Deck 15: Investing in Bonds

Question 1

Treasury notes are issued in $100 units with a maturity of more than 1 year but not more than 10 years.

Answer 1

True

Question 2

Bond interest payments are a tax-deductible business expense.

Answer 2

True

Question 3

A sinking fund is a fund to which deposits are made each year for the purpose of redeeming a bond issue.

Answer 3

True

Question 4

In reality,there is no guarantee that convertible bondholders will convert to common stock even if the price of the common stock does increase.

Question 5

A mortgage bond is a corporate bond that is secured by various assets of the issuing firm.

Question 6

The only way an investor can make money on a bond investment is to hold the bond until maturity.

Question 7

Many financial experts recommend bond funds for very large investors,because these investments offer diversification and professional management.

Question 8

Interest checks for registered bonds are generally mailed directly to the bondholder of record.

Question 9

Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years.

Question 10

A subordinated debenture is a more secure investment than a mortgage bond.

Question 11

Professional management spells safety,because an occasional loss incurred with one bond issue is usually offset by gains from other bond issues in the fund's portfolio.

Question 12

A registered bond is a bond whose ownership is listed in the owner's name by the issuing company.

Question 13

A convertible bond is a bond that can be exchanged,at the owner's option,for a specified number of shares of the corporation's common stock.

Question 14

With the use of technology and computers,the book entry form of bond ownership is no longer used.

Question 15

The bond debenture is a legal document that details all of the conditions relating to a bond issue.

Question 16

Maturity dates for corporate bonds generally range from 5 to 10 years.

Question 17

A corporate bond is a corporation's written pledge that it will repay a specified amount of money with interest.

Question 18

Corporate bonds are a form of equity financing that does not have to be repaid.

Question 19

Because bonds are considered debt financing that must be repaid at maturity,the corporation's financial stability has little effect on the bond's value between the issue date and the maturity date.

Question 20

Although unpopular a few years back,more and more U.S.corporations are issuing bearer bonds.

Question 21

Which one of the following statements is true?

A)Corporate bonds do not have a maturity date.
B)The maturity dates for corporate bonds are generally less than a year.
C)Corporate bonds do not have to be repaid.
D)Corporate bonds are a form of equity financing.
E)Long-term corporate bonds have maturities over 10 years.

Question 22

Because of the added security of collateral,the interest rates on _____bonds are usually lower than interest rates on unsecured bonds.

A)debenture
B)mortgage
C)indenture
D)preemptive
E)subordinated debenture

Question 23

Which one of the following statements is correct?

A)Stock is a form of debt financing.
B)Stock must be repaid at maturity.
C)Bonds are a form of debt financing.
D)Bonds do not have to be repaid at maturity.
E)Interest payments to bondholders are paid at the discretion of the board of directors.

Question 24

The yield to maturity takes into account the relationship among a bond's maturity value,the time to maturity,the current price,and the dollar amount of interest.

Question 25

The financially independent firm that acts as the bondholders' representative is the:

A)chairman of the board.
B)president of the corporation.
C)debenture holder.
D)indenture holder.
E)trustee.

Question 26

The legal conditions for a corporate bond are described in the:

A)trustee contract.
B)bondholder's covenant.
C)corporate charter.
D)bond indenture.
E)bond debenture.

Question 27

Treasury bonds are issued in $5,000 units with 10-year maturities.

Question 28

A bond that is backed only by the reputation of the issuing corporation is called a ____________ bond.

A)debenture
B)mortgage
C)indenture
D)preemptive
E)treasury

Question 29

For government bonds,the bid price is the maximum price that a buyer is willing to pay for a government security.

Question 30

Usually,interest on corporate bonds is paid to the bondholder every:

A)month.
B)three months.
C)six months.
D)nine months.
E)year.

Question 31

Nancy Groom owns a $1,000 corporate bond that pays 8.5 percent.What is the amount of each semiannual interest payment?

A)$4.25
B)$42.50
C)$85.00
D)$850.00
E)$425.00

Question 32

The current yield for a corporate bond is determined by dividing the annual income amount by the current market value.

Question 33

You own a $1,000 bond that pays 9.25 percent interest.What is the amount of interest you will receive each six months?

A)$4.62
B)$9.25
C)$92.50
D)$46.25
E)$23.13

Question 34

In addition to the stocks issued by the Treasury Department,debt securities are issued by federal agencies,including Fannie Mae,Ginnie Mae,and Freddie Mac.

Question 35

A general obligation bond is a bond that is repaid from the income generated by the project it is designed to finance.

Question 36

Since 1990,bond yields for high-quality corporate bonds have increased significantly.

Question 37

Assume that you purchase a $1,000 corporate bond that pays 9.25 percent interest.What is the amount of interest that you receive each year?

A)$1,000.00
B)$92.50
C)$92.00
D)$90.00
E)$9.25

Question 38

Insured municipal bonds offer slightly lower interest rates than uninsured bonds because of the reduced risk of default.

