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A deferred call provision:

Question $1$Answer

a$.$

allows the bond issuer to delay repaying a bond until after the maturity date should the issuer so opt.

b$.$

prohibits the issuer from ever redeeming bonds prior to maturity.

c$.$

requires the bond issuer to pay a call premium equal to or greater than one year's coupon should the bond be called.

d$.$

requires the bond issuer to pay the current market price, minus any accrued interest, should the bond be called.

e$.$

prohibits the bond issuer from redeeming callable bonds prior to a specified date.

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Question $2$

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A zero coupon bond:

Question $2$Answer

a$.$

can only be issued by the U$.$S$.$ Treasury.

b$.$

is sold at a large premium.

c$.$

provides no taxable income to the bondholder until the bond matures.

d$.$

has more interest rate risk than a comparable coupon bond.

e$.$

pays interest that is tax deductible to the issuer at the time of payment.

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Question $3$

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Which one of the following bonds is the least sensitive to interest rate risk?

Question $3$Answer

a$.$

$7-$year; $7$ percent coupon

b$.$

$10-$year; $7$ percent coupon

c$.$

$10-$year; $5$ percent coupon

d$.$

$5-$year; $5$ percent coupon

e$.$

$5-$year; $7$ percent coupon

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Question $4$

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Which one of the following relationships applies to a premium bond?

Question $4$Answer

a$.$

Coupon rate $<$ Yield to maturity $<$ Current yield

b$.$

Coupon rate $=$ Current yield $=$ Yield to maturity

c$.$

Coupon rate $>$ Yield to maturity $>$ Current yield

d$.$

Coupon rate $>$ Current yield $>$ Yield to maturity

e$.$

Yield to maturity $>$ Current yield $>$ Coupon rate

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Question $5$

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Bonds issued by the U$.$S$.$ federal government:

Question $5$Answer

a$.$

pay interest that is exempt from federal income taxes.

b$.$

are considered to be free of default risk.

c$.$

are called "munis."

d$.$

generally have higher coupons than comparable bonds issued by a corporation.

e$.$

are considered to be free of interest rate risk.