FIN 390 Week 6 Quiz


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FIN 390 Week 6 Quiz Answers

  1. (TCO 7) What is the primary risk that a bondholder faces?
  2. (TCO 7) To calculate a bond’s duration, you must
  3. (TCO 7) Cash flow matching isn’t the ideal solution to reduce bond portfolio interest rate risk because
  4. (TCO 7) Why do investors like convexity?
  5. (TCO 7) Passive bond managers prefer to
  6. (TCO 9) Which of the following possible provisions of a bond indenture is designed to ease the burden of principal repayment by spreading it out over several years?
  7. (TCO 9) Bonds issued in the United States are _____, and most bonds issued overseas are
  8. (TCO 9) A convertible bond has a par value of $1,000 but its current market price is $950. The current price of the issuing company’s stock is $19, and the conversion ratio is 40 shares. The bond’s conversion premium is
  9. (TCO 7) Bond portfolio immunization techniques balance _____ and
    _____ risk fin 390 week 6 quiz
  10. (TCO 5) A perpetuity pays $100 each and every year forever. The duration of this perpetuity will be _____ if its yield is 9%.
  11. (TCO 7) A company has current assets of: cash $500, accounts receivable $200, and inventory $400. The company also has current liabilities of: accounts payable $300 and notes payable $600. What is the company’s quick ratio?
  12. (TCO 7) You earn 6% on your corporate bond portfolio this year, and you are in a 25% federal tax bracket and an 8% state tax bracket. Your after tax return is _____. (Assume that federal taxes are not deductible against state taxes and vice versa.)