Ch 18: Investing in Bonds pp. 433-449 open book Quiz
True/False
Indicate whether the
statement is true or false.
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Ch 18. Investing In Bonds
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1.
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People who own corporate bonds receive interest payments every
month.
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2.
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Bond maturities typically range from 1 to 30 years.
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3.
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Interest received on a corporate bond is not taxable.
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4.
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Corporate bonds are usually sold in units of $100, making them very attractive
for individual investors.
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5.
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Today, most bonds are registered.
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6.
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Another name for a secured bond is a convertible bond.
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7.
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Both the interest rate and the market price of a bond are fixed.
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8.
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Municipal bonds generally pay a lower interest rate than corporate bonds.
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9.
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You can buy up to $100,000 worth of U.S. savings bonds each year.
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10.
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Most corporate, municipal, and agency bonds are purchased on the primary market,
also known as the new issue market.
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11.
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Bonds often appreciate in value, especially when interest rates are
dropping.
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12.
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Junk bonds have higher yields than investment-grade bonds.
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13.
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Typically, a bond fund contains only investment-grade bonds.
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14.
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The interest rate is the main factor that affects bond prices.
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15.
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A bond’s current yield is computed by dividing the bond’s interest
rate by its closing value.
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Multiple Choice
Identify the
choice that best completes the statement or answers the question.
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Ch 18. Investing In Bonds
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16.
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One main distinction between stocks and bonds is that
a. | bonds are shares of ownership in a corporation, not loans. | b. | unlike stock
dividends, a bond’s interest does not go up and down. | c. | bonds represent
equity, not debt. | d. | corporations are required to pay dividends on
stocks but not bonds. |
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17.
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The amount a bondholder will be paid at maturity is called
a. | dividend. | c. | face value | b. | yield. | d. | market value. |
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18.
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Corporations usually agree not to call bonds for the first ___ years after
issuance.
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19.
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A type of corporate bond based on the general creditworthiness of the company is
called a(n)
a. | secured bond | c. | annuity | b. | mortgage bond. | d. | debenture |
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20.
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When bonds sell for more than their face value, they are selling at a
a. | cut rate. | c. | capital gain | b. | discount | d. | premium |
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21.
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A revenue bond is a type of municipal bond that
a. | is repaid with the government’s general revenue and
borrowings. | b. | is backed by the power of the issuing government to levy taxes to pay back the
debt. | c. | finances public-works projects such as airports and hospitals. | d. | is backed by
specific assets that serve as security to assure repayment of the
debt. |
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22.
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Which of the following types of bonds cannot be purchased through
TreasuryDirect?
a. | Treasury securities | c. | Series EE savings bonds | b. | corporate
bonds | d. | Series I savings
bonds |
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23.
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Bond prices
a. | tend to remain steadier than stock prices | b. | tend to react in the
same direction of stock prices. | c. | can never change once you’ve purchased a
bond. | d. | are by law always lower than stock prices. |
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24.
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When a bond issuer cannot meet the interest and/or principal payments, what has
occurred?
a. | bond redemption | c. | hedging | b. | short selling | d. | bond default |
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25.
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An investment-grade bond
a. | offers the highest possible yield | b. | is highly speculative | c. | is considered the
highest-quality, lowest-risk bond. | d. | has no rating at
all. |
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Matching
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Ch. 18 Investing in Bonds a. | convertible | f. | Agency | b. | redemption | g. | rating | c. | callable | h. | municipal | d. | junk | i. | hedge | e. | revenue | j. | contract rate |
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26.
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The percentage of face value that the bondholder will receive as interest each
year is called its __________ (or interest rate).
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27.
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A(n) __________ bond is a bond that the issuer has the right to pay off before
its maturity date.
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28.
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A(n) __________ bond is a corporate bond that can be converted to shares of
common stock.
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29.
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A bond issued by a state or local government is called a(n) __________
bond.
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30.
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A(n) __________ bond is repaid from the income generated by the facility built
with the borrowed funds.
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31.
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__________ bonds are issued by various administrative units of the U.S.
government and by government-sponsored enterprises.
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32.
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Bond __________ occurs when the bond is paid off at maturity.
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33.
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A(n) __________ is any investment or action that helps offset against loss from
another investment or action.
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34.
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A bond __________ tells an investor the risk category that has been assigned to
a bond.
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35.
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A(n) __________ bond is any bond with a rating of Ba/BB or lower.
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