Question 1

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

Accepted Answer

A) True 
 B)False  False

Question 2

If an investor purchases a diversified portfolio of bonds and holds them until maturity,the investor is employing the ________ strategy of bond investing.

Accepted Answer

passive

Question 3

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. D

Question 4

All of the following may be a feature of a bond,except

Accepted Answer

A)  convertible. 
B)  dividends. 
C)  tax-free. 
D)  callable. 
A)  convertible. 
B)  dividends. 
C)  tax-free. 
D)  callable.

Question 5

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 6

Bonds that have a call feature are less desirable to investors and therefore pay a slightly higher rate than bonds without this feature.

Accepted Answer

A) True 
 B)False

Question 7

A passive strategy of bond investing consists of buying bonds for the long term and not selling them until maturity.

Accepted Answer

A) True 
 B)False

Question 8

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 9

A $1,000 bond with a coupon rate of 6.5% has a market price of $950.What is the current yield?

Accepted Answer

A)  6.5% 
B)  6.8% 
C)  7.0% 
D)  6.2% 
A)  6.5% 
B)  6.8% 
C)  7.0% 
D)  6.2%

Question 10

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 11

The maturity matching strategy involves selecting bonds that will generate payments to match future expenses.

Accepted Answer

A) True 
 B)False

Question 12

If a company anticipates a substantial decline in interest rates in the future,which of the following is it likely to include in a bond?

Accepted Answer

A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Reverse dividend 
A)  Par value 
B)  Call feature 
C)  Convertibility 
D)  Reverse dividend

Question 13

Bonds are equity investments issued by corporations or government agencies.

Accepted Answer

A) True 
 B)False

Question 14

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 15

________ 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 16

A $1,000 face value bond with a quoted price of 98 is selling for

Accepted Answer

A)  $1,000. 
B)  $98. 
C)  $980. 
D)  $988. 
A)  $1,000. 
B)  $98. 
C)  $980. 
D)  $988.

Question 17

Name and explain two risks involved with bonds.

Accepted Answer

Default risk is the risk that the issuer

Question 18

If you are concerned that market interest rates may risk 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 19

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 20

Callable bonds are issued when interest rates are expected to

Accepted Answer

A)  stay the same. 
B)  decline. 
C)  rise. 
D)  None of the above. 
A)  stay the same. 
B)  decline. 
C)  rise. 
D)  None of the above.

Exam 16: Investing in Bonds

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

If an investor purchases a diversified portfolio of bonds and holds them until maturity,the investor is employing the ________ strategy of bond investing.

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

All of the following may be a feature of a bond,except

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 that have a call feature are less desirable to investors and therefore pay a slightly higher rate than bonds without this feature.

A passive strategy of bond investing consists of buying bonds for the long term and not selling them until maturity.

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

A $1,000 bond with a coupon rate of 6.5% has a market price of $950.What is the current yield?

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 maturity matching strategy involves selecting bonds that will generate payments to match future expenses.

If a company anticipates a substantial decline in interest rates in the future,which of the following is it likely to include in a bond?

Bonds are equity investments issued by corporations or government agencies.

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.

A $1,000 face value bond with a quoted price of 98 is selling for

Name and explain two risks involved with bonds.

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

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

Callable bonds are issued when interest rates are expected to

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

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