Chapter 2 Practice Questions
1.Which of the following are characteristics of callable bonds?
I.They can be redeemed by the issuer before the maturity date.
II.They can be redeemed by the investor before the maturity date.
III.They tend to have a lower coupon rate than non-callable bonds.
IV.They tend to have a higher coupon rate than non-callable bonds.
A.I and III
B.I and IV
C.II and III
D.II and IV
2.Which of the following is least likely to be classified as a 501(c)(3) organization?
A.An entity raising money to construct a toll road
B.A church raising money for renovations
C.An organization raising money for grants to writers
D.A group raising money for research into a cure for cancer
3.Julie buys a $5,000 municipal bond at discount for $4,000. She receives a semiannual interest payment of $125. What is the nominal yield of the bond?
A.6.25%
B.5%
C.3.125%
D.2.5%
4.Charles bought a $1,000 putable bond with a 6% interest payment. Market interest rates fall to 4%, but the bond has not yet reached maturity. What is most likely to happen next?
A.Charles will choose to keep the bond.
B.Charles will choose to redeem the bond.
C.The issuer will choose to redeem the bond.
D.The issuer will choose not to redeem the bond.
5.Which of the following is true of municipal bonds?
A.The issuer must publish a prospectus.
B.The issuer must publish an official statement.
C.They are tax-exempt at the federal level but not state level.
D.They are only regulated by the SEC if they are funded by taxpayers.
6.Which of the following is least likely to be a revenue bond?
A.A bond backed by a liquor tax
B.A bond backed by lease payments
C.A bond backed by pre-existing ad valorem taxes
D.A bond that was issued without voter approval
7.In which of the following instances would a municipality definitely not issue RANs?
A.The municipality needs funds now to finish a toll road, but it will