Question 1

Which of the following statements is not true about Treasury Inflation-Protected Securities?

Accepted Answer

A)  They are currently sold with 5-,10-,or 30-year maturities.
B)  The amount of principal increases with inflation and decreases with deflation.
C)  They pay interest twice a year,at a fixed rate.
D)  They can be held until maturity or sold before maturity.
E)  Interest income and growth in principal are exempt from federal income tax.F) A) and E)
G) B) and E)

Question 2

A call feature:

Accepted Answer

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.F) C) and E)
G) D) and E)

Question 3

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

Accepted Answer

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

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Bond interest payments are a tax-deductible expense for a corporation.

Accepted Answer

A) True 
 B)False

Question 6

Cynthia Smith is concerned about ABC company's ability to make future interest payments on their bonds.What ratio can help her evaluate this concern?

Accepted Answer

A)  Bond price calculation
B)  Current yield calculation
C)  Yield to maturity
D)  Times interest earned
E)  Dividend yieldF) C) and D)
G) B) and C)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

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

Accepted Answer

A)  Discount
B)  Short-term
C)  Long-term
D)  Speculative
E)  registeredF) All of the above
G) A) and E)

Question 9

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

Accepted Answer

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

Question 10

High-yield (junk) bonds are sold by companies:

Accepted Answer

A)  with a poor earnings history.
B)  with a questionable credit record.
C)  with lower ratings by major rating services.
D)  that are newer and have unproven ability to increase sales and earn profits.
E)  All of theseF) D) and E)
G) A) and C)

Question 11

The ________ is the dollar amount the bondholder will receive at the bond's maturity.

Accepted Answer

A)  annual interest
B)  semiannual interest
C)  premium
D)  face value
E)  commissionF) All of the above
G) A) and E)

Question 12

Corporate bonds that pay higher interest but also have a higher risk of default are called:

Accepted Answer

A)  convertible bonds.
B)  high-yield bonds.
C)  mortgage bonds.
D)  serial bonds.
E)  callable bonds.F) C) and D)
G) B) and D)

Question 13

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

Question 14

Which of the following factors is used to calculate the total return on the sale of a bond?

Accepted Answer

A)  Commission when bond was purchased
B)  Interest earned on the bond
C)  Cost of the bond when purchased
D)  Dollar return when the bond was sold
E)  All of theseF) None of the above
G) A) and B)

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A)  Debenture
B)  Mortgage
C)  Convertible
D)  Callable
E)  High-yieldF) C) and D)
G) All of the above

Question 18

Define four of these six terms.
(A)corporate bond 
(B)bond indenture 
(C)trustee 
(D)mortgage bond 
(E)debenture bond 
(F)convertible bond

Accepted Answer

(A)A corporate bond is a corporation's w...

Question 19

If a bond is purchased at a price above the face value,the yield to maturity will be:

Accepted Answer

A)  greater than the stated interest rate.
B)  the same as the stated interest rate.
C)  less than the stated interest rate.
D)  zero.
E)  of no significance.F) B) and C)
G) A) and D)

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 15: Investing in Bonds

A call feature:

Correct AnswerverifiedShow Answer

Corporate bonds that pay higher interest but also have a higher risk of default are called:

Correct AnswerverifiedShow Answer

Cynthia Smith is concerned about ABC company's ability to make future interest payments on their bonds.What ratio can help her evaluate this concern?

Correct AnswerverifiedShow Answer

The ________ is the dollar amount the bondholder will receive at the bond's maturity.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Define four of these six terms. (A)corporate bond (B)bond indenture (C)trustee (D)mortgage bond (E)debenture bond (F)convertible bond

Correct Answerverified(A)A corporate bond is a corporation's w...View AnswerShow Answer

Bond interest payments are a tax-deductible expense for a corporation.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is not true about Treasury Inflation-Protected Securities?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following factors is used to calculate the total return on the sale of a bond?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

To calculate the current yield for a T-bill:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a bond is purchased at a price above the face value,the yield to maturity will be:

Correct AnswerverifiedShow Answer

High-yield (junk) bonds are sold by companies:

Correct AnswerverifiedShow Answer

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(A)A corporate bond is a corporation's w...
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