Question 1

Dick Dowen just bought a bond that is only secured by the reputation of the issuer.What type of bond has Dick purchased?

Accepted Answer

A)  Debenture
B)  Mortgage
C)  Convertible
D)  Callable
E)  High-yieldF) C) and D)
G) None of the above

Question 2

To calculate the current yield for a T-bill:

Accepted Answer

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 priceF) D) and E)
G) A) and D)

Question 3

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

Accepted Answer

A)  serial
B)  sinking
C)  debenture
D)  indenture
E)  moneyF) All of the above
G) B) and C)

Question 4

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

Accepted Answer

A)  debenture
B)  mortgage
C)  indenture
D)  preemptive
E)  subordinated debentureF) B) and C)
G) A) and B)

Question 5

Anyone who is in physical possession of a _____ can collect interest payments and the face value of the bond at maturity regardless of whether or not they are the rightful owner.

Accepted Answer

A)  corporate bond
B)  registered coupon bond
C)  bearer bond
D)  money market account
E)  savings bondF) B) and C)
G) None of the above

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

When a treasury bill matures,the investor receives:

Accepted Answer

A)  a premium.
B)  the interest only.
C)  the principal only.
D)  the face value.
E)  a discount.F) B) and E)
G) C) and D)

Question 9

Which of the following bonds would have the lowest interest rate? All of the bonds have 10 years to maturity.

Accepted Answer

A)  Bond that is rated CCC
B)  Debenture bond rated BBB
C)  Mortgage bond rated AAA
D)  Convertible bond rated BBB
E)  High-yield bond rated CCCF) B) and D)
G) B) and E)

Question 10

To calculate the taxable equivalent yield on a municipal bond:

Accepted Answer

A)  divide your tax rate by the result of 1.0 minus your tax-exempt rate
B)  multiply your tax rate by your tax-exempt rate of return
C)  divide your tax rate by your tax-exempt rate of return
D)  divide the tax-exempt rate of return by your tax rate
E)  divide the tax-exempt rate of return by the result of 1.0 minus your tax rateF) A) and B)
G) C) and D)

Question 11

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.

Accepted Answer

A) True 
 B)False

Question 12

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?

Accepted Answer

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

Question 13

Maturity dates for intermediate term corporate bonds generally range from 3 to ___ years.

Accepted Answer

A)  10
B)  15
C)  20
D)  25
E)  30F) B) and C)
G) A) and E)

Question 14

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

Accepted Answer

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

Question 15

Frank Riley just purchased a bond that is unsecured and is secondary to other unsecured bonds should the issuer default on interest payments or repayment at maturity.What type of bond has Frank purchased?

Accepted Answer

A)  Debenture
B)  Subordinated debenture
C)  Convertible
D)  Callable
E)  MunicipalF) A) and D)
G) A) and B)

Question 16

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?

Accepted Answer

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

Question 17

Investors purchase corporate bonds to make money through:

Accepted Answer

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.F) B) and C)
G) A) and D)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Which of the following can cause the price of a corporate bond to fluctuate until the maturity date?

Accepted Answer

A)  changes in overall interest rates in the economy
B)  the financial condition of the company issuing the bond
C)  the factors of supply and demand
D)  an upturn or downturn in the economy
E)  All of theseF) A) and D)
G) B) and E)

Question 20

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?

Accepted Answer

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

Exam 15: Investing in Bonds

Frank Riley just purchased a bond that is unsecured and is secondary to other unsecured bonds should the issuer default on interest payments or repayment at maturity.What type of bond has Frank purchased?

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When a treasury bill matures,the investor receives:

Correct AnswerverifiedShow Answer

To calculate the current yield for a T-bill:

Correct AnswerverifiedShow Answer

Investors purchase corporate bonds to make money through:

Correct AnswerverifiedShow Answer

Maturity dates for intermediate term corporate bonds generally range from 3 to ___ years.

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Dick Dowen just bought a bond that is only secured by the reputation of the issuer.What type of bond has Dick purchased?

Correct AnswerverifiedShow Answer

Anyone who is in physical possession of a _____ can collect interest payments and the face value of the bond at maturity regardless of whether or not they are the rightful owner.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

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Which of the following bonds would have the lowest interest rate? All of the bonds have 10 years to maturity.

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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?

Correct AnswerverifiedShow Answer

To calculate the taxable equivalent yield on a municipal bond:

Correct AnswerverifiedShow Answer

Which of the following can cause the price of a corporate bond to fluctuate until the maturity date?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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