Question 1

Bonds with longer maturities are more sensitive to interest rate movements than bonds that have shorter maturities.

Accepted Answer

A) True 
 B)False  True

Question 2

Municipal bonds are most beneficial for investors whose tax bracket is

Accepted Answer

A) 15% or less. 
B) 27% or more. 
C) 28% or more. 
D) large enough to qualify for the earned income credit. 
A) 15% or less. 
B) 27% or more. 
C) 28% or more. 
D) large enough to qualify for the earned income credit. C

Question 3

On December 1,2004 a $1,000 bond,paying 6 percent interest on January 1st and July 1st of each year is purchased for $950.The bond is sold on December 5,2005 for $980.What would be the total monetary return including both interest and capital gains from holding this bond?
(a)$87
(b)$87.90
(c)$88.80
(d)$90

Accepted Answer

(d)($1,000 × 0.06)+ ($980 - $950)= $90 interest capital gains

Question 4

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

Question 5

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 6

List and describe three strategies to invest in bonds.

Accepted Answer

Interest rate strategy is selecting bond

Question 7

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 8

If a bond pays $50 interest semi-annually with a par value of $1,000,its coupon rate is:
(a)5 percent
(b)10 percent
(c)15 percent
(d)20 percent

Accepted Answer

(b)($50 ×

Question 9

A $1,000 face value bond with a quoted price of 98 is selling for
(a)$1,000.
(b)$98.
(c)$980.
(d)$988.

Accepted Answer

(c)$1,000

Question 10

Bonds with ________ terms to maturity are ________ sensitive to interest rate movements than bonds that have short terms remaining until maturity.

Accepted Answer

A) middle; less 
B) longer; less 
C) longer; more 
D) longer; equally 
A) middle; less 
B) longer; less 
C) longer; more 
D) longer; equally

Question 11

Name and explain two risks involved with bonds.

Accepted Answer

Default risk is the risk that the issuer

Question 12

A $1,000 bond with a coupon rate of 6.5 percent has a market price of $950.What is the last yield?
(a)6.5 percent
(b)6.8 percent
(c)7.0 percent
(d)6.2 percent

Accepted Answer

(b)$1,000 × 0.065 =

Question 13

The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.

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 14

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 15

You should consider investing in bonds rather than stock if you

Accepted Answer

A) are willing to take more risk. 
B) wish to receive income from your investment. 
C) are willing to tie up your investment for a long period. 
D) think interest rates will increase significantly in the near future. 
A) are willing to take more risk. 
B) wish to receive income from your investment. 
C) are willing to tie up your investment for a long period. 
D) think interest rates will increase significantly in the near future.

Question 16

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) Have high risk and return 
A) Conservative investment 
B) Pay periodic income 
C) May be convertible 
D) Have high risk and return

Question 17

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

Accepted Answer

A) Par value 
B) Call feature 
C) Convertibility 
D) Yield to maturity 
A) Par value 
B) Call feature 
C) Convertibility 
D) Yield to maturity

Question 18

________ 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

Question 19

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 20

Which of the following 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 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 offer a predictable source of income

Bonds with longer maturities are more sensitive to interest rate movements than bonds that have shorter maturities.

Municipal bonds are most beneficial for investors whose tax bracket is

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

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

List and describe three strategies to invest in bonds.

On the secondary bond market,

If a bond pays $50 interest semi-annually with a par value of $1,000,its coupon rate is: (a)5 percent (b)10 percent (c)15 percent (d)20 percent

A $1,000 face value bond with a quoted price of 98 is selling for (a)$1,000. (b)$98. (c)$980. (d)$988.

Bonds with terms to maturity are sensitive to interest rate movements than bonds that have short terms remaining until maturity.

Name and explain two risks involved with bonds.

A $1,000 bond with a coupon rate of 6.5 percent has a market price of $950.What is the last yield? (a)6.5 percent (b)6.8 percent (c)7.0 percent (d)6.2 percent

The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.

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

You should consider investing in bonds rather than stock if you

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

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

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

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.

Which of the following is not true of corporate bonds?

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

Bonds with longer maturities are more sensitive to interest rate movements than bonds that have shorter maturities.

Municipal bonds are most beneficial for investors whose tax bracket is

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

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

List and describe three strategies to invest in bonds.

On the secondary bond market,

If a bond pays $50 interest semi-annually with a par value of $1,000,its coupon rate is: (a)5 percent (b)10 percent (c)15 percent (d)20 percent

A $1,000 face value bond with a quoted price of 98 is selling for (a)$1,000. (b)$98. (c)$980. (d)$988.

Bonds with ________ terms to maturity are ________ sensitive to interest rate movements than bonds that have short terms remaining until maturity.

Name and explain two risks involved with bonds.

A $1,000 bond with a coupon rate of 6.5 percent has a market price of $950.What is the last yield? (a)6.5 percent (b)6.8 percent (c)7.0 percent (d)6.2 percent

The ________ is an additional return beyond the risk-free rate that can be earned from a deposit guaranteed by the government.

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

You should consider investing in bonds rather than stock if you

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

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

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

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.

Which of the following is not true of corporate bonds?

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 terms to maturity are sensitive to interest rate movements than bonds that have short terms remaining until maturity.

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.