Question 1

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 2

When you invest in a diversified portfolio of bonds that are held for a long period of time this is referred to as a(n)

Accepted Answer

A) income strategy. 
B) risk reduction strategy. 
C) passive strategy. 
D) interest rate strategy. 
A) income strategy. 
B) risk reduction strategy. 
C) passive strategy. 
D) interest rate strategy.

Question 3

List and describe three strategies to invest in bonds.

Accepted Answer

Interest rate strategy is selecting bond

Question 4

T-Bills and BAs are both very secure short-term debt securities which pay the same interest rate.

Accepted Answer

A) True 
 B)False

Question 5

If you paid $9600 for a bond with par value of $10 000 and a 5 percent coupon rate,the semi-annual payment would be $250.

Accepted Answer

A) True 
 B)False

Question 6

If an investor is expecting a period of higher interest rates soon,which bond feature would she prefer?

Accepted Answer

A) Callable 
B) Retractable 
C) Convertible 
D) Extendible 
A) Callable 
B) Retractable 
C) Convertible 
D) Extendible

Question 7

Which of the following is the greatest risk in holding a Provincial bond with face value $10000 which matures in five years,has a semi-annual 7% coupon,which you purchased for $12050 ?

Accepted Answer

A) The inflation risk because the real return may not beat inflation of two percent 
B) Reinvestment risk that the coupons may not be able to be reinvested at the same return 
C) Default risk if interest rates rise by two percent 
D) Interest rate risk because interest rates may increase by one percent 
A) The inflation risk because the real return may not beat inflation of two percent 
B) Reinvestment risk that the coupons may not be able to be reinvested at the same return 
C) Default risk if interest rates rise by two percent 
D) Interest rate risk because interest rates may increase by one percent

Question 8

Your son will be ready for college in 10 years and your daughter in 14 years.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 9

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

Accepted Answer

A) $10 000 
B) $13 005 
C) $19 781 
D) $14 908 
A) $10 000 
B) $13 005 
C) $19 781 
D) $14 908

Question 10

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 11

If you buy a corporate bond for $9700 and sell it six months later for $10500 ,you will have

Accepted Answer

A) interest income of $800. 
B) a capital gain of $800. 
C) a taxable capital gain of $800. 
D) non-taxable income of $800. 
A) interest income of $800. 
B) a capital gain of $800. 
C) a taxable capital gain of $800. 
D) non-taxable income of $800.

Question 12

Which of the following should be the highest yield bonds?

Accepted Answer

A) Standard and Poor's rated C bonds 
B) Moody's rated C bonds 
C) Standard and Poor's rated CCC bonds 
D) Moody's rated Ca bonds 
A) Standard and Poor's rated C bonds 
B) Moody's rated C bonds 
C) Standard and Poor's rated CCC bonds 
D) Moody's rated Ca bonds

Question 13

The amount returned to the investor when a bond matures is called

Accepted Answer

A) principal. 
B) interest gain. 
C) capital gain. 
D) terminal value. 
A) principal. 
B) interest gain. 
C) capital gain. 
D) terminal value.

Question 14

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 15

Real return bonds have their par value and coupon payments adjusted by the consumer price index.

Accepted Answer

A) True 
 B)False

Question 16

If you expect that interest rates will decline,it would make sense to switch from a $10000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Investing in bonds gives you the possibility of

Accepted Answer

A) capital gains and interest income. 
B) guaranteed income with no capital risk. 
C) capital gains and dividend income. 
D) deferring taxes on accrued interest. 
A) capital gains and interest income. 
B) guaranteed income with no capital risk. 
C) capital gains and dividend income. 
D) deferring taxes on accrued interest.

Question 19

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 20

A retractable bond pays a lower interest rate,all else equal.

Accepted Answer

A) True 
 B)False

Which of the following is wrong?

When you invest in a diversified portfolio of bonds that are held for a long period of time this is referred to as a(n)

List and describe three strategies to invest in bonds.

T-Bills and BAs are both very secure short-term debt securities which pay the same interest rate.

If you paid $9600 for a bond with par value of $10 000 and a 5 percent coupon rate,the semi-annual payment would be $250.

If an investor is expecting a period of higher interest rates soon,which bond feature would she prefer?

Which of the following is the greatest risk in holding a Provincial bond with face value $10000 which matures in five years,has a semi-annual 7% coupon,which you purchased for $12050 ?

Your son will be ready for college in 10 years and your daughter in 14 years.Which of the following bond strategies would be best suited to your goal of financing your children's education?

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

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.

If you buy a corporate bond for $9700 and sell it six months later for $10500 ,you will have

Which of the following should be the highest yield bonds?

The amount returned to the investor when a bond matures is called

Investing in bonds based on interest rate expectations

Real return bonds have their par value and coupon payments adjusted by the consumer price index.

If you expect that interest rates will decline,it would make sense to switch from a $10000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

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

Investing in bonds gives you the possibility of

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?

A retractable bond pays a lower interest rate,all else equal.

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 4: Personal Investing - Investing in Bonds

Which of the following is wrong?

When you invest in a diversified portfolio of bonds that are held for a long period of time this is referred to as a(n)

List and describe three strategies to invest in bonds.

T-Bills and BAs are both very secure short-term debt securities which pay the same interest rate.

If you paid $9600 for a bond with par value of $10 000 and a 5 percent coupon rate,the semi-annual payment would be $250.

If an investor is expecting a period of higher interest rates soon,which bond feature would she prefer?

Which of the following is the greatest risk in holding a Provincial bond with face value $10000 which matures in five years,has a semi-annual 7% coupon,which you purchased for $12050 ?

Your son will be ready for college in 10 years and your daughter in 14 years.Which of the following bond strategies would be best suited to your goal of financing your children's education?

If you held a bond with face value of $10 000 maturity in 12 years,semi-annual coupon of 6 percent,and the coupons on par value bonds with the same maturity today are 3 percent,how much would your bond be worth now on the secondary market?

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.

If you buy a corporate bond for $9700 and sell it six months later for $10500 ,you will have

Which of the following should be the highest yield bonds?

The amount returned to the investor when a bond matures is called

Investing in bonds based on interest rate expectations

Real return bonds have their par value and coupon payments adjusted by the consumer price index.

If you expect that interest rates will decline,it would make sense to switch from a $10000 par value bond with a 4 percent semi-annual coupon maturing in three years to a bond with the same features,except maturing in 12 years.

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

Investing in bonds gives you the possibility of

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?

A retractable bond pays a lower interest rate,all else equal.

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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