Question 39

For both Moody's and Standard & Poor's,the first two categories (high-grade and medium-grade)represent investment-grade securities.

Question 40

Although there is a great deal of information on the internet about stock investments,it is impossible to evaluate bonds using the internet.

Question 41

A type of bond that is unsecured and gives bondholders a claim secondary to that of other designated bondholders with respect to interest payments,repayment,and assets is called a:

A)debenture bond.
B)mortgage bond.
C)subordinated debenture.
D)preemptive bond.
E)treasury bond.

Question 42

If overall interest rates in the economy rise,a corporate bond with a fixed interest rate will generally:

A)increase in value.
B)decrease in value.
C)remain unchanged.
D)become worthless.
E)be returned to the corporation.

Question 43

To calculate the current yield for a T-bill:

A)divide the maturity value by the interest rate
B)multiply the maturity value by the interest rate
C)subtract the discount amount from the maturity value
D)divide the purchase price by the discount amount
E)divide the discount amount by the purchase price

Question 44

When investors purchase bonds that mature at regular intervals in order to balance risk and return,they are creating a:

A)bond ladder.
B)staggered investment program.
C)incremental investment program.
D)step-up allocation program.
E)guaranteed investment program.

Question 45

If overall interest rates in the economy fall,a corporate bond with a fixed interest rate will generally:

A)increase in value.
B)decrease in value.
C)remain unchanged.
D)become worthless.
E)be returned to the corporation.

Question 46

XYZ Corporation wants to retire a $60 million bond issue before the maturity date.In order to call the bonds in this issue,the corporation must pay the bondholders the face value plus a premium.What is the typical premium for bonds that have been called?

A)$100
B)$50-$100
C)$20-$75
D)$10-$25
E)$1-$10

Question 47

Which type of bond would provide a high degree of price stability,because the bonds are not very sensitive to changing interest rates?

A)Discount
B)Short-term
C)Long-term
D)Speculative
E)registered

Question 48

Which one of the following statements is true?

A)All convertible corporate bonds are quality investments.
B)Convertible bonds often pay 3 to 4 percent more interest than nonconvertible bonds.
C)Because of the conversion feature, investors are attracted to the conservative gain that common stock conversion may provide.
D)There is no guarantee that bondholders will convert to common stock even if the market value of the common stock does increase in value.
E)Even if convertible bondholders convert their investment to common stock, the bondholders still receive interest payments.

Question 49

Which of the following is the process of spreading your money among several different types of investments to lessen risk.

A)book entry
B)professional management
C)asset allocation
D)bond laddering
E)dollar appreciation

Question 50

If the approximate market value for of a $1,000 corporate bond is $1,125 and it pays 9 percent interest,then what are comparable bonds paying?

A)1 percent
B)6 percent
C)7 percent
D)8 percent
E)9 percent

Question 51

A call feature:

A)allows bondholders to convert their bond to a specified number of shares of common stock.
B)is not available on corporate bonds.
C)allows the corporation to buy outstanding bonds from current bondholders before the maturity date.
D)is only available with government securities.
E)is guaranteed by the corporation.

Question 52

To ensure that it has sufficient funds available to redeem a bond issue,a corporation may issue ____________ bonds.

A)debenture
B)mortgage
C)sinking fund
D)subordinate
E)serial

Question 53

A provision in the bond indenture that forces the corporation to make arrangements for bond repayment before the maturity date is called a ____________ fund.

A)serial
B)sinking
C)debenture
D)indenture
E)money

Question 54

A legal debt convertible to shares of common stock at the investor's option is called a ____________.

A)debenture bond
B)mortgage bond
C)indenture note
D)convertible corporate note
E)convertible bond

Question 55

Sandra Peterson has been thinking about investing in corporate bonds.She is concerned about safety and wants the most secure bond investment possible.She would most likely invest in ____________ bonds.

A)debenture
B)mortgage
C)speculative
D)convertible
E)subordinated debenture

Question 56

What is the approximate market value of a $1,000 corporate bond that pays 8 percent interest when comparable bonds are paying 9 percent interest?

A)$80
B)$90
C)$889
D)$1,000
E)$1,125

Question 57

Today,almost all bond ownership records are maintained using a process called:

A)certified registration.
B)book entry.
C)revenue recognition process.
D)coupon registration.
E)general obligation process.

Question 58

A $l,000 corporate bond is convertible to 25 shares of the corporation's common stock.What is the minimum price that the stock must obtain before bondholders would consider converting the bond to stock?

A)$10
B)$20
C)$30
D)$40
E)$50

Question 59

Investors purchase corporate bonds to make money through:

A)interest income.
B)possible dollar appreciation of bond value.
C)bond repayment at maturity.
D)All of these features are reasons to purchase a corporate bond.
E)None of these features are reasons to purchase a corporate bond.

