Question 1

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

Accepted Answer

A) True 
 B)False

Question 2

Use the following two columns of items to answer the matching questions below:
-junk bonds
A)subject to a higher degree of default risk
B)issued by the U.S. Treasury

Accepted Answer

The answer of Use the following two columns of items...

Question 3

Use the following two columns of items to answer the matching questions below:
-risk premium
A)compensation required for default risk
B)risk that a bond's price will decline in response to an increase in interest rates
C)risk that the face value may not be repaid

Accepted Answer

The answer of Use the following two columns of items...

Question 4

Which of the following is a characteristic of corporate bonds?

Accepted Answer

A)  Rated on a scale from AAAA to FFFF 
B)  Used to finance debt over a short period such as six months 
C)  Issued as long-term debt securities 
D)  Exempt from state tax in the state where the issuing company has its headquarters 
A)  Rated on a scale from AAAA to FFFF 
B)  Used to finance debt over a short period such as six months 
C)  Issued as long-term debt securities 
D)  Exempt from state tax in the state where the issuing company has its headquarters

Question 5

One important aspect of bond research includes finding the bond rating. Bond ratings are related to what type of risk?

Accepted Answer

The answer of One important aspect of bond research includes...

Question 6

If a bond's price is lower than the principal amount, its yield to maturity will be ________ the coupon rate.

Accepted Answer

A)  less than 
B)  more than 
C)  equal to 
D)  unrelated to 
A)  less than 
B)  more than 
C)  equal to 
D)  unrelated to

Question 7

If you build your financial and investment plan with a focus on safety and security you should probably avoid

Accepted Answer

A)  small cap equities. 
B)  junk bonds. 
C)  BB rated municipal bonds. 
D)  All of the above should be avoided. 
A)  small cap equities. 
B)  junk bonds. 
C)  BB rated municipal bonds. 
D)  All of the above should be avoided.

Question 8

When you select bonds based on the expectation that interest rates will decline, you are using a(n) ________ strategy.

Accepted Answer

A)  interest rate 
B)  maturity matching 
C)  passive rate 
D)  active rate 
A)  interest rate 
B)  maturity matching 
C)  passive rate 
D)  active rate

Question 9

If you buy a corporate bond for $970 and sell it six months later for $1,050, you will have

Accepted Answer

A)  interest income of $80. 
B)  a short-term capital gain of $80. 
C)  a long-term capital gain of $80. 
D)  nontaxable income of $80. 
A)  interest income of $80. 
B)  a short-term capital gain of $80. 
C)  a long-term capital gain of $80. 
D)  nontaxable income of $80.

Question 10

Name and explain two risks involved with bonds.

Accepted Answer

Default risk is the risk that the issuer

Question 11

Bonds with ________ terms to maturity are ________ sensitive to interest rate movements than bonds that have short terms remaining until maturity.

Accepted Answer

A)  middle; less 
B)  longer; less 
C)  longer; more 
D)  longer; equally 
A)  middle; less 
B)  longer; less 
C)  longer; more 
D)  longer; equally

Question 12

All of the following may be a feature of a bond, except

Accepted Answer

A)  they can be convertible. 
B)  they pay dividends. 
C)  they can be tax-free. 
D)  they can be callable. 
A)  they can be convertible. 
B)  they pay dividends. 
C)  they can be tax-free. 
D)  they can be callable.

Question 13

Which of the following tax implications will result from selling your bonds at a lower price than what you paid for them eight months ago?

Accepted Answer

A)  You have a short-term capital gain taxed at your ordinary income tax rate. 
B)  You have a long-term capital gain subject to capital gains tax. 
C)  You have a long-term capital loss. 
D)  You have a short-term capital loss. 
A)  You have a short-term capital gain taxed at your ordinary income tax rate. 
B)  You have a long-term capital gain subject to capital gains tax. 
C)  You have a long-term capital loss. 
D)  You have a short-term capital loss.

Question 14

Which of the following features of a bond could result in the company never paying out cash to redeem the bonds?

