Question 1

The present value of a bond can be computed by discounting the ________ to be received from the bond.

Accepted Answer

A)  capital gains 
B)  required rate of return 
C)  tax benefits 
D)  future cash flows (coupon and principal payments) 
A)  capital gains 
B)  required rate of return 
C)  tax benefits 
D)  future cash flows (coupon and principal payments)

Question 2

Investors are willing to purchase bonds with a call feature only if the bonds offer a(n)

Accepted Answer

A)  slightly lower return than similar bonds without a call feature. 
B)  slightly higher number of shares of the issuer's stock. 
C)  slightly higher return than similar bonds without a call feature. 
D)  extraordinary return similar to an IPO. 
A)  slightly lower return than similar bonds without a call feature. 
B)  slightly higher number of shares of the issuer's stock. 
C)  slightly higher return than similar bonds without a call feature. 
D)  extraordinary return similar to an IPO.

Question 3

________ bonds are the least risky of all bonds and, therefore, pay a lower rate of interest.

Accepted Answer

A)  Treasury 
B)  Municipal 
C)  Federal agency 
D)  Corporate 
A)  Treasury 
B)  Municipal 
C)  Federal agency 
D)  Corporate

Question 4

Which of the following statements is not true regarding municipal bonds?

Accepted Answer

A)  They are issued by state and local governments. 
B)  They are free from the risk of default. 
C)  The interest is exempt from federal income taxes. 
D)  The interest is exempt from state taxes if the investor resides in the state where the bond was issued. 
A)  They are issued by state and local governments. 
B)  They are free from the risk of default. 
C)  The interest is exempt from federal income taxes. 
D)  The interest is exempt from state taxes if the investor resides in the state where the bond was issued.

Question 5

Municipal bonds are those issued by the U.S. Treasury Department for the benefit of cities and states.

Accepted Answer

A) True 
 B)False

Question 6

Use the following two columns of items to answer the matching questions below:
-yield to maturity
A)annualized return on a bond if held to maturity
B)par value or the amount returned to the investor at maturity
C)bonds that can be converted into stock
D)long-term securities issued by government agencies or corporations

Accepted Answer

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

Question 7

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

Accepted Answer

A)  additional premium 
B)  risk premium 
C)  specific return 
D)  nominal return 
A)  additional premium 
B)  risk premium 
C)  specific return 
D)  nominal return

Question 8

As interest rates rise, the market price of your bond is also likely to rise.

Accepted Answer

A) True 
 B)False

Question 9

________ bonds are issued by state and local government agencies.

Accepted Answer

A)  Treasury 
B)  Municipal 
C)  Federal agency 
D)  Corporate 
A)  Treasury 
B)  Municipal 
C)  Federal agency 
D)  Corporate

Question 10

If you are concerned that market interest rates may rise in the near and intermediate term, your bond investment strategy should be to

Accepted Answer

A)  buy only junk bonds. 
B)  buy bonds with shorter term maturities to minimize interest rate risk. 
C)  buy bonds with long maturities to limit interest rate risk. 
D)  exit bond investments and buy equities. 
A)  buy only junk bonds. 
B)  buy bonds with shorter term maturities to minimize interest rate risk. 
C)  buy bonds with long maturities to limit interest rate risk. 
D)  exit bond investments and buy equities.

Question 11

A bond's yield to maturity is above its coupon rate when

Accepted Answer

A)  the bond's market price is above par value. 
B)  the bond's market price is below par value. 
C)  the bond is convertible and the stock has appreciated. 
D)  interest rates are lower than the prime rate. 
A)  the bond's market price is above par value. 
B)  the bond's market price is below par value. 
C)  the bond is convertible and the stock has appreciated. 
D)  interest rates are lower than the prime rate.

Question 12

A call feature on bonds allows the issuer to buy back the bonds from investors before the maturity date.

Accepted Answer

A) True 
 B)False

Question 13

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor, what must the market price of the stock be in order for the investor to make the conversion?

Accepted Answer

A)  $1,000 
B)  $49.50 
C)  $50.01 
D)  $50 
A)  $1,000 
B)  $49.50 
C)  $50.01 
D)  $50

Question 14

If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate on the company's bonds?

