Question 1

Which of the following is not a reason investors purchase bonds?

Accepted Answer

A)  Conservative investment 
B)  Pay periodic income 
C)  May be convertible 
D)  Guaranteed return of principal 
A)  Conservative investment 
B)  Pay periodic income 
C)  May be convertible 
D)  Guaranteed return of principal

Question 2

Which of the following statements is not true of corporate bonds?

Accepted Answer

A)  They are debt securities issued by large companies. 
B)  They have long-term maturity dates. 
C)  They are very secure and almost never default. 
D)  They can offer a predictable source of income. 
A)  They are debt securities issued by large companies. 
B)  They have long-term maturity dates. 
C)  They are very secure and almost never default. 
D)  They can offer a predictable source of income.

Question 3

The relationship between a bond's price and the yield to maturity

Accepted Answer

A)  changes at a rate equal to the change in yield. 
B)  is linear. 
C)  is inverse. 
D)  is relative. 
A)  changes at a rate equal to the change in yield. 
B)  is linear. 
C)  is inverse. 
D)  is relative.

Question 4

On the secondary bond market,

Accepted Answer

A)  only new bonds can be sold. 
B)  bonds are guaranteed to bring at least par value. 
C)  bond prices vary with interest rate movement and other factors. 
D)  bonds usually take several days to sell. 
A)  only new bonds can be sold. 
B)  bonds are guaranteed to bring at least par value. 
C)  bond prices vary with interest rate movement and other factors. 
D)  bonds usually take several days to sell.

Question 5

Which of the following does not influence a bond's yield to maturity?

Accepted Answer

A)  Call risk 
B)  Interest rate risk 
C)  Firm's risk 
D)  Historic yields to maturity 
A)  Call risk 
B)  Interest rate risk 
C)  Firm's risk 
D)  Historic yields to maturity

Question 6

Corporate bond quotations in the daily financial newspapers include all of the following, except

Accepted Answer

A)  coupon rate and volume. 
B)  maturity and closing price. 
C)  current yield and net change from the previous day. 
D)  original face value of the bond. 
A)  coupon rate and volume. 
B)  maturity and closing price. 
C)  current yield and net change from the previous day. 
D)  original face value of the bond.

Question 7

The City of Chicago would issue ________ if it wished to borrow money.

Accepted Answer

The answer of The City of Chicago would issue ________...

Question 8

The ________ strategy is intended to generate periodic and stable interest income.

Accepted Answer

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

Question 9

Investors purchase corporate bonds because

Accepted Answer

A)  they are a risk-free investment. 
B)  they pay interest income. 
C)  they pay dividends. 
D)  the returns are higher than the returns from stocks. 
A)  they are a risk-free investment. 
B)  they pay interest income. 
C)  they pay dividends. 
D)  the returns are higher than the returns from stocks.

Question 10

When a bond has a par or face value of $1,000 and a 6% coupon rate, the semiannual payment would be $60.

Accepted Answer

A) True 
 B)False

Question 11

You own a $1,000 par value convertible bond with a 6% coupon rate. The bond is convertible into 20 shares of stock at the investor's discretion. The stock price has reached $51 per share with a $1 per share annual dividend, but you do not forecast any further price appreciation in the stock. Should you make the conversion?

Accepted Answer

A)  No, 20 shares of stock are not worth $1,000. 
B)  Yes, since the stock is worth $51 per share it is worth more than the bond. 
C)  No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend. 
D)  Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend. 
A)  No, 20 shares of stock are not worth $1,000. 
B)  Yes, since the stock is worth $51 per share it is worth more than the bond. 
C)  No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend. 
D)  Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend.

Question 12

A corporate bond with a rating below ________ is considered to be a junk bond.

Accepted Answer

A)  AAA 
B)  A 
C)  BBB 
D)  B 
A)  AAA 
B)  A 
C)  BBB 
D)  B

Question 13

Use the following two columns of items to answer the matching questions below:
-Treasury 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 14

A(n) ________ corporate bond will pay a ________ return.

