44 Question ID: 1458423

Which of the following bond covenants is considered negative?

A) Maintenance of collateral.
B) No additional debt.
C) Payment of taxes.

Question #36 of 44 Question ID: 1462913

A step-up coupon bond is structured such that its coupon rate increases:

A) on a predetermined schedule.
B) if the issuer’s credit rating decreases.
C) if a reference interest rate increases.

Question #37 of 44 Question ID: 1458420

Which of the following contains the overall rights of the bondholders?

A) Covenant.
B) Indenture.
C) Rights offering.

Question #38 of 44 Question ID: 1458438

A bond has a par value of $5,000 and a coupon rate of 8.5% payable semi-annually. The
bond is currently trading at 112.16. What is the dollar amount of the semi-annual coupon
payment?

A) $238.33.
B) $425.00.
C) $212.50.

Question #39 of 44 Question ID: 1458432

Which of the following is least likely a form of internal credit enhancement for a bond issue?

A) Covering the bond issue via a surety bond.

B) Including a tranche system to identify priority of claims.
C) Structuring the asset pool such that it has an excess spread.

Question #40 of 44 Question ID: 1458418

Which of the following fixed income securities is classified as a money market security?

A) Newly issued security that will mature in one year.

B) Security issued 18 months ago that will mature in six months.
C) Security issued six months ago that will mature in one year.

Question #41 of 44 Question ID: 1458415

Assuming bond yields are greater than zero, which of the following statements about zero-
coupon bonds is least accurate?

A) A zero coupon bond may sell at a premium to par when interest rates decline.
B) All interest is earned at maturity.
C) The lower the price, the greater the return for a given maturity.
Question #42 of 44 Question ID: 1458452

As compared to an equivalent nonputable bond, a putable bond's yield should be:

A) higher.
B) lower.
C) the same.

Question #43 of 44 Question ID: 1458446

A bond initially does not make periodic payments but instead accrues them over a pre-
determined period and then pays a lump sum at the end of that period. The bond
subsequently makes regular periodic payments until maturity. Such a bond is best described
as a:

A) deferred-coupon bond.
B) step-up note.
C) zero-coupon bond.

Question #44 of 44 Question ID: 1458421

A bond's indenture least likely specifies the:

A) identity of the lender.

B) source of funds for repayment.
C) covenants that apply to the issuer.