Question 1

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

Accepted Answer

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

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

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

Question 4

Treasury bills:

Accepted Answer

A)   are rated by Moody's.
B)   pay interest every six months.
C)   are long-term securities issued by the federal government.
D)   are discounted securities.
E)   pay a higher interest rate than corporate bonds.F) B) and D)
G) B) and E)

Question 5

A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock is called a(n)  ____________ bond.

Accepted Answer

A)   debenture
B)   mortgage
C)   indenture
D)   convertible
E)   subordinatedF) A) and E)
G) D) and E)

Question 6

The yield to maturity takes into account the relationship between all of the following factors, except:

Accepted Answer

A)   tax rate.
B)   maturity value.
C)   time to maturity.
D)   current price.
E)   dollar amount of interest.F) None of the above
G) All of the above

Question 7

Which bond rating does Standard & Poor's assign to a bond that is in default?

Accepted Answer

A)   A
B)   B
C)   C
D)   D
E)   ZF) A) and B)
G) A) and E)

Question 8

Bonds of a single issue that mature on different dates are called ____________ bonds.

Accepted Answer

A)   debenture
B)   mortgage
C)   sinking fund
D)   subordinate
E)   serialF) B) and D)
G) A) and E)

Question 9

Investors purchase corporate bonds for:

Accepted Answer

A)   interest income.
B)   possible increase in value.
C)   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 E)
G) A) and D)

Question 10

Which one of the following statements is true?

Accepted Answer

A)   Convertible corporate bonds are more secure than government bonds.
B)   Convertible bonds often pay 3 to 4 percent more interest than nonconvertible bonds.
C)   Because of the conversion feature, it is not necessary to evaluate convertible, corporate bonds.
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.F) C) and D)
G) B) and E)

Question 11

The yield-to-maturity takes into account the relationship among a bond's maturity value and the:

Accepted Answer

A)   time to maturity.
B)   current price.
C)   dollar amount of interest.
D)   current price and dollar amount of interest only.
E)   time to maturity, current price, and dollar amount of interest.F) B) and E)
G) C) and D) E

Question 12

Tom McCallister buys a bond that the company can retire before maturity if they wish. What type of bond has Tom purchased?

Accepted Answer

A)   Debenture bond
B)   Subordinated debenture bond
C)   Convertible bond
D)   Callable bond
E)   High-yield bondF) B) and C)
G) C) and E) D

Question 13

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

Accepted Answer

A)   Internet
B)   Corporation's website
C)   800 telephone number
D)   Written request
E)   All of these sources can be used by an investor to obtain an annual report.F) B) and D)
G) All of the above

Question 14

Generally, U.S. government securities issued by the Treasury Department:

Accepted Answer

A)   are not graded because they are risk free for practical purposes.
B)   receive the Standard & Poor's AAA rating.
C)   receive the Moody's Aaa rating.
D)   receive The Wall Street Journal's U.S. Government rating.
E)   receive the Treasury Department's "risk-free" rating.F) A) and C)
G) C) and D)

Question 15

What is the current yield for a $1,000 corporate bond that pays 7.5 percent and has a current market value of $950?

Accepted Answer

A)   7.5 percent
B)   7.9 percent
C)   8.4 percent
D)   9.5 percent
E)   8.2 percentF) B) and D)
G) A) and E)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

A type of bond that is generally issued by corporations in foreign countries, but is no longer issued by U.S. corporations is called a:

Accepted Answer

A)   registered bond.
B)   bearer bond.
C)   registered coupon bond.
D)   serial bond.
E)   mortgage bond.F) A) and C)
G) None of the above

Question 18

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 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.

Accepted Answer

A) True 
 B)False

Question 20

John Peterson purchased a bond that is priced far below its face value, that makes no interest payments, and that will be redeemed at its face value at maturity. In all likelihood, he purchased a(n)  ____________ bond.

Accepted Answer

A)   debenture
B)   convertible
C)   indenture
D)   registered
E)   zero-couponF) B) and C)
G) A) and B) E

Exam 15: Investing in Bonds

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Treasury bills:

Correct AnswerverifiedShow Answer

A bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's stock is called a(n) ____________ bond.

Correct AnswerverifiedShow Answer

The yield to maturity takes into account the relationship between all of the following factors, except:

Correct AnswerverifiedShow Answer

Which bond rating does Standard & Poor's assign to a bond that is in default?

Correct AnswerverifiedShow Answer

Bonds of a single issue that mature on different dates are called ____________ bonds.

Correct AnswerverifiedShow Answer

Investors purchase corporate bonds for:

Correct AnswerverifiedShow Answer

Which one of the following statements is true?

Correct AnswerverifiedShow Answer

The yield-to-maturity takes into account the relationship among a bond's maturity value and the:

Correct AnswerverifiedE

Tom McCallister buys a bond that the company can retire before maturity if they wish. What type of bond has Tom purchased?

Correct AnswerverifiedD

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

Correct AnswerverifiedShow Answer

Generally, U.S. government securities issued by the Treasury Department:

Correct AnswerverifiedShow Answer

What is the current yield for a $1,000 corporate bond that pays 7.5 percent and has a current market value of $950?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A type of bond that is generally issued by corporations in foreign countries, but is no longer issued by U.S. corporations is called a:

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

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

John Peterson purchased a bond that is priced far below its face value, that makes no interest payments, and that will be redeemed at its face value at maturity. In all likelihood, he purchased a(n) ____________ bond.

Correct AnswerverifiedE

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E

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D

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E