Question 1

A bond with a credit rating of Aa is riskier than a bond with a credit rating of A.

Accepted Answer

A) True 
 B)False  False

Question 2

If you expect that interest rates will decline,it would make sense to switch from a $10 000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

Accepted Answer

A) True 
 B)False  True

Question 3

When the economic conditions are weak,bonds with higher default risk become more susceptible.

Accepted Answer

A) True 
 B)False  True

Question 4

The benefit of the extendible feature of a bond is that

Accepted Answer

A) it allows the issuer to extend the callable period when interest rates rise. 
B) it allows the investor to continue receiving a higher interest rate for a longer period. 
C) it allows the issuer the option to extend the bond during lower interest rate periods. 
D) it allows the investor the option of extending the period before the bond will become callable. 
A) it allows the issuer to extend the callable period when interest rates rise. 
B) it allows the investor to continue receiving a higher interest rate for a longer period. 
C) it allows the issuer the option to extend the bond during lower interest rate periods. 
D) it allows the investor the option of extending the period before the bond will become callable.

Question 5

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

Accepted Answer

A) Extendibility 
B) Callability 
C) Convertibility 
D) Defaultation 
A) Extendibility 
B) Callability 
C) Convertibility 
D) Defaultation

Question 6

If an issuer wanted to protect against a drop in interest rates,the issuer of a bond would probably include which feature?

Accepted Answer

A) Callable 
B) A put 
C) Extendible 
D) Convertible 
A) Callable 
B) A put 
C) Extendible 
D) Convertible

Question 7

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 8

You should be willing to pay $12 064 for a $10 000 face value bond with semi-annual 5 percent coupon which matures in 14 years,if similar bonds are now yielding 4 percent.

Accepted Answer

A) True 
 B)False

Question 9

A government of Canada strip bond maturing in 22 years has lower interest rate risk than a real return bond maturing in 10 years.

Accepted Answer

A) True 
 B)False

Question 10

When considering the risk from investing in a 25-year government of Canada bond yielding 4 percent,the most significant risk is interest rate risk.

Accepted Answer

A) True 
 B)False

Question 11

You expect interest rates to rise in the short term.Your best strategy would be to

Accepted Answer

A) buy T-bills and keep rolling them over. 
B) buy long bonds and use interest income to purchase higher yields. 
C) buy short bonds only and keep rolling them over. 
D) buy T-bills in anticipation of locking in higher rates after the increase. 
A) buy T-bills and keep rolling them over. 
B) buy long bonds and use interest income to purchase higher yields. 
C) buy short bonds only and keep rolling them over. 
D) buy T-bills in anticipation of locking in higher rates after the increase.

Question 12

What is the current yield to maturity on the following bond: $10 000 par value,semi-annual coupon of 5 percent,maturing in six years and currently trading for $10 777?

Accepted Answer

A) 3)30 
B) 4)20 
C) 5)00 
D) 4)64 
A) 3)30 
B) 4)20 
C) 5)00 
D) 4)64

Question 13

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

Accepted Answer

A) $10 000 
B) $13 005 
C) $19 781 
D) $14 908 
A) $10 000 
B) $13 005 
C) $19 781 
D) $14 908

Question 14

Which of the following is the greatest risk in holding a Provincial bond with face value ?$10 000 which matures in five years,has a semi-annual 7% coupon,which you purchased ?for $12 050?

Accepted Answer

A) The inflation risk because the real return may not beat inflation of two percent 
B) Reinvestment risk that the coupons may not be able to be reinvested at the same return 
C) Default risk if interest rates rise by two percent 
D) Interest rate risk because interest rates may increase by one percent 
A) The inflation risk because the real return may not beat inflation of two percent 
B) Reinvestment risk that the coupons may not be able to be reinvested at the same return 
C) Default risk if interest rates rise by two percent 
D) Interest rate risk because interest rates may increase by one percent

Question 15

Mortgage-backed securities are

Accepted Answer

A) issued by the Government of Canada for individual mortgages on residential homes. 
B) backed by a pool of mortgages guaranteed by CMHC. 
C) a pool of mortgages issued and guaranteed by banks. 
D) a pool of CMHC mortgages not available on the secondary market. 
A) issued by the Government of Canada for individual mortgages on residential homes. 
B) backed by a pool of mortgages guaranteed by CMHC. 
C) a pool of mortgages issued and guaranteed by banks. 
D) a pool of CMHC mortgages not available on the secondary market.

Question 16

Which of the following bond quotes might indicate a bond has a high default risk?

Accepted Answer

A) GM 6 percent due 11/19 with a current yield of 7.5 percent 
B) Cott Beverages 6.5 percent due 09/19 with a current yield of 7.75 percent 
C) Eaglecrest Explorations 5.75 percent due 06/19 with a current yield of 7.60 percent 
D) Abitibi Price 7.0 percent due 09/19 with a current yield of 9.85 percent 
A) GM 6 percent due 11/19 with a current yield of 7.5 percent 
B) Cott Beverages 6.5 percent due 09/19 with a current yield of 7.75 percent 
C) Eaglecrest Explorations 5.75 percent due 06/19 with a current yield of 7.60 percent 
D) Abitibi Price 7.0 percent due 09/19 with a current yield of 9.85 percent

Question 17

If you purchased a bond on August 1,2014 on the secondary market with face value $10 000 and received $200 interest on January 1,2015,you would owe tax on the interest earned on your 2014 tax return.

Accepted Answer

A) True 
 B)False

Question 18

Given the following bond quotations:  
Which of the following statements is True?

