SOLVED

21) Bonds with relatively high risk of default are called ________. A) Brady bonds B) junk bonds C) zero coupon bonds D) investment grade bonds 22) Bonds with relatively low risk of default are called ________ securities and have a rating of Baa (or BBB) and above; bonds with ratings below Baa (or BBB) have a higher default risk and are called ________. A) investment grade; lower grade B) investment grade; junk bonds C) high quality; lower grade D) high quality; junk bonds 23) Which of the following bonds would have the highest default risk? A) Provincial bonds B) Investment-grade bonds C) Canada bonds D) Junk bonds 24) Which of the following long-term bonds has the highest interest rate? A) Corporate Baa bonds B) Canada bonds C) Corporate Aaa bonds D) Provincial bonds 25) Which of the following securities has the lowest interest rate? A) Junk bonds B) Canada bonds C) Investment-grade bonds D) Corporate Baa bonds 26) During the Great Depression years 1930-1933 there was a very high rate of business failures and defaults, we would expect the risk premium for ________ bonds to be very high. A) federal government B) corporate Aaa C) provincial D) corporate Baa 27) Risk premiums on corporate bonds tend to ________ during business cycle expansions and ________ during recessions, everything else held constant. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease 28) If you have a very low tolerance for risk, which of the following bonds would you be least likely to hold in your portfolio? A) A federal government bond B) A provincial bond C) A corporate bond with a rating of Aaa D) A corporate bond with a rating of Baa 29) The collapse of the subprime mortgage market ________. A) did not affect the corporate bond market B) increased the perceived riskiness of Treasury securities C) reduced the Baa-Aaa spread D) increased the Baa-Aaa spread 30) The collapse of the subprime mortgage market increased the spread between Baa and default-free Canada bonds. This is due to ________. A) a reduction in risk B) a reduction in maturity C) a flight to quality D