Question

10. What is the capital limitation for a Type I bond, such as a Treasury note? a. No limit b. 10% of capital and surplus c. 25% of capital and surplus

11. Which type of security is typically sold in “tranches”? a. CMOs b. Municipal bonds c. Treasury securities d. Corporate bonds

12. If you buy a fixed-rate bond at par (100) and interest rates rise, the bond will sell for a. a premium b. a discount

13. Gains and losses in the value of bonds held in which category must be directly included in net income? a. Trading b. Available for Sale c. Held to Maturity

Answer 1

10. What is the capital limitation for a Type I bond, such as a Treasury note? a. No limit b. 10% of capital and surplus c. 25% of capital and surplus

The answer to the above question is option b, i.e. 10% of capital and surplus.

11.  Which type of security is typically sold in “tranches”? a. CMOs b. Municipal bonds c. Treasury securities d. Corporate bonds.

The answer to the above question is option a, i.e. CMOs . CMOs are a type of security that is typically sold in tranches.

12. If you buy a fixed-rate bond at par (100) and interest rates rise, the bond will sell for a. a premium b. a discount

The answer to the above question is option b, i.e Discount , because Investors buy bonds at a premium only when the interest rates are low and at discount only when the interest rates are high.

13. Gains and losses in the value of bonds held in which category must be directly included in net income? a. Trading b. Available for Sale c. Held to Maturity

The answer to the above question is option a, i.e Trading because trading securities are debt and equity for selling in the near future , they are reported at fair value with unrealized gains & losses included in net income.