Accepted Answer

A) The Bombardier bond appears to have a higher risk premium. 
B) The Ontario bond has a 6.3 percent annual coupon rate. 
C) The yields on these bonds illustrate the liquidity preference theory. 
D) The Ontario bond is a better price. 
A) The Bombardier bond appears to have a higher risk premium. 
B) The Ontario bond has a 6.3 percent annual coupon rate. 
C) The yields on these bonds illustrate the liquidity preference theory. 
D) The Ontario bond is a better price.

Question 19

Given the following ATT Ltd.bond information: $1000 par value,maturity Dec 22,2023,semi-annual coupon 7.75 percent,price 105.50 and yield 7.4 percent.How much would a $1000 par value ATT Ltd.bond cost as of the day of this listing?

Accepted Answer

A) $105.50 
B) $740 
C) $1000 
D) $1055 
A) $105.50 
B) $740 
C) $1000 
D) $1055

Question 20

If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon,then the risk premium for the corporate bond is 2.4 percent.

Accepted Answer

A) True 
 B)False

A bond with a credit rating of Aa is riskier than a bond with a credit rating of A.

If you expect that interest rates will decline,it would make sense to switch from a $10 000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

When the economic conditions are weak,bonds with higher default risk become more susceptible.

The benefit of the extendible feature of a bond is that

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

If an issuer wanted to protect against a drop in interest rates,the issuer of a bond would probably include which feature?

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.

You should be willing to pay $12 064 for a $10 000 face value bond with semi-annual 5 percent coupon which matures in 14 years,if similar bonds are now yielding 4 percent.

A government of Canada strip bond maturing in 22 years has lower interest rate risk than a real return bond maturing in 10 years.

When considering the risk from investing in a 25-year government of Canada bond yielding 4 percent,the most significant risk is interest rate risk.

You expect interest rates to rise in the short term.Your best strategy would be to

What is the current yield to maturity on the following bond: $10 000 par value,semi-annual coupon of 5 percent,maturing in six years and currently trading for $10 777?

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

Which of the following is the greatest risk in holding a Provincial bond with face value ?$10 000 which matures in five years,has a semi-annual 7% coupon,which you purchased ?for $12 050?

Mortgage-backed securities are

Which of the following bond quotes might indicate a bond has a high default risk?

If you purchased a bond on August 1,2014 on the secondary market with face value $10 000 and received $200 interest on January 1,2015,you would owe tax on the interest earned on your 2014 tax return.

Given the following bond quotations: Which of the following statements is True?

Given the following ATT Ltd.bond information: $1000 par value,maturity Dec 22,2023,semi-annual coupon 7.75 percent,price 105.50 and yield 7.4 percent.How much would a $1000 par value ATT Ltd.bond cost as of the day of this listing?

If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon,then the risk premium for the corporate bond is 2.4 percent.

Overview of a Financial Plan

Tools for Financial Planning - Applying Time Value Concepts

Tools for Financial Planning - Planning with Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Managing Your Financial Resources - Banking Services and Managing Your Money

Managing Your Financial Resources - Assessing, Managing, and Securing Your Credit

Managing Your Financial Resources - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowner's Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

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Exam 12: Personal Investing - Investing in Bonds

A bond with a credit rating of Aa is riskier than a bond with a credit rating of A.

If you expect that interest rates will decline,it would make sense to switch from a $10 000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

When the economic conditions are weak,bonds with higher default risk become more susceptible.

The benefit of the extendible feature of a bond is that

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

If an issuer wanted to protect against a drop in interest rates,the issuer of a bond would probably include which feature?

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.

You should be willing to pay $12 064 for a $10 000 face value bond with semi-annual 5 percent coupon which matures in 14 years,if similar bonds are now yielding 4 percent.

A government of Canada strip bond maturing in 22 years has lower interest rate risk than a real return bond maturing in 10 years.

When considering the risk from investing in a 25-year government of Canada bond yielding 4 percent,the most significant risk is interest rate risk.

You expect interest rates to rise in the short term.Your best strategy would be to

What is the current yield to maturity on the following bond: $10 000 par value,semi-annual coupon of 5 percent,maturing in six years and currently trading for $10 777?

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

Which of the following is the greatest risk in holding a Provincial bond with face value ?$10 000 which matures in five years,has a semi-annual 7% coupon,which you purchased ?for $12 050?

Mortgage-backed securities are

Which of the following bond quotes might indicate a bond has a high default risk?

If you purchased a bond on August 1,2014 on the secondary market with face value $10 000 and received $200 interest on January 1,2015,you would owe tax on the interest earned on your 2014 tax return.

Given the following bond quotations: Which of the following statements is True?

Given the following ATT Ltd.bond information: $1000 par value,maturity Dec 22,2023,semi-annual coupon 7.75 percent,price 105.50 and yield 7.4 percent.How much would a $1000 par value ATT Ltd.bond cost as of the day of this listing?

If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon,then the risk premium for the corporate bond is 2.4 percent.

Overview of a Financial Plan

Tools for Financial Planning - Applying Time Value Concepts

Tools for Financial Planning - Planning with Personal Financial Statements

Tools for Financial Planning - Using Tax Concepts for Planning

Managing Your Financial Resources - Banking Services and Managing Your Money

Managing Your Financial Resources - Assessing, Managing, and Securing Your Credit

Managing Your Financial Resources - Purchasing and Financing a Home

Protecting Your Wealth - Auto and Homeowner's Insurance

Protecting Your Wealth - Health and Life Insurance

Personal Investing - Investing Fundamentals

Personal Investing - Investing in Stocks

Personal Investing - Investing in Mutual Funds

Retirement and Estate Planning - Retirement Planning

Retirement and Estate Planning - Estate Planning

Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Filters