ACC 3008

Finance 1
Professor: Andrea Chance
Quiz 4
Heba Ali
ID:101198626
1. ________________ is an account into which periodic payments are made for the purpose of
retiring a bond issue. 
A. An indenture
B. A debenture
C. A covenant
D. A sinking fund

 2. An agreement giving the bond issuer the option to repurchase the bond at a specified price
prior to maturity is the _______________ provision. 
A. call
B. seniority
C. collateral
D. trustee
 

3. The amount by which the call price exceeds the bond's par value is the: 
A. Coupon rate.
B. Call premium.
C. Original-issue discount.
D. Call rate.
 

4. A deferred call provision refers to: 

A. The open market price of a callable bond on a certain date.
B. The seniority of callable bonds to noncallable bonds in the event of corporate default.
C. The prohibition of a company from redeeming callable bonds prior to a certain date.
D. The amount by which the call price for a callable bond exceeds its par value.
 

  5. __________ included in the bond indenture to protect bondholders from certain actions by the
company. 
A. Indentures are
B. Covenants are
C. Articles of incorporation are
D. A description of dedicated capital is
 

 
6. Parts of the indenture limiting certain actions that might be taken during the term of the loan
(usually to protect the interests of the lender) are called: 
A. Trustee relationships.
B. Sinking funds provisions.
C. Bond ratings.
D. Protective covenants.

 
7. A stripped bond: 
A. pays coupons at regular intervals until maturity.
B. typically sells at a premium from its face value.
C.  pays no coupons, thus it sells at a deep discount from face value.
D. decreases in value when interest rates decrease.
 

8. A bond that makes no coupon payments (and thus is initially priced at a deep discount to par
value) is called a ________________ bond. 
A. Treasury
B. municipal
C. floating rate
D.  zero coupon
 

9. A bond that pays a variable amount of coupon interest over time is called a ____________
bond. 
A. Treasury
B.  floating rate
C. junk
D. zero coupon

10. A bond which, at the election of the holder, can be swapped for a fixed number of shares of
common stock at any time prior to the bond's maturity is called a _______________ bond. 
A. zero coupon
B. callable
C. convertible
D. warrant
11. You want to own equity in a Russian oil firm, but the firm does not have traded stock. If it
had ___________ outstanding you could purchase them and then trade them in for shares of
stock. 

A. convertible bonds
B. debentures
C. zero coupon bonds
D. subordinated debentures

12. A financial market is ____________ if it is possible to easily observe its prices and trading
volume. 

A. transparent
B. ordered
C. in equilibrium
D. chaotic

13. Interest rates or rates of return on investment that have not been adjusted for the effects of
inflation are called: 
A. Coupon rates.
B. Stripped rates.
C. Effective rates.
D. Nominal rates.

14. Interest rates or rates of return on investment that have been adjusted for the effects of
inflation are called: 

A.  Real rates.
B. Effective rates.
C. Stripped rates.
D. Coupon rates.
 

 
15. The relationship between nominal rates, real rates, and inflation is known as the: 
A.  Fisher effect.
B. Gordon growth model.
C. Term structure of interest rates.
D. Interest rate risk premium.

16. The relationship between nominal interest rates on default-free, pure discount securities and
the time to maturity is called the: 
A. Liquidity effect.
B. Term structure of interest rates.
C. Inflation premium.
D. Interest rate risk premium.

17. The _____________ premium is that portion of a nominal interest rate or bond yield that
represents compensation for expected future inflation. 
A. default risk
B. taxability
C. inflation
D. interest rate risk

18. The ____________ premium is that portion of a nominal interest rate or bond yield that
represents compensation for the possibility of nonpayment by the bond issuer. 

A.  default risk
B. liquidity
C. inflation
D. interest rate risk
 

19. The face value of a bond: 

A. Is defined as the current market price.
B. Includes the principal plus the total interest due.
C Is the principal amount paid at maturity.
D. Is defined as the principal amount minus the interest due at maturity.
 

20. The rate that is computed by dividing the annual interest payment by the face value of a bond
is called the: 
A. discount rate.
B. coupon rate.
C. yield to call.
D. market rate.