Accepted Answer

A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Reserve feature 
A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Reserve feature

Question 15

The ________ is the amount returned to the investor at the maturity date when the bond is due.

Accepted Answer

A)  principal 
B)  interest gain 
C)  capital gain 
D)  terminal value 
A)  principal 
B)  interest gain 
C)  capital gain 
D)  terminal value

Question 16

A bond's yield to maturity is the annualized percentage return of both interest and capital gains or losses if the bond were held until it matured.

Accepted Answer

A) True 
 B)False

Question 17

Bonds are equity investments issued by corporations or government agencies.

Accepted Answer

A) True 
 B)False

Question 18

A bond from Ginnie Mae is an example of a bond issued by

Accepted Answer

A)  a corporation. 
B)  the U.S. Treasury. 
C)  a municipality. 
D)  an agency of the federal government. 
A)  a corporation. 
B)  the U.S. Treasury. 
C)  a municipality. 
D)  an agency of the federal government.

Question 19

A ________ feature on a bond allows the issuer to buy back the bond from the investor before maturity.

Accepted Answer

A)  convertible 
B)  dividend 
C)  call 
D)  recall 
A)  convertible 
B)  dividend 
C)  call 
D)  recall

Question 20

Which of the following issuers' bonds would be subject to both federal and state income taxes?

Accepted Answer

A)  City of Chicago 
B)  Saline, Michigan School District 
C)  Apple, Inc. 
D)  U.S. Treasury 
A)  City of Chicago 
B)  Saline, Michigan School District 
C)  Apple, Inc. 
D)  U.S. Treasury

The present value of a bond can be computed by discounting the ________ to be received from the bond.

Investors are willing to purchase bonds with a call feature only if the bonds offer a(n)

________ bonds are the least risky of all bonds and, therefore, pay a lower rate of interest.

Which of the following statements is not true regarding municipal bonds?

Municipal bonds are those issued by the U.S. Treasury Department for the benefit of cities and states.

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

As interest rates rise, the market price of your bond is also likely to rise.

________ bonds are issued by state and local government agencies.

If you are concerned that market interest rates may rise in the near and intermediate term, your bond investment strategy should be to

A bond's yield to maturity is above its coupon rate when

A call feature on bonds allows the issuer to buy back the bonds from investors before the maturity date.

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor, what must the market price of the stock be in order for the investor to make the conversion?

If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate on the company's bonds?

The ________ is the amount returned to the investor at the maturity date when the bond is due.

A bond's yield to maturity is the annualized percentage return of both interest and capital gains or losses if the bond were held until it matured.

Bonds are equity investments issued by corporations or government agencies.

A bond from Ginnie Mae is an example of a bond issued by

A ________ feature on a bond allows the issuer to buy back the bond from the investor before maturity.

Which of the following issuers' bonds would be subject to both federal and state income taxes?

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

Exam 16: Investing in Bonds

The present value of a bond can be computed by discounting the ________ to be received from the bond.

Investors are willing to purchase bonds with a call feature only if the bonds offer a(n)

________ bonds are the least risky of all bonds and, therefore, pay a lower rate of interest.

Which of the following statements is not true regarding municipal bonds?

Municipal bonds are those issued by the U.S. Treasury Department for the benefit of cities and states.

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

As interest rates rise, the market price of your bond is also likely to rise.

________ bonds are issued by state and local government agencies.

If you are concerned that market interest rates may rise in the near and intermediate term, your bond investment strategy should be to

A bond's yield to maturity is above its coupon rate when

A call feature on bonds allows the issuer to buy back the bonds from investors before the maturity date.

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor, what must the market price of the stock be in order for the investor to make the conversion?

If a company's stock price is expected to increase substantially over the next few years, which of the following may entice potential bondholders to accept a lower coupon rate on the company's bonds?

The ________ is the amount returned to the investor at the maturity date when the bond is due.

A bond's yield to maturity is the annualized percentage return of both interest and capital gains or losses if the bond were held until it matured.

Bonds are equity investments issued by corporations or government agencies.

A bond from Ginnie Mae is an example of a bond issued by

A ________ feature on a bond allows the issuer to buy back the bond from the investor before maturity.

Which of the following issuers' bonds would be subject to both federal and state income taxes?

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