Investment Grade Bonds Have a Rating Of
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Transcript of Investment Grade Bonds Have a Rating Of
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Investment grade bonds have a rating of ________ or better.
a. A
b. BBB
c. BB
d. CCC
2
Which of the following assets have the least liquidity?
a. house
b. IBM stock
c. T-Bill
d. cash
status: not answered ()
correct: a
your answer:
3
An investor is indifferent between a tax-free yield of 5% and a taxable yield of 8%. What is the investor's
marginal tax rate?
a. 25%
b. 37.5%
c. 40%
d. 62.5%
status: not answered ()
correct: b
your answer:
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4
An investor has a marginal tax rate of 32%. An investor can earn a tax-free yield of 10%. What is the equiva
pretax yield on a taxable security?
a. 3.2%
b. 6.8%
c. 13.2%
d. 14.7%
status: not answered ()
correct: d
your answer:
5
Nominal interest rates are 8% and inflation is expected to be 5%. What is the real rate of interest?
a. 4%
b. 3%
c. 8%
d. 13%
status: not answered ()
correct: b
your answer:
6
Which of the following bonds would have the highest yield?
a. 20-year callable bond
b. 20-year noncallable bond
c. 5-year convertible bond
d. 5-year nonconvertible bond
status: not answered ()
correct: a
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status: not answered ()
correct: b
your answer:
10
The one-year interest rate is 5%, the two-year rate is 6%. Using the pure expectations theory, what is the
implied forward rate from year 1 to year 2?
a. 3%
b. 5%
c. 7%
d. 9%
status: not answered ()
correct: c
your answer:
11
If the one-year interest rate is 10% and next year's one-year rate is expected to be 13%, what is the today
two-year interest rate under the pure expectations theory?
a. 8.5%
b. 10.0%
c. 11.5%
d. 13.0%
status: not answered ()
correct: c
your answer:
12
Use the following term structure and the pure expectations theory to determine the implied two-year
interest rate that begins three years from today.
Time Rate
1 year4.5
%
2
years
5.0
%
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3
years
5.5
%
4
years
6.0
%
5
years
7.0
%
a. 5.9%
b. 7.8%
c. 8.5%
d. 9.3%
status: not answered ()
correct: d
your answer:
13
Suppose the one-year interest rate is 6%, the two-year rate is 7%, and the liquidity premium on a two-yea
security is 25 basis points. What is the one-year forward rate beginning in one year?
a. 7.52%
b. 7.77%
c. 8.02%
d. 8.27%
status: not answered ()
correct: b
your answer:
14
What is the effect of the Treasury's decision to stop issuing 30-year bonds?
a. Short-term rates decrease.
b. All interest rates decrease.
c. Yield curve becomes severely upwardly sloped.
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d. Long-term rates decrease.
status: not answered ()
correct: d
your answer:
15
A corporation is planning to issue 90-day commercial paper to investors at a yield at 6%. If the T-bill rate i
4%, the default risk premium is 90 basis points, and there is a 40 basis point tax adjustment, what is the
liquidity premium?
a. 50 b.p.
b. 60 b.p.
c. 70 b.p.
d. 80 b.p.
status: not answered ()
correct: c
your answer:
16
U.S. Treasury bonds are rated AAA by Standard and Poor's and Aa by Moody's.
True
False
status: not answered ()
correct:false
your answer:
17
A B-rated bond pays twice the interest rate of an A-rated bond.
True
False
status: not answered ()correct:false
your answer:
18
Credit risk premiums generally increase during times of uncertainty.
True
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False
status: not answered ()
correct: true
your answer:
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Callable bonds offer higher yields than noncallable bonds.
True
False
status: not answered ()
correct: true
your answer:
20
Investors benefit from investing in callable bonds when interest rates decline.
True
False
status: not answered ()
correct:false
your answer:
21
If interest rates increase 50 basis points from their current level of 7%, the new interest rate is 7.05%.
True
False
status: not answered ()
correct:false
your answer:
22
The yield for convertible bonds is generally lower than the yield for callable bonds, everything else the same.
True
False
status: not answered ()
correct: trueyour answer:
23
The liquidity premium presents an explanation for the prevalence of an upward sloping yield curve.
True
False
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your answer:
29
The term structure of interest rates shows the relationship between credit quality and the yield on bonds.
True
False
status: not answered ()
correct:false
your answer:
30
Convertible bonds can be exchanged for common stock at the discretion of the bond issuer.
True
False
status: not answered ()
correct:false
your answer:
