Question 1

If the bond market expects a 10 percent yield,and ABC Ltd.pays coupon interest on its $1000 par value bond at eight percent semi-annually,the discount rate that investors should apply in the calculation of ABC Ltd.bond price should be

Accepted Answer

A)  4 percent.
B)  10 percent.
C)  8 percent.
D)  5 percent. B

Question 2

Other things being equal,in general,which of the following bonds is the lowest-risk bond?

Accepted Answer

A)  Aa
B)  AAA
C)  AA
D)  These are the same. B

Question 3

A pool of money that is set aside by a corporation or government to repurchase a set amount of bonds in a set period of time is called a

Accepted Answer

A)  sinking fund.
B)  redemption fund.
C)  guaranteed fund.
D)  liquidity fund. A

Question 4

A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature.

Accepted Answer

A) True 
 B)False

Question 5

Convertible bonds are suitable for investors who

Accepted Answer

A)  want to maximize interest returns in periods when interest rates are low.
B)  want to convert the bond into a longer term at the same rate of interest.
C)  want the possibility of benefiting from a rise in the issuer's share price.
D)  have a lower risk tolerance and are seeking income.

Question 6

A real return bond with a 7 percent coupon will increase its interest payment annually to $71.40 if inflation rises by 2 percent.

Accepted Answer

A) True 
 B)False

Question 7

If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon,then the risk premium for the corporate bond is 2.4 percent.

Accepted Answer

A) True 
 B)False

Question 8

Bond interest is exempt from income tax (in the current year)if it is held in an RRSP,a TFSA or an RESP.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following bond quotes might indicate a bond has a high default risk?

Accepted Answer

A)  GM 6 percent due 11/19 with a current yield of 7.5 percent
B)  Cott Beverages 6.5 percent due 09/19 with a current yield of 7.75 percent
C)  Eaglecrest Explorations 5.75 percent due 06/19 with a current yield of 7.60 percent
D)  Abitibi Price 7.0 percent due 09/19 with a current yield of 9.85 percent

Question 10

A bond with a credit rating of AA is riskier than a bond with a credit rating of A.

Accepted Answer

A) True 
 B)False

Question 11

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.
D)  bond prices remain constant but yields vary with interest rate movement.

Question 12

Which of the following bonds would be most attractive to an investor who is very concerned about risk?

Accepted Answer

A)  A real return bond maturing in five years
B)  A government of Canada bond maturing in fifteen years
C)  A government of Canada strip bond maturing in ten years
D)  An AAA rated corporate bond maturing in five years

Question 13

A put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures.

Accepted Answer

A) True 
 B)False

Question 14

If you purchased a bond with face value $10 000 and coupon of 6 percent,then sold it for $10600 a half year later,you would have to pay tax on the capital gain as well as tax on the coupon payment of $300.

Accepted Answer

A) True 
 B)False

Question 15

Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year.What interest payment will Rejean receive in the second year?

Accepted Answer

The answer of Rejean purchased a 20-year 6 percent real...

Question 16

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 17

What is a disadvantage of issuing bonds compared to shares?

Accepted Answer

A)  The dividends must be paid indefinitely.
B)  Bond interest expense is not tax deductible.
C)  Interest must be paid on a periodic basis regardless of earnings.
D)  Bondholders may require early repayment.

Question 18

If a company anticipates a substantive decline in interest rates during the term of the bond,which feature is likely to be included in its bond offering?

Accepted Answer

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

Question 19

Generally,bonds have maturities between 1 and 30 years and pay interest annually.

Accepted Answer

A) True 
 B)False

Question 20

Given the following bond information: Issuer	coupon	maturity	price	yield
Ontario 	3.150 	2022-Jun-02 	99.00 	3.28
What would be the taxable income on this bond if it were purchased at this price on June 1st and sold December 1st for a price of 103.00 and has face value of $20 000 and a semi-annual coupon payment?

Accepted Answer

A)  Taxable capital gain of $800 and interest of $630.
B)  Taxable capital gain of $400 and interest of $315.
C)  Taxable capital gain of $1600 and interest of $656.
D)  Taxable capital gain of $200 and interest of $157.50.

Exam 4: Personal Investing - Investing in Bonds

If the bond market expects a 10 percent yield,and ABC Ltd.pays coupon interest on its $1000 par value bond at eight percent semi-annually,the discount rate that investors should apply in the calculation of ABC Ltd.bond price should be

Other things being equal,in general,which of the following bonds is the lowest-risk bond?

A pool of money that is set aside by a corporation or government to repurchase a set amount of bonds in a set period of time is called a

A bond with a call feature would pay a slightly higher interest rate than the same bond without this feature.

Convertible bonds are suitable for investors who

A real return bond with a 7 percent coupon will increase its interest payment annually to $71.40 if inflation rises by 2 percent.

If a new issue corporate bond offers a coupon rate of 6.2 percent and Government of Canada bonds with the same term and features are paying a 3.8 percent coupon,then the risk premium for the corporate bond is 2.4 percent.

Bond interest is exempt from income tax (in the current year)if it is held in an RRSP,a TFSA or an RESP.

Which of the following bond quotes might indicate a bond has a high default risk?

A bond with a credit rating of AA is riskier than a bond with a credit rating of A.

On the secondary bond market

Which of the following bonds would be most attractive to an investor who is very concerned about risk?

A put feature on a bond is attractive to investors who believe interest rates will drop before the bond matures.

If you purchased a bond with face value $10 000 and coupon of 6 percent,then sold it for $10600 a half year later,you would have to pay tax on the capital gain as well as tax on the coupon payment of $300.

Rejean purchased a 20-year 6 percent real return bond for $15 000 and the CPI has increased by 1.5 percent in the first year.What interest payment will Rejean receive in the second year?

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

What is a disadvantage of issuing bonds compared to shares?

If a company anticipates a substantive decline in interest rates during the term of the bond,which feature is likely to be included in its bond offering?

Generally,bonds have maturities between 1 and 30 years and pay interest annually.