Question 1

Which of the following statements is true with respect to U.S. Treasury issues?

Accepted Answer

A)   Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years.
B)   Treasury notes are issued in $100 units with a maturity of more than 1 year, but not more than 10 years.
C)   Treasury bonds are issued in $5,000 units with 10-year maturities.
D)   The Treasury no longer issues Treasury bills.
E)   Treasury bills generally pay a higher interest rate than Treasury bonds.F) A) and E)
G) A) and B)

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which type of bond would provide the most price stability?

Accepted Answer

A)   Discount
B)   Short-term
C)   Long-term
D)   Speculative
E)   Zero-couponF) B) and C)
G) None of the above

Question 4

Which one of the following statements is false?

Accepted Answer

A)   The federal government sells bonds and securities to obtain financing.
B)   U.S. government Treasury securities carry a reduced risk of default when compared to corporate securities.
C)   U.S. government Treasury securities offer lower interest rates than corporate bonds.
D)   Most individual investors that purchase Treasury bills, notes, and bonds bid competitively.
E)   Treasury securities may be purchased through banks or brokers.F) None of the above
G) A) and D)

Question 5

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

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 B)

Question 6

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 7

A convertible bond:

Accepted Answer

A)   pays both interest and dividends simultaneously.
B)   pays no interest payments.
C)   can be repurchased by the issuer prior to maturity.
D)   can be exchanged for a set number of shares of common stock.
E)   is secured by the FDIC.F) C) and D)
G) C) and E)

Question 8

If overall interest rates in the economy fall, then a corporate bond with a fixed interest rate will decrease in value.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Why do corporations sell bonds?

Accepted Answer

A)   To improve the firm's financial leverage
B)   To pay for major purchases
C)   Because they are finding it difficult or impossible to sell stock
D)   Because the interest is tax-deductible
E)   For all of the reasons listed in the other answersF) B) and C)
G) B) and E)

Question 11

Which of the following terms applies to a bond issue for which the issuer puts money aside at regular intervals for the purpose of redeeming the bonds?

Accepted Answer

A)   Serial
B)   Default
C)   Sinking fund
D)   Low-coupon
E)   ConvertibleF) C) and D)
G) None of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Which one of the following bonds is most apt to have the highest interest rate? All of the bonds mature in 10 years.

Accepted Answer

A)   Bond that is rated CCC
B)   Mortgage bond that is rated AAA
C)   Debenture bond that is rated BBB
D)   Convertible bond that is rated BBB
E)   Bond that is rated AF) B) and C)
G) A) and E)

Question 14

A government security issued in $100 units with maturities of more than one year but not more than ten years is called a:

Accepted Answer

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

Question 15

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

Accepted Answer

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

Question 16

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?

Accepted Answer

A)   $80
B)   $90
C)   $889
D)   $1,000
E)   $1,125F) C) and D)
G) None of the above

Question 17

An issue of serial bonds:

Accepted Answer

A)   will pay no interest payments.
B)   will have varying issue dates.
C)   will have a series of maturity dates.
D)   cannot be called.
E)   will all mature ten years from the date of issue.F) B) and D)
G) All of the above

Question 18

Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years.
T-bills are issued in a minimum unit of $100 with additional increments of $100 above the minimum. Maturities are 4, 13, 26, and 52 weeks.

Accepted Answer

A) True 
 B)False

Question 19

A corporate bond rated B by Moody's would be suitable for:

Accepted Answer

A)   every investor.
B)   very cautious investors.
C)   speculators.
D)   no one because the bond issue is in default.
E)   investors who are highly dependent upon the interest income.F) A) and D)
G) A) and E)

Question 20

A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n)  ____________ fund.

Accepted Answer

A)   serial
B)   sinking
C)   debenture
D)   indenture
E)   moneyF) B) and D)
G) C) and D)

Exam 15: Investing in Bonds

An issue of serial bonds:

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

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Which one of the following bonds is most apt to have the highest interest rate? All of the bonds mature in 10 years.

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Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years. T-bills are issued in a minimum unit of $100 with additional increments of $100 above the minimum. Maturities are 4, 13, 26, and 52 weeks.

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

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Which one of the following statements is false?

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A fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is called a(n) ____________ fund.

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

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A corporate bond rated B by Moody's would be suitable for:

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Which type of bond would provide the most price stability?

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If overall interest rates in the economy fall, then a corporate bond with a fixed interest rate will decrease in value.

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A government security issued in $100 units with maturities of more than one year but not more than ten years is called a:

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A convertible bond:

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Which of the following terms applies to a bond issue for which the issuer puts money aside at regular intervals for the purpose of redeeming the bonds?

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Why do corporations sell bonds?

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

Correct AnswerverifiedShow Answer

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

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Which of the following statements is true with respect to U.S. Treasury issues?

Correct AnswerverifiedShow Answer

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?

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

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