Question 60

Which type of bond is not registered in the investor's name?

A)Revenue
B)General obligation
C)Bearer
D)Zero-coupon
E)Tax-exempt

Question 61

If a bond is quoted in the newspaper at 105,the current price of a $1,000 face value bond is:

A)$50.00.
B)$95.00.
C)$950.00.
D)$1,050.00 .
E)$1,000.00.

Question 62

A bond backed by the full faith,credit,and unlimited taxing power of the state or local government that issued it is called a ____________ bond.

A)debenture
B)mortgage
C)secured
D)general obligation
E)revenue

Question 63

The highest bond rating issued by Standard & Poor's is:

A)AAA.
B)Aaa.
C)A+.
D)BB.
E)Aa.

Question 64

The highest bond rating issued by Moody's is:

A)AAA.
B)Aaa.
C)A+.
D)BB.
E)AA.

Question 65

If comparable bonds are paying 7 percent and the approximate market value of a $1,000 bond is $1,286,then what is the semiannual interest on the bond?

A)$45
B)$90
C)$100
D)$70
E)$35

Question 66

You are a taxpayer in the 28 percent tax bracket and you own a tax-exempt bond that pays 5 percent.What is your taxable equivalent yield?

A)5.00 percent
B)6.00 percent
C)6.94 percent
D)7.20 percent
E)14.40 percent

Question 67

Dave Johnson's objective was to purchase a government bond that provided some protection against inflation as measured by the consumer price index.To fulfill this objective,John purchased a:

A)T-bill.
B)T-note.
C)T-bond.
D)TIPS.
E)general obligation bond.

Question 68

If comparable bonds are paying 8 percent and the approximate market value of a $1,000 bond is $750,then what is the annual interest on the bond?

A)$30
B)$60
C)$75
D)$80
E)$100

Question 69

The commissions for purchasing bonds:

A)are stated in plain language as with stocks.
B)are a stated dollar amount for each bond you buy.
C)may be a combination of a stated dollar amount plus an additional commission.
D)include a markdown when buying.
E)None of these.

Question 70

A bond that is repaid from the income generated by the project it is designed to finance is called a:

A)Treasury bill.
B)savings bond.
C)revenue bond.
D)general obligation bond.
E)agency bond.

Question 71

The minimum price at which a seller is willing to receive for a government security is known as the ____________ price.

A)bid
B)ask
C)contract
D)government
E)adjusted

Question 72

A government security issued in minimum units of $100 with a 30-year maturity is called a:

A)subordinated bond.
B)Treasury bill.
C)Treasury note.
D)Treasury bond.
E)savings bond.

Question 73

Which of the following sources can be used by an investor to obtain a corporation's annual report?

A)professional advisory services
B)Corporation's website
C)phone call to Corporation
D)Written request mailed to the Corporation
E)All of these sources can be used by an investor to obtain an annual report.

Question 74

Which one of the following statements is false?

A)The U.S.government sells bonds to obtain financing.
B)U.S.government Treasury securities carry a reduced risk of default.
C)Interest on U.S.government securities is taxable for federal income tax purposes.
D)Most individual investors that purchase Treasury bills, notes, and bonds bid competitively.
E)Treasury securities may be purchased through banks or brokers.

Question 75

A government security issued in minimum units of $100 with maturities that are one year or less is called a:

A)subordinated bond.
B)Treasury bill.
C)Treasury note.
D)Treasury bond.
E)savings bond.

Question 76

Which one of the following statements is false?

A)It is possible to obtain information about a corporation that issues a bond by accessing the corporation's website on the internet.
B)Price information about corporate bonds is available on the internet.
C)You can research bonds online but you cannot trade them online.
D)There are fewer websites that provide information on bonds as compared to websites that provide information on stocks.
E)Many of the better bond websites charge a fee to access their research,

Question 77

June Tavia is trying to calculate the taxable equivalent yield for a municipal bond.If the bond she owns pays 4.5 percent interest and she is in the 25 percent tax bracket,what is the taxable-equivalent yield?

A)4.50 percent
B)5.50 percent
C)6.00 percent
D)7.72 percent
E)6.93 percent

Question 78

Which of the following can be purchased through Treasury Direct at www.treasurydirect.gov ?

A)TIPS.
B)Treasury bills.
C)Treasury notes.
D)Treasury bonds.
E)ANSE.All of these.

Question 79

Which one of the following statements is true?

A)All local newspapers contain information on bond prices.
B)In bond quotations, prices are given as a percentage of the bond's face value.
C)The face value for most corporate bonds is $5,000.
D)To find the market price of a corporate bond, you must contact the corporation that originally issued the bond.
E)To find the market price of a corporate bond, you must call a stockbroker.

Question 80

If a bond is quoted in the newspaper at 92,the current price of a $1,000 face value bond is:

A)$9.20.
B)$92.00.
C)$920.00.
D)$1,000.00.
E)$1,092.00.