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Fin 358 Debt SecuritiesNAME___________________________________

Final Exam Fall 2000

Instructions: answer all questions in this test packet.

   Place answers in margin next to problem number.

   Time limit: 2 hours

1.The current yield on a bond is equal to ________.

A)the internal rate of return

B)the yield to maturity

C)annual interest divided by the par value

D)annual interest divided by the current market price

E)none of the above

2.Of the following four investments,________ is considered to be the safest.

A)commercial paper

B)corporate bonds

C)Treasury bills

D)Treasury bonds

E)U. S. Agency issues

3.The bonds of Elbow Grease Dishwashing Company have received a rating of "D" by Moody"s.  The "D" rating indicates

A)the bonds are insured

B)the bonds are junk bonds

C)the bonds are referred to as"high yield" bonds

D)a and b

E)b and c

4.To earn a high rating from the bond rating agencies, a firm should have

A)a low times interest earned ratio

B)a low debt to equity ratio

C)a high quick ratio

D)a and c

E)b and c

5.Accrued interest

A)is quoted in the bond price in the financial press.

B)must be paid by the buyer of the bond and remitted to the seller of the bond.

C)must be paid to the broker for the inconvenience of selling bonds between maturity dates.

D)a and b.

E)a and c.

6.The bond market

A)can be quite "thin".

B)primarily consists of a network of bond dealers in the over the counter market.

C)consists of many investors on any given day.

D)a and b.

E)b and c.

7.Ceteris paribus, the price and yield on a bond are

A)positively related.

B)negatively related.

C)sometimes positively and sometimes negatively related.

D)not related.

E)random variables.

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