Question 1

Bonds that may be exchanged for common stock when the stock reaches a specified price are called

Accepted Answer

A)  options. 
B)  convertible bonds. 
C)  callable bonds. 
D)  stock bonds. 
A)  options. 
B)  convertible bonds. 
C)  callable bonds. 
D)  stock bonds.

Question 2

If you buy a corporate bond for $970 and sell it six months later for $1,050,you will have

Accepted Answer

A)  interest income of $80. 
B)  a short-term capital gain of $80. 
C)  a long-term capital gain of $80. 
D)  nontaxable income of $80. 
A)  interest income of $80. 
B)  a short-term capital gain of $80. 
C)  a long-term capital gain of $80. 
D)  nontaxable income of $80.

Question 3

Federal agency bonds are all of the following except

Accepted Answer

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

Question 4

Figuring the present value of future coupon payments,along with the present value of the principal payment,is a good way to determine the value of a bond.

Accepted Answer

A) True 
 B)False

Question 5

Convertible bonds tend to offer a(n)________ return than nonconvertible bonds.

Accepted Answer

A)  higher 
B)  lower 
C)  similar 
D)  indexed 
A)  higher 
B)  lower 
C)  similar 
D)  indexed

Question 6

The current yield on a $1,000 par value bond worth $900 and a coupon rate of 10% is

Accepted Answer

A)  12.05%. 
B)  9%. 
C)  10%. 
D)  11.11%. 
A)  12.05%. 
B)  9%. 
C)  10%. 
D)  11.11%.

Question 7

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 8

Use the following two columns of items to answer the matching questions below:
-risk premium

Accepted Answer

A) risk that a bond's price will decline in response to an increase in interest rates 
B) compensation required for default risk 
C) risk that the face value may not be repaid 
A) risk that a bond's price will decline in response to an increase in interest rates 
B) compensation required for default risk 
C) risk that the face value may not be repaid

Question 9

Bonds usually pay interest

Accepted Answer

A)  annually. 
B)  semiannually. 
C)  quarterly. 
D)  monthly. 
A)  annually. 
B)  semiannually. 
C)  quarterly. 
D)  monthly.

Question 10

The interest received from U.S.Treasury bonds is exempt from federal,state,and local income taxes.

Accepted Answer

A) True 
 B)False

Question 11

As interest rates go up,bond prices

Accepted Answer

A)  also go up. 
B)  go down. 
C)  remain the same. 
D)  may go up or down. 
A)  also go up. 
B)  go down. 
C)  remain the same. 
D)  may go up or down.

Question 12

Which of the following is not a characteristic of Treasury bonds?

Accepted Answer

A)  Long-term debt securities 
B)  Issued by the U.S. Treasury 
C)  Exempt from federal tax 
D)  Highly liquid 
A)  Long-term debt securities 
B)  Issued by the U.S. Treasury 
C)  Exempt from federal tax 
D)  Highly liquid

Question 13

Municipal bonds are most beneficial for investors who

Accepted Answer

A)  reside in a different state from the municipality that issued the bonds. 
B)  are in a low tax bracket. 
C)  are in a high tax bracket. 
D)  qualify for the earned income credit. 
A)  reside in a different state from the municipality that issued the bonds. 
B)  are in a low tax bracket. 
C)  are in a high tax bracket. 
D)  qualify for the earned income credit.

Question 14

If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100,the taxable income you would have realized over the two year period is

Accepted Answer

A)  $100 long term capital gain. 
B)  $160 ordinary income gain. 
C)  $60 ordinary income and $100 short term capital gain. 
D)  $60 ordinary income and $100 long term capital gain. 
A)  $100 long term capital gain. 
B)  $160 ordinary income gain. 
C)  $60 ordinary income and $100 short term capital gain. 
D)  $60 ordinary income and $100 long term capital gain.

Question 15

Since municipal bond interest is exempt from federal income tax,it is especially beneficial to high-income investors.

Accepted Answer

A) True 
 B)False

Question 16

Generally,bonds have maturities between 10 and 30 years and pay interest annually.

Accepted Answer

A) True 
 B)False

Question 17

The ________ is the stated interest rate of the bond at the time it was issued.

Accepted Answer

A)  effective rate 
B)  yield 
C)  coupon rate 
D)  IRR 
A)  effective rate 
B)  yield 
C)  coupon rate 
D)  IRR

Question 18

If a bond pays $50 interest semiannually with a par value of $1,000,its coupon rate is

Accepted Answer

A)  5%. 
B)  10%. 
C)  15%. 
D)  20%. 
A)  5%. 
B)  10%. 
C)  15%. 
D)  20%.

Question 19

The advantage of a convertible bond to the investor is

Accepted Answer

A)  higher coupon interest rates. 
B)  ability to "own the upside" if the company performs well. 
C)  convertibility protects the investor if the stock decreases in value. 
D)  none of these are advantages. 
A)  higher coupon interest rates. 
B)  ability to "own the upside" if the company performs well. 
C)  convertibility protects the investor if the stock decreases in value. 
D)  none of these are advantages.

Question 20

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

Accepted Answer

A) long-term securities issued by government agencies or corporations 
B) par value or the amount returned to the investor at maturity 
C) bonds that can be converted into stock 
D) annualized return on a bond if held to maturity 
A) long-term securities issued by government agencies or corporations 
B) par value or the amount returned to the investor at maturity 
C) bonds that can be converted into stock 
D) annualized return on a bond if held to maturity

Exam 16: Investing in Bonds

Bonds that may be exchanged for common stock when the stock reaches a specified price are called

If you buy a corporate bond for $970 and sell it six months later for $1,050,you will have

Federal agency bonds are all of the following except

Figuring the present value of future coupon payments,along with the present value of the principal payment,is a good way to determine the value of a bond.

Convertible bonds tend to offer a(n)________ return than nonconvertible bonds.

The current yield on a $1,000 par value bond worth $900 and a coupon rate of 10% is

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

Use the following two columns of items to answer the matching questions below: -risk premium

Bonds usually pay interest

The interest received from U.S.Treasury bonds is exempt from federal,state,and local income taxes.

As interest rates go up,bond prices

Which of the following is not a characteristic of Treasury bonds?

Municipal bonds are most beneficial for investors who

If you purchased a 6% bond at par value and sold it 12 months plus 1 day later for $1100,the taxable income you would have realized over the two year period is

Since municipal bond interest is exempt from federal income tax,it is especially beneficial to high-income investors.

Generally,bonds have maturities between 10 and 30 years and pay interest annually.

The ________ is the stated interest rate of the bond at the time it was issued.

If a bond pays $50 interest semiannually with a par value of $1,000,its coupon rate is

The advantage of a convertible bond to the investor is

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

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