Reading 64: Overview of Bond Sectors and Instruments - LO direct, dealer, following, describes, statements

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1.Which of the following statements accurately describes direct and dealer paper?

A)    Direct paper is the same as dealer paper.

B)    Direct paper is rated, whereas dealer paper is not.

C)    The majority of direct paper issuers are financial companies.

D)    Direct paper tends to incur more issue costs versus dealer paper.

2.Which of the following attributes does NOT describe commercial paper?

A)    All commercial paper must be registered with the Securities and Exchange Commission (SEC).

B)    It is typically issued as a zero coupon instrument.

C)    The most common maturity is 50 days or less.

D)    There is very little secondary trading of commercial paper.

3.Which of the following statements concerning corporate bonds is TRUE? The denomination is usually:

A)    $1,000, and the maturities usually range from 10 to 20 years.

B)    $1,000, and the maturities usually range from 5 to 10 years.

C)    $100,000, and the maturities usually range from 5 to 10 years.

D)    $100,000, and the maturities usually range from 10 to 20 years.

4.What is the typical face value of a corporate bond?

A)    $100.

B)    $10,000.

C)    $100,000.

D)    $1,000.

5.Which of the following statements concerning taxable bonds is TRUE?

A)    Corporates have the lowest yields, followed by Treasuries, then by corporates, which provide the highest returns.

B)    Treasuries have the lowest yields, followed by corporates, then by agencies, which provide the highest returns.

C)    Agencies have the lowest yields, followed by Treasuries,then by corporates, which provide the highest returns.

D)    Treasuries have the lowest yields, followed by agencies, then by corporates, which provide the highest returns.

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答案和详解如下：

1.Which of the following statements accurately describes direct and dealer paper?

A)    Direct paper is the same as dealer paper.

B)    Direct paper is rated, whereas dealer paper is not.

C)    The majority of direct paper issuers are financial companies.

D)    Direct paper tends to incur more issue costs versus dealer paper.

The correct answer was C)

Dealer paper is issued via agents, whereas direct paper is issued directly by the issuer. Both types of commercial paper are rated. Since it is issued directly by the company, direct paper is less expensive to issue.

2.Which of the following attributes does NOT describe commercial paper?

A)    All commercial paper must be registered with the Securities and Exchange Commission (SEC).

B)    It is typically issued as a zero coupon instrument.

C)    The most common maturity is 50 days or less.

D)    There is very little secondary trading of commercial paper.

The correct answer was A)

According to the Securities Act of 1933, commercial paper must be registered with the SEC. However, there are special provisions that exempt commercial paper form registration if the maturity is less than 270 days.

3.Which of the following statements concerning corporate bonds is TRUE? The denomination is usually:

A)    $1,000, and the maturities usually range from 10 to 20 years.

B)    $1,000, and the maturities usually range from 5 to 10 years.

C)    $100,000, and the maturities usually range from 5 to 10 years.

D)    $100,000, and the maturities usually range from 10 to 20 years.

The correct answer was B)

Corporate bonds usually have a face value of $1,000 and mature between 5 and 10 years.

4.What is the typical face value of a corporate bond?

A)    $100.

B)    $10,000.

C)    $100,000.

D)    $1,000.

The correct answer was D)

The most common face value of a corporate bond is $1,000.

5.Which of the following statements concerning taxable bonds is TRUE?

A)    Corporates have the lowest yields, followed by Treasuries, then by corporates, which provide the highest returns.

B)    Treasuries have the lowest yields, followed by corporates, then by agencies, which provide the highest returns.

C)    Agencies have the lowest yields, followed by Treasuries,then by corporates, which provide the highest returns.

D)    Treasuries have the lowest yields, followed by agencies, then by corporates, which provide the highest returns.

The correct answer was D)

The difference in yields is largely due to the default risk premium. Treasuries are considered to be default-risk free, while corporate bonds have the highest default risk.