Accepted Answer

A)  lower-rated; higher 
B)  higher-rated; higher 
C)  lower-rated; lower 
D)  unrated; lower 
A)  lower-rated; higher 
B)  higher-rated; higher 
C)  lower-rated; lower 
D)  unrated; lower

Question 15

Municipal bonds tend to have a ________ coupon rate than Treasury bonds issued at the same time; however, municipal bonds usually offer a(n) ________ after-tax return to investors.

Accepted Answer

A)  higher; lower 
B)  lower; higher 
C)  higher; higher 
D)  lower; equal 
A)  higher; lower 
B)  lower; higher 
C)  higher; higher 
D)  lower; equal

Question 16

Federal agency bonds are all of the following, except they

Accepted Answer

A)  are issued by government agencies or government-sponsored entities. 
B)  have a very low degree of default risk. 
C)  are issued by Ginnie Mae, Freddie Mac, and Fannie Mae. 
D)  are exempt from all taxation. 
A)  are issued by government agencies or government-sponsored entities. 
B)  have a very low degree of default risk. 
C)  are issued by Ginnie Mae, Freddie Mac, and Fannie Mae. 
D)  are exempt from all taxation.

Question 17

The return on bonds currently held will be more favorable if interest rates ________ over the period you hold the bonds.

Accepted Answer

A)  increase 
B)  decrease 
C)  fluctuate 
D)  remain the same 
A)  increase 
B)  decrease 
C)  fluctuate 
D)  remain the same

Question 18

Use the following two columns of items to answer the matching questions below:
-bonds
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 19

Bonds are issued with a callable feature when the issuers expect interest rates to rise.

Accepted Answer

A) True 
 B)False

Question 20

________ bonds do not contain a risk premium because they are free from default risk.

Accepted Answer

A)  Treasury 
B)  Municipal 
C)  Corporate 
D)  City 
A)  Treasury 
B)  Municipal 
C)  Corporate 
D)  City

Which of the following is not a reason investors purchase bonds?

Which of the following statements is not true of corporate bonds?

The relationship between a bond's price and the yield to maturity

On the secondary bond market,

Which of the following does not influence a bond's yield to maturity?

Corporate bond quotations in the daily financial newspapers include all of the following, except

The City of Chicago would issue ________ if it wished to borrow money.

The ________ strategy is intended to generate periodic and stable interest income.

Investors purchase corporate bonds because

When a bond has a par or face value of $1,000 and a 6% coupon rate, the semiannual payment would be $60.

A corporate bond with a rating below ________ is considered to be a junk bond.

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

A(n) corporate bond will pay a return.

Municipal bonds tend to have a coupon rate than Treasury bonds issued at the same time; however, municipal bonds usually offer a(n) after-tax return to investors.

Federal agency bonds are all of the following, except they

The return on bonds currently held will be more favorable if interest rates ________ over the period you hold the bonds.

Bonds are issued with a callable feature when the issuers expect interest rates to rise.

________ bonds do not contain a risk premium because they are free from default risk.

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

Which of the following is not a reason investors purchase bonds?

Which of the following statements is not true of corporate bonds?

The relationship between a bond's price and the yield to maturity

On the secondary bond market,

Which of the following does not influence a bond's yield to maturity?

Corporate bond quotations in the daily financial newspapers include all of the following, except

The City of Chicago would issue ________ if it wished to borrow money.

The ________ strategy is intended to generate periodic and stable interest income.

Investors purchase corporate bonds because

When a bond has a par or face value of $1,000 and a 6% coupon rate, the semiannual payment would be $60.

A corporate bond with a rating below ________ is considered to be a junk bond.

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

A(n) ________ corporate bond will pay a ________ return.

Municipal bonds tend to have a ________ coupon rate than Treasury bonds issued at the same time; however, municipal bonds usually offer a(n) ________ after-tax return to investors.

Federal agency bonds are all of the following, except they

The return on bonds currently held will be more favorable if interest rates ________ over the period you hold the bonds.

Bonds are issued with a callable feature when the issuers expect interest rates to rise.

________ bonds do not contain a risk premium because they are free from default risk.

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

A(n) corporate bond will pay a return.

Municipal bonds tend to have a coupon rate than Treasury bonds issued at the same time; however, municipal bonds usually offer a(n) after-tax return to investors.