Question 1

A put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

A real return bond with a 7 percent coupon will increase its interest payment annually to $71.40 if inflation rises by 2 percent.

Accepted Answer

A) True 
 B)False

Question 4

Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year.What interest payment will Rejean receive in the second year?

Accepted Answer

The return from a real return bond is in

Question 5

A debenture and a bond issued by the same company are the same.

Accepted Answer

A) True 
 B)False

Question 6

The total return on a 5 year bond with $10 000 par value and an annual coupon rate of 6 percent will be most favourable if interest rates

Accepted Answer

A) increase to 8 percent. 
B) decrease to 4 percent. 
C) increase to 7 percent. 
D) decrease to 5 percent. 
A) increase to 8 percent. 
B) decrease to 4 percent. 
C) increase to 7 percent. 
D) decrease to 5 percent.

Question 7

What is a disadvantage of issuing bonds compared to shares?

Accepted Answer

A) The dividends must be paid indefinitely. 
B) Bond interest expense is not tax deductible. 
C) Interest must be paid on a periodic basis regardless of earnings. 
D) Bondholders may require early repayment. 
A) The dividends must be paid indefinitely. 
B) Bond interest expense is not tax deductible. 
C) Interest must be paid on a periodic basis regardless of earnings. 
D) Bondholders may require early repayment.

Question 8

A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

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

Question 10

Michael decided to buy a strip bond for his RRSP.He purchased a three year $5000 face bond for $3777.What is the annualized return on this investment?

Accepted Answer

A) 7)80 percent 
B) 9)80 percent 
C) 9)36 percent 
D) 8)15 percent 
A) 7)80 percent 
B) 9)80 percent 
C) 9)36 percent 
D) 8)15 percent

Question 11

Which of the following is wrong?

Accepted Answer

A) The par value of a bond is its face value. 
B) The par value of a bond is its market value in the secondary market. 
C) The par value of a bond will be paid to the bondholder at maturity. 
D) The par value multiplied by the coupon rate equals the interest paid to investors annually. 
A) The par value of a bond is its face value. 
B) The par value of a bond is its market value in the secondary market. 
C) The par value of a bond will be paid to the bondholder at maturity. 
D) The par value multiplied by the coupon rate equals the interest paid to investors annually.

Question 12

Investing in bonds based on interest rate expectations

Accepted Answer

A) can be a reliable strategy to enhance bond yields. 
B) can be costly if predictions on interest rates are incorrect. 
C) increases bond values if you move to long-term bonds when interest rates rise. 
D) works well when the yield curve is inverted. 
A) can be a reliable strategy to enhance bond yields. 
B) can be costly if predictions on interest rates are incorrect. 
C) increases bond values if you move to long-term bonds when interest rates rise. 
D) works well when the yield curve is inverted.

Question 13

The inclusion of real return bonds in the federal government's financing requirements has made them very attractive.Discuss all of the features of a real return bond.What risk is attached to a 25 year real return bond yielding 4 percent?

Accepted Answer

The main feature is that they remove inf

Question 14

Callable bonds and mortgage backed securities both have prepayment risk.

Accepted Answer

A) True 
 B)False

Question 15

If you purchased a bond with face value $10 000 and coupon of 6 percent, then sold it for $10600a half year later, you would have to pay tax on the capital gain as well as tax on the coupon payment of $300.

Accepted Answer

A) True 
 B)False

Question 16

Allan purchased a five-year strip bond from the Government of Canada with a $100 000 face value.The equivalent yield is 5.91 percent.What interest will the bond earn over the five-year term?

Accepted Answer

Keystrokes are: FV = $100 000;

Question 17

Generally,bonds have maturities between 1 and 30 years and pay interest annually.

Accepted Answer

A) True 
 B)False

Question 18

Given the following bond information:  
What would be the taxable income on this bond if it were purchased at this price on December 20th and sold a year later for a price of 103.00? Assume face value of $10 000 and a semi-annual coupon payment.

