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Question(s) / Instruction(s):

An investment offers a 16.6 percent total return over the coming year. Bill Bernanke thinks the total real return on this investment will be only 8.8 percent.

Required:

What does Bill believe the inflation rate will be over the next year?

  1. 7.53%
  2. 25.40%
  3. 7.17%
  4. 6.45%
  5. 7.89%

 

22.

A registered form bond is defined as a bond that:

  1. Is a bearer bond.
  2. Is held in street name.
  3. Pays coupon payments directly to the owner of record.
  4. Is listed with the Securities Exchange Commission (SEC).
  5. Is unsecured.

 

23.

Dexter, Inc. has a bond issue outstanding. The issue's indenture provision prohibits the firm from redeeming the bonds during the first three years. This provision is referred to as the _____ provision.

 

  1. safeguard
  2. market
  3. liquidity
  4. deferred call
  5. sinking fund

 

24.

The price at which a dealer will purchase a bond is called the _____ price.

  1. asked
  2. face
  3. call
  4. put
  5. bid

 

25.

A bond trader just purchased and resold a bond. The amount of profit earned by the trader from this purchase and resale is referred to as the:

  1. Market yield.
  2. Yield-to-call.
  3. Bid-ask spread.
  4. Current yield.
  5. Bond premium.

 

26.

Which one of the following provides compensation to a bondholder when a bond is not readily marketable at its full value?

  1. Interest rate risk premium
  2. Inflation premium
  3. Liquidity premium
  4. Taxability premium
  5. Default risk premium

 

27.

Which one of the following might be included in a bond's list of negative covenants?

  1. Maintaining a current ratio of 1.2 or more
  2. Maintaining a minimum cash balance of $1.2 million
  3. Limiting cash dividends to $1 per share or less
  4. Maintaining a times interest earned ratio of 2 or more
  5. Providing audited financial statements in a timely manner

 

28.

What is the primary purpose of bond covenants?

  1. Meet regulatory requirements
  2. Describe repayment terms
  3. Lender protection
  4. Define a bond's rating
  5. Increase a bond's seniority position

 

29.

A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yield to maturity of 9.19 percent. What is the coupon rate?

  1. 4.50 percent
  2. 4.60 percent
  3. 6.00 percent
  4. 9.00 percent
  5. 9.19 percent

 

 

30.

 If your nominal rate of return is 14.38 percent and your real rate of return is 3.97 percent, what is the inflation rate?

  1. 8.47 percent
  2. 10.01 percent
  3. 10.54 percent
  4. 18.35 percent
  5. 18.92 percent

 

 

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