Question 1

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

Accepted Answer

A) True 
 B)False

Question 2

Junk bonds offer a relatively high rate of return,but they are more likely to default than other bonds.

Accepted Answer

A) True 
 B)False

Question 3

Another name for high-yield bonds is

Accepted Answer

A)  corporate bonds. 
B)  federal agency bonds. 
C)  T-bills. 
D)  junk bonds. 
A)  corporate bonds. 
B)  federal agency bonds. 
C)  T-bills. 
D)  junk bonds.

Question 4

Which of the following statements 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 can 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 can offer a predictable source of income.

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

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 7

A bond's par value or face value is the amount the investor will get paid when the bond matures.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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

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 10

If a bond can be exchanged for common stock if the stock reaches a specified price,the bond is a(n)________.

Accepted Answer

The answer of If a bond can be exchanged for...

Question 11

You own a $1,000 par value convertible bond with a 6% coupon rate. The bond is convertible into 20 shares of stock at the investor's discretion.The stock price has reached $51 per share with a $1 per share annual dividend,but you do not forecast any further price appreciation in the stock.Should you make the conversion?

Accepted Answer

A)  No, 20 shares of stock are not worth $1,000. 
B)  Yes, since the stock is worth $51 per share it is worth more than the bond. 
C)  No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend. 
D)  Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend. 
A)  No, 20 shares of stock are not worth $1,000. 
B)  Yes, since the stock is worth $51 per share it is worth more than the bond. 
C)  No, the total stock is only worth $20 more than the bond, and you would lose $40 in annual cash flow based on the coupon rate versus the dividend. 
D)  Yes, while the stock is only worth $20 more in total than the bond, you will receive an annual $1 per share dividend.

Question 12

The possibility that a bond will be called by the corporation prior to its maturity is an example of ________ risk.

Accepted Answer

The answer of The possibility that a bond will be...

Question 13

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

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

Question 14

If you build your financial and investment plan with a focus on safety and security you should probably avoid

Accepted Answer

A)  small cap equities. 
B)  junk bonds. 
C)  BB rated municipal bonds. 
D)  all of the above should be avoided. 
A)  small cap equities. 
B)  junk bonds. 
C)  BB rated municipal bonds. 
D)  all of the above should be avoided.

Question 15

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

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

Question 16

The City of Chicago would issue ________ if it wished to borrow money.

Accepted Answer

The answer of The City of Chicago would issue ________...

Question 17

Because convertibility is a desirable feature for investors,convertible bonds tend to offer a higher return than nonconvertible bonds.

Accepted Answer

A) True 
 B)False

Question 18

Your son will be ready for college in 10 years and your daughter in 15.Which of the following bond strategies would be best suited to your goal of financing your children's education?

Accepted Answer

A)  Interest rate 
B)  Passive 
C)  Maturity matching 
D)  Active 
A)  Interest rate 
B)  Passive 
C)  Maturity matching 
D)  Active

Question 19

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

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 20

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor,what must the market price of the stock be in order for the investor to make the conversion?

Accepted Answer

A)  $1,000 
B)  $49.50 
C)  $50.01 
D)  $50 
A)  $1,000 
B)  $49.50 
C)  $50.01 
D)  $50

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

Junk bonds offer a relatively high rate of return,but they are more likely to default than other bonds.

Another name for high-yield bonds is

Which of the following statements is not true of corporate bonds?

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

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.

A bond's par value or face value is the amount the investor will get paid when the bond matures.

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

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

If a bond can be exchanged for common stock if the stock reaches a specified price,the bond is a(n)________.

The possibility that a bond will be called by the corporation prior to its maturity is an example of ________ risk.

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

If you build your financial and investment plan with a focus on safety and security you should probably avoid

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

The City of Chicago would issue ________ if it wished to borrow money.

Because convertibility is a desirable feature for investors,convertible bonds tend to offer a higher return than nonconvertible bonds.

Your son will be ready for college in 10 years and your daughter in 15.Which of the following bond strategies would be best suited to your goal of financing your children's education?

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor,what must the market price of the stock be in order for the investor to make the conversion?

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

The risk premium of bonds is the amount by which their annualized yield exceeds the Treasury bond yield.

Junk bonds offer a relatively high rate of return,but they are more likely to default than other bonds.

Another name for high-yield bonds is

Which of the following statements is not true of corporate bonds?

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

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.

A bond's par value or face value is the amount the investor will get paid when the bond matures.

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

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

If a bond can be exchanged for common stock if the stock reaches a specified price,the bond is a(n)________.

The possibility that a bond will be called by the corporation prior to its maturity is an example of ________ risk.

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

If you build your financial and investment plan with a focus on safety and security you should probably avoid

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

The City of Chicago would issue ________ if it wished to borrow money.

Because convertibility is a desirable feature for investors,convertible bonds tend to offer a higher return than nonconvertible bonds.

Your son will be ready for college in 10 years and your daughter in 15.Which of the following bond strategies would be best suited to your goal of financing your children's education?

The ________ is an additional return beyond the risk-free rate that investors require to compensate them for the additional risk.

If a par value $1,000 bond is convertible into 20 shares of the company's stock at the discretion of the investor,what must the market price of the stock be in order for the investor to make the conversion?

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

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.