Accepted Answer

A) Taxable capital gain of $400 and interest of $735 
B) Taxable capital loss of $400 and interest of $735 
C) Taxable capital loss of $200 and interest of $735 
D) Taxable capital gain of $200 and interest of $656 
A) Taxable capital gain of $400 and interest of $735 
B) Taxable capital loss of $400 and interest of $735 
C) Taxable capital loss of $200 and interest of $735 
D) Taxable capital gain of $200 and interest of $656

Question 19

Real return bonds have their par value and coupon payments adjusted by CPI.

Accepted Answer

A) True 
 B)False

Question 20

Canada Savings Bonds and T-Bills are both secure short-term debt securities which can be purchased on the secondary market.

Accepted Answer

A) True 
 B)False

A put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures.

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

A real return bond with a 7 percent coupon will increase its interest payment annually to $71.40 if inflation rises by 2 percent.

Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year.What interest payment will Rejean receive in the second year?

A debenture and a bond issued by the same company are the same.

The total return on a 5 year bond with $10 000 par value and an annual coupon rate of 6 percent will be most favourable if interest rates

What is a disadvantage of issuing bonds compared to shares?

A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature.

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

Michael decided to buy a strip bond for his RRSP.He purchased a three year $5000 face bond for $3777.What is the annualized return on this investment?

Which of the following is wrong?

Investing in bonds based on interest rate expectations

The inclusion of real return bonds in the federal government's financing requirements has made them very attractive.Discuss all of the features of a real return bond.What risk is attached to a 25 year real return bond yielding 4 percent?

Callable bonds and mortgage backed securities both have prepayment risk.

If you purchased a bond with face value $10 000 and coupon of 6 percent, then sold it for $10600a half year later, you would have to pay tax on the capital gain as well as tax on the coupon payment of $300.

Allan purchased a five-year strip bond from the Government of Canada with a $100 000 face value.The equivalent yield is 5.91 percent.What interest will the bond earn over the five-year term?

Generally,bonds have maturities between 1 and 30 years and pay interest annually.

Given the following bond information: What would be the taxable income on this bond if it were purchased at this price on December 20th and sold a year later for a price of 103.00? Assume face value of $10 000 and a semi-annual coupon payment.

Real return bonds have their par value and coupon payments adjusted by CPI.

Canada Savings Bonds and T-Bills are both secure short-term debt securities which can be purchased on the secondary market.

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 put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures.

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

A real return bond with a 7 percent coupon will increase its interest payment annually to $71.40 if inflation rises by 2 percent.

Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year.What interest payment will Rejean receive in the second year?

A debenture and a bond issued by the same company are the same.

The total return on a 5 year bond with $10 000 par value and an annual coupon rate of 6 percent will be most favourable if interest rates

What is a disadvantage of issuing bonds compared to shares?

A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature.

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

Michael decided to buy a strip bond for his RRSP.He purchased a three year $5000 face bond for $3777.What is the annualized return on this investment?

Which of the following is wrong?

Investing in bonds based on interest rate expectations

The inclusion of real return bonds in the federal government's financing requirements has made them very attractive.Discuss all of the features of a real return bond.What risk is attached to a 25 year real return bond yielding 4 percent?

Callable bonds and mortgage backed securities both have prepayment risk.

If you purchased a bond with face value $10 000 and coupon of 6 percent, then sold it for $10600a half year later, you would have to pay tax on the capital gain as well as tax on the coupon payment of $300.

Allan purchased a five-year strip bond from the Government of Canada with a $100 000 face value.The equivalent yield is 5.91 percent.What interest will the bond earn over the five-year term?

Generally,bonds have maturities between 1 and 30 years and pay interest annually.

Given the following bond information: What would be the taxable income on this bond if it were purchased at this price on December 20th and sold a year later for a price of 103.00? Assume face value of $10 000 and a semi-annual coupon payment.

Real return bonds have their par value and coupon payments adjusted by CPI.

Canada Savings Bonds and T-Bills are both secure short-term debt securities which can be purchased on the secondary market.

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