Question 1

All bonds are subject to the following risks, except

Accepted Answer

A)  default risk. 
B)  call risk. 
C)  interest rate risk. 
D)  impact of economic conditions. 
A)  default risk. 
B)  call risk. 
C)  interest rate risk. 
D)  impact of economic conditions.

Question 2

If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100, the taxable income you would have realized over the holding period is

Accepted Answer

A)  $100 long term capital gain. 
B)  $160 ordinary income gain. 
C)  $60 ordinary income and $100 short-term capital gain. 
D)  $60 ordinary income and $100 long-term capital gain. 
A)  $100 long term capital gain. 
B)  $160 ordinary income gain. 
C)  $60 ordinary income and $100 short-term capital gain. 
D)  $60 ordinary income and $100 long-term capital gain.

Question 3

The maturity matching strategy involves selecting bonds that will generate payments to match future expenses.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following bond ratings represents a high-quality risk class?

Accepted Answer

A)  Baa 
B)  Aa 
C)  Ba 
D)  C 
A)  Baa 
B)  Aa 
C)  Ba 
D)  C

Question 5

A passive strategy of bond investing consists of buying bonds for the long term and not selling them until maturity.

Accepted Answer

A) True 
 B)False

Question 6

Convertible bonds tend to offer a(n) ________ return than nonconvertible bonds.

Accepted Answer

A)  higher 
B)  lower 
C)  similar 
D)  indexed 
A)  higher 
B)  lower 
C)  similar 
D)  indexed

Question 7

As interest rates go up, bond prices

Accepted Answer

A)  also go up. 
B)  go down. 
C)  remain the same. 
D)  may go up or down. 
A)  also go up. 
B)  go down. 
C)  remain the same. 
D)  may go up or down.

Question 8

Junk bonds offer a relatively high rate of return, but they are more likely to default than other bonds.

Accepted Answer

A) True 
 B)False

Question 9

If an investor purchases a diversified portfolio of bonds and holds them until maturity, the investor is employing the ________ strategy of bond investing.

Accepted Answer

The answer of If an investor purchases a diversified portfolio...

Question 10

Bonds with a ________ degree of default risk are most susceptible to default when economic conditions are ________.

Accepted Answer

A)  low; strong 
B)  high; weak 
C)  high; strong 
D)  low; weak 
A)  low; strong 
B)  high; weak 
C)  high; strong 
D)  low; weak

Question 11

The current yield on a $1,000 par value bond worth $900 and a coupon rate of 10% is

Accepted Answer

A)  12.05%. 
B)  9%. 
C)  10%. 
D)  11.11%. 
A)  12.05%. 
B)  9%. 
C)  10%. 
D)  11.11%.

Question 12

A $1,000 face value bond with a quoted price of 98 is selling for

Accepted Answer

A)  $1,000. 
B)  $98. 
C)  $980. 
D)  $988. 
A)  $1,000. 
B)  $98. 
C)  $980. 
D)  $988.

Question 13

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

Accepted Answer

A)  Long-term debt securities 
B)  Issued by the U.S. Treasury 
C)  Exempt from federal tax 
D)  Highly liquid 
A)  Long-term debt securities 
B)  Issued by the U.S. Treasury 
C)  Exempt from federal tax 
D)  Highly liquid

Question 14

Investing in bonds gives you the possibility of all of the following, except

Accepted Answer

A)  having a capital gain. 
B)  losing your investment if the company goes bankrupt. 
C)  receiving dividends. 
D)  receiving the face value at maturity. 
A)  having a capital gain. 
B)  losing your investment if the company goes bankrupt. 
C)  receiving dividends. 
D)  receiving the face value at maturity.

Question 15

If a bond pays $50 interest semiannually with a par value of $1,000, its coupon rate is

Accepted Answer

A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
A)  5%. 
B)  10%. 
C)  15%. 
D)  20%.

Question 16

List and describe three strategies for investing in bonds.

Accepted Answer

Interest rate strategy is selecting bond

Question 17

The risk that you will be forced to sell your bond back to the issuer prior to maturity is the

Accepted Answer

A)  call (prepayment) risk. 
B)  default risk. 
C)  interest rate risk. 
D)  political risk. 
A)  call (prepayment) risk. 
B)  default risk. 
C)  interest rate risk. 
D)  political risk.

Question 18

Since municipal bond interest is exempt from federal income tax, it is especially beneficial to high-income investors.

Accepted Answer

A) True 
 B)False

Question 19

Another name for high-yield bonds is

Accepted Answer

A)  agency bonds. 
B)  federal agency bonds. 
C)  T-bills. 
D)  junk bonds. 
A)  agency bonds. 
B)  federal agency bonds. 
C)  T-bills. 
D)  junk bonds.

Question 20

If you want to receive periodic income from your investments, you should consider investing in bonds rather than stocks.

Accepted Answer

A) True 
 B)False

Exam 16: Investing in Bonds

All bonds are subject to the following risks, except

If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100, the taxable income you would have realized over the holding period is

The maturity matching strategy involves selecting bonds that will generate payments to match future expenses.

Which of the following bond ratings represents a high-quality risk class?

A passive strategy of bond investing consists of buying bonds for the long term and not selling them until maturity.

Convertible bonds tend to offer a(n) ________ return than nonconvertible bonds.

As interest rates go up, bond prices

Junk bonds offer a relatively high rate of return, but they are more likely to default than other bonds.

If an investor purchases a diversified portfolio of bonds and holds them until maturity, the investor is employing the ________ strategy of bond investing.

Bonds with a ________ degree of default risk are most susceptible to default when economic conditions are ________.

The current yield on a $1,000 par value bond worth $900 and a coupon rate of 10% is

A $1,000 face value bond with a quoted price of 98 is selling for

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

Investing in bonds gives you the possibility of all of the following, except

If a bond pays $50 interest semiannually with a par value of $1,000, its coupon rate is

List and describe three strategies for investing in bonds.

The risk that you will be forced to sell your bond back to the issuer prior to maturity is the

Since municipal bond interest is exempt from federal income tax, it is especially beneficial to high-income investors.

Another name for high-yield bonds is

If you want to receive periodic income from your investments, you should consider investing in bonds rather than stocks.

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 a degree of default risk are most susceptible to default when economic conditions are .