SIE: Chapter 2 Practice Questions

Chapter 2 Practice Questions

1. 1. Which of the following is not true of pre-refunded bonds?
2. A. They are typically AAA rated.
3. B. They are not defeased.
4. C. They no longer count as debt on the issuer’s balance sheet.
5. D. The funds that will be used to refund the bonds are held in escrow.
6. 2. Which of the following bonds could have a coupon payment that comes in the mail?
7. I. Fully registered bonds
8. II. Partially registered bonds
9. III. Book-entry bonds
10. IV. Bearer bonds
11. A. I and II
12. B. I and III
13. C. II and IV
14. D. III and IV
15. 3. XYZ Corporation has issued four different types of bonds. They are all callable bonds. Which bond will XYZ be most likely to call?
16. A. 5% bond callable at 102
17. B. 5% bond callable at par
18. C. 8% bond callable at 102
19. D. 8% bond callable at par
20. 4. For a corporate bond with a par value of $1,000, how much is 60 basis points?
21. I. 0.6%
22. II. $6
23. III. $60
24. IV. 6%
25. A. I and II
26. B. I and III
27. C. II and III
28. D. II and IV
29. 5. XYZ has issued a 5% convertible bond with a conversion price of $25. Its current share price is $45. At what price would the bond be trading at parity?
30. A. $1,000
31. B. $1,125
32. C. $1,800
33. D. $1,050
34. 6. What is it called when an issuer regularly puts money into an escrow account in order to redeem bonds before maturity?
35. A. A sinking fund redemption
36. B. Advance refunding
37. C. Defeasement
38. D. A make-whole provision
39. 7. What is it called when new bonds are issued with the purpose of using the proceeds to pay off older bonds?
40. A. Refunding
41. B. Defeasement
42. C. A sinking fund redemption
43. D. A bond swap
44. 8. Which of the following is not a secured bond?
45. A. Collateral trust bond
46. B. Equipment trust certificates
47. C. Mortgage bond
48. D. Debenture
49. 9. Which two of the following statements are accurate?
50. I. Moody’s highest rating is AAA.
51. II. S&P’s highest rating is AAA.
52. III.