Question

1)If interest rates suddenly ________, those existing bonds that have a call feature are ________ likely to be called. a. increase; less b. increase; more c. decline; less d. Answers [decline; more] and [increase; less] are correct. e. decline; more

2) Which of the following is not a reason for the increased volume in the foreign trading of U.S. securities?

a. Mutual funds containing U.S. securities are increasingly accessible to foreign investors.

b. Primary dealers of U.S. Treasury notes and bonds have opened offices in various foreign cities.

c. U.S. corporations are issuing more securities in foreign markets.

d. All of these choices are reasons for the increased volume in the foreign trading of U.S. securities.

3) The ________ price is the price an investor is ________.

a. ask; willing to pay for a bond

b. bid; willing to pay for a bond

c. Answers [bid; willing to pay for a bond] and [ask; willing to sell a bond for] are correct.

d. bid; willing to sell a bond for

e. ask; willing to sell a bond for

4) Which of the following statements is not true regarding STRIPS?

a. They are not issued by the Treasury.

b. They are backed by the U.S. government.

c. They are created and sold by various financial institutions.

d. They have to be held until maturity.

e. All of these choices are true regarding STRIPS.

Answer 1

1]

If interest rates suddenly _decline_, those existing bonds that have a call feature are __more__ likely to be called.

This is because if interest rates decline, the bond issuer can refinance their debt at the lower interest rate by calling the bonds and reissuing new bonds at the lower market interest rate.