Question 1

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. How much interest would the investor receive?
A)$10
B)$15
C)$20
D)$30
E)$60

Accepted Answer

The interest earned on a $1,000 Treasury bill at a 6% annual rate over a three-month period is calculated as follows: $1,000 * 6% * (3/12) = $15.

Question 2

Inflation-indexed Treasury securities provide returns through:
A)interest payments, plus a conversion privilege.
B)interest payments, plus an increase in value due to inflation.
C)tax-exempt interest payments.
D)cumulative interest payments.

Accepted Answer

The investor receives two forms of return as a result of owning the security. The first is annual interest that is paid out semiannually, and the second is an automatic increase in the initial value of principal to account for inflation.

Question 3

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the price of the Treasury bill?
A)$940
B)$970
C)$980
D)$985
E)$990

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Question 4

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months.
a) How much interest would an investor receive?
b) What will be the price of the Treasury bill?
c) What will be the true rate of return?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Question 5

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the effective yield?
A)6.09%
B)6.38%
C)3.05%
D)25.53%
E)1.53%

Accepted Answer

The effective yield can be calculated using the formula for annualizing the interest rate: Effective Yield = (1 + (0.06/4))^4 - 1 = 6.09%.

Question 6

A corporate bond quoted at 108.25 is selling for:
A)$108.25.
B)$1,082.50.
C)$10,825.
D)None of the above

Accepted Answer

When a bond is quoted at 108.25, it means that the bond is trading at 108.25% of its face value. Therefore, a $1,000 bond would be priced at $1,082.50 (1,000 x 1.0825).

Question 7

Corporate bonds generally trade in units of:
A)$100.
B)$1,000.
C)$5,000.
D)$10,000.

Accepted Answer

Corporate bonds of all types generally trade in units of $1,000, and this is a particularly attractive feature to the smaller investor who does not wish to purchase in units of $5,000 to $10,000 (which is necessary for many Treasury and federally-sponsored credit agency issues).

Question 8

The junk bond market includes all of the following except:
A)fallen angels.
B)profitable companies undergoing expansion.
C)growth companies (small firms not that well established, making them unable to receive an investment quality rating).
D)companies undergoing restructuring because of a leveraged buyout (LBO) or unfriendly takeover.

Accepted Answer

Profitable companies undergoing expansion would not be part of the junk bond market. These companies can issue debt at lower interest rates because of their profitable performance.

Question 9

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%, what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

Accepted Answer

The answer of If an investor is in the 33%...

Question 10

If inflation is higher than that expected at time of issue, inflation-indexed Treasury securities:
A)provide a lower return than fixed-income securities.
B)provide a higher return than fixed-income securities.
C)do not adequately compensate the investor for loss of purchasing power.
D)may be called in by the government.

Accepted Answer

The investor receives two forms of return as a result of owning the security. The first is annual interest that is paid out semiannually, and the second is an automatic increase in the initial value of principal to account for inflation.

Question 11

What is the dollar value of a U.S. government bond quoted at 98 8/32?

Accepted Answer

The answer of What is the dollar value of a...

Question 12

Major investors in municipal bonds include:
A)banks.
B)pension funds.
C)wealthy individuals.
D)A and C

Accepted Answer

Banks and wealthy individuals are major investors in municipal bonds due to their tax-exempt status, which is particularly attractive to those in higher tax brackets and institutions seeking tax-advantaged investments.

Question 13

Assume a $1,000 Treasury bill is quoted to pay 9.5% interest over a six-month period.
a) How much interest would an investor receive?
b) What will be the price of the Treasury bill?
c) What will be the true rate of return?

Accepted Answer

The answer of Assume a $1,000 Treasury bill is quoted...

Quiz 11: Bond and Fixed-Income Fundamentals

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. How much interest would the investor receive?

Inflation-indexed Treasury securities provide returns through:

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the price of the Treasury bill?

Assume a $1,000 Treasury bill is quoted to pay 10% and matures in 3 months. a) How much interest would an investor receive? b) What will be the price of the Treasury bill? c) What will be the true rate of return?

Assume a $1,000 Treasury bill is quoted to pay 6% interest over a three-month period. What will be the effective yield?

A corporate bond quoted at 108.25 is selling for:

Corporate bonds generally trade in units of:

The junk bond market includes all of the following except:

If an investor is in the 33% marginal tax bracket and can purchase a municipal bond paying 7.5%, what would the equivalent before-tax return from a corporate bond have to be to equate the two returns on a before-tax basis?

If inflation is higher than that expected at time of issue, inflation-indexed Treasury securities:

What is the dollar value of a U.S. government bond quoted at 98 8/32?

Major investors in municipal bonds include:

Assume a $1,000 Treasury bill is quoted to pay 9.5% interest over a six-month period. a) How much interest would an investor receive? b) What will be the price of the Treasury bill? c) What will be the true rate of return?