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71. Which of the following correctly describe U.S.
Treasury bonds?
I. have a “tick” size of 1/32
II. highly liquid
III. quoted in dollars and cents
IV. quoted at the dirty price
A. I and II only
B. I and IV only
C. II and III only
D. II and IV only
E. I, II, and III only

72. A 6-year, $1,000 face value bond issued by Taylor
Tools pays interest semiannually on February 1 and August 1. Assume today is
October 1. What will the difference, if any, be between this bond’s clean and
dirty prices today?
A. no difference
B. one month’s interest
C. two month’s interest
D. four month’s interest
E. five month’s interest

73. Today, June 15, you want to buy a bond with a
quoted price of 98.64. The bond pays interest on January 1 and July 1. Which
one of the following prices represents your total cost of purchasing this bond
A. clean price
B. dirty price
C. asked price
D. quoted price
E. bid price

74. Which one of the following rates represents the
change, if any, in your purchasing power as a result of owning a bond?
A. risk-free rate
B. realized rate
C. nominal rate
D. real rate
E. current rate

75. Which one of the following statements is
A. The risk-free rate represents the change in purchasing power.
B. Any return greater than the inflation rate represents the risk premium.
C. Historical real rates of return must be positive.
D. Nominal rates exceed real rates by the amount of the risk-free rate.
E. The real rate must be less than the nominal rate given a positive rate
of inflation.

76. The Fisher Effect primarily emphasizes the effects
of _____ on an investor’s rate of return.
A. default
B. market
C. interest rate
D. inflation
E. maturity

77. You are trying to compare the present values of
two separate streams of cash flows which have equivalent risks. One stream is
expressed in nominal values and the other stream is expressed in real values.
You decide to discount the nominal cash flows using a nominal annual rate of 8
percent. What rate should you use to discount the real cash flows?
A. 8 percent
B. EAR of 8 percent compounded monthly
C. comparable risk-free rate
D. comparable real rate
E. You cannot compare the present values of these two streams of cash

78. Which of the following statements is correct
concerning the term structure of interest rates?
I. Expectations of lower inflation rates in the future tend to lower the slope
of the term structure of interest rates.
II. The term structure of interest rates includes both an inflation premium and
an interest rate risk premium.
III. The real rate of return has minimal, if any, affect on the slope of the
term structure of interest rates.
IV. The term structure of interest rates and the time to maturity are always directly
A. I and II only
B. II and IV only
C. I, II, and III only
D. II, III, and IV only
E. I, II, and IV only

79. Which two of the following factors cause the
yields on a corporate bond to differ from those on a comparable Treasury
I. inflation risk
II. interest rate risk
III. taxability
IV. default risk
A. I and II only
B. III and IV only
C. I, II, and IV only
D. II, III, and IV only
E. I, II, III, and IV

80. The bonds issued by Stainless Tubs bear a 6
percent coupon, payable semiannually. The bonds mature in 11 years and have a
$1,000 face value. Currently, the bonds sell for $989. What is the yield to
A. 5.87 percent
B. 5.92 percent
C. 6.08 percent
D. 6.14 percent
E. 6.20 percent

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