Accepted Answer

A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Yield to maturity 
A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Yield to maturity

Question 15

The ________ is the stated interest rate of the bond at the time it was issued.

Accepted Answer

A)  effective rate 
B)  yield 
C)  coupon rate 
D)  IRR 
A)  effective rate 
B)  yield 
C)  coupon rate 
D)  IRR

Question 16

Which of the following is not a characteristic of corporate bonds?

Accepted Answer

A)  Have different ratings 
B)  Are long-term equity securities 
C)  Subject to default risk 
D)  Not backed by the federal government 
A)  Have different ratings 
B)  Are long-term equity securities 
C)  Subject to default risk 
D)  Not backed by the federal government

Question 17

Use the following two columns of items to answer the matching questions below:
-default risk
A)compensation required for default risk
B)risk that a bond's price will decline in response to an increase in interest rates
C)risk that the face value may not be repaid

Accepted Answer

The answer of Use the following two columns of items...

Question 18

Generally, bonds have maturities between 10 and 30 years and pay interest annually.

Accepted Answer

A) True 
 B)False

Question 19

The interest received from U.S. Treasury bonds is exempt from federal, state, and local income taxes.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following tax effects could not occur with the purchase and sale of a corporate bond?

Accepted Answer

A)  Capital gain 
B)  Capital loss 
C)  Interest is taxed at ordinary rates. 
D)  Interest is not taxable. 
A)  Capital gain 
B)  Capital loss 
C)  Interest is taxed at ordinary rates. 
D)  Interest is not taxable.

Exam 16: Investing in Bonds

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

Use the following two columns of items to answer the matching questions below: -junk bonds A)subject to a higher degree of default risk B)issued by the U.S. Treasury

Use the following two columns of items to answer the matching questions below: -risk premium A)compensation required for default risk B)risk that a bond's price will decline in response to an increase in interest rates C)risk that the face value may not be repaid

Which of the following is a characteristic of corporate bonds?

One important aspect of bond research includes finding the bond rating. Bond ratings are related to what type of risk?

If a bond's price is lower than the principal amount, its yield to maturity will be ________ the coupon rate.

If you build your financial and investment plan with a focus on safety and security you should probably avoid

When you select bonds based on the expectation that interest rates will decline, you are using a(n) ________ strategy.

If you buy a corporate bond for $970 and sell it six months later for $1,050, you will have

Name and explain two risks involved with bonds.

Bonds with ________ terms to maturity are ________ sensitive to interest rate movements than bonds that have short terms remaining until maturity.

All of the following may be a feature of a bond, except

Which of the following tax implications will result from selling your bonds at a lower price than what you paid for them eight months ago?

Which of the following features of a bond could result in the company never paying out cash to redeem the bonds?

The ________ is the stated interest rate of the bond at the time it was issued.

Which of the following is not a characteristic of corporate bonds?

Use the following two columns of items to answer the matching questions below: -default risk A)compensation required for default risk B)risk that a bond's price will decline in response to an increase in interest rates C)risk that the face value may not be repaid

Generally, bonds have maturities between 10 and 30 years and pay interest annually.

The interest received from U.S. Treasury bonds is exempt from federal, state, and local income taxes.

Which of the following tax effects could not occur with the purchase and sale of a corporate bond?

Overview of a Financial Plan

Planning With Personal Financial Statements

Applying Time Value Concepts

Using Tax Concepts for Planning

Banking and Interest Rates

Managing Your Money

Assessing and Securing Your Credit

Managing Your Credit

Personal Loans

Purchasing and Financing a Home

Auto and Homeowners Insurance

Health and Disability Insurance

Life Insurance

Investing Fundamentals

Investing in Stocks

Investing in Mutual Funds

Asset Allocation

Retirement Planning

Estate Planning

Integrating the Components of a Financial Plan

Filters

Bonds with terms to maturity are sensitive to interest rate movements than bonds that have short terms remaining until maturity.