Question 1

Wyoming Mining Corporation makes regular monetary deposits that will accumulate and provide for an orderly retirement of their bonds when they come due in 2015.Wyoming Mining appears to be utilizing a:

Accepted Answer

Wyoming Mining Corporation is utilizing a sinking fund, which is a fund set aside by a company to redeem or retire their bonds when they come due. Regular monetary deposits are made into the sinking fund to accumulate and provide for an orderly retirement of the bonds by 2015.

Question 2

Ebony Enterprises decides to pay off its bonds several years before the maturity date.Apparently,the bonds _____________.

Accepted Answer

If a bond is callable, it means that the issuer has the option to pay off the bond before the maturity date. Therefore, Ebony Enterprises must have had callable bonds in order to make the decision to pay them off early.

Question 3

Investing online is usually ________ than trading through a traditional stock brokerage firm.

Accepted Answer

Investing online is usually less expensive than trading through a traditional stock brokerage firm because online brokers have lower overhead costs, which they can pass on to their customers in the form of lower fees and commissions. Additionally, online brokers often offer tools and resources to help investors make informed decisions, making it a more convenient and cost-effective option for many people.

Question 4

Juan recently invested in 15-year Bellandro Bay Brewery bonds paying 6% interest annually,with a maturity date of 2020.The bonds are callable in 2015.If interest rates go down to 4.5% in the year 2015,the brewery is likely to:

Accepted Answer

If interest rates go down, the brewery is likely to exercise the call option and redeem the bonds before maturity to save money on interest payments. The lower interest rates in the market make it possible for the brewery to replace the bonds with new bonds paying less interest. Therefore, it is in the brewery's best interest to exercise the call option and issue new bonds at a lower interest rate.

Question 5

As your elderly Uncle Bill approaches retirement,he asks for your advice for a safe place to invest several thousand dollars.He wants to receive some kind of payment each year for investing his money without a great deal of risk.You explain:

Accepted Answer

Treasury and top-grade corporate bonds are considered safe investments and typically pay interest twice a year. This would provide Uncle Bill with a regular payment without a great deal of risk. Yankee bonds may also be a good option as they are issued by foreign corporations or governments but are denominated in US dollars, providing some stability in currency exchange rates. Common stock and junk bonds are riskier options and may not provide a guaranteed payment each year.

Question 6

After owning a Cordero Company bond for five years,Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock.Gabrielle owned a:

Accepted Answer

Gabrielle exercised an option to convert her bond into shares of the company's stock, indicating that she owned a convertible bond.

Question 7

The interest rate on a AAA rated government treasury bond is 3.5%.A secured corporate bond is likely to pay:

Accepted Answer

A secured corporate bond is likely to pay more than a government treasury bond because it carries more risk. The AAA rating on the government bond indicates that it is considered to be of the highest credit quality, whereas a secured corporate bond may have a lower credit rating and therefore offer a higher interest rate to compensate for the risk.

Question 8

Portland Power and Light recently issued bonds that offered no collateral except the reputation and established name of the Portland Power and Light Company.These represent ________ bonds.

Accepted Answer

Debenture bonds are unsecured bonds that do not have specific collateral but rely on the reputation and creditworthiness of the issuing company.

Question 9

A ________ is a registered representative acting as an intermediary to buy and sell securities for clients.

Accepted Answer

A stockbroker is a registered representative who acts as an intermediary between buyers and sellers of securities. Certified stock underwriters deal with underwriting and distributing new securities issues to the public. Securities bankers provide advice and financing for larger deals involving securities. Trading accountants help manage financial accounts for clients involved in buying and selling securities.

Question 10

Seattle Music,Inc.recently offered bonds for sale to the public.The unsecured corporate bond paid interest of 9% to investors for the twenty-year life of the bonds.Seattle Music is obligated to:

Accepted Answer

Seattle Music, Inc. is obligated to pay interest semi-annually to the bondholders for the twenty-year life of the bonds. The other choices are not applicable to the terms of the bond offering.

Question 11

Moody's Investor Service currently rates the Sasha Deal Corporation bonds as a C grade.This indicates that these bonds are:

Accepted Answer

Moody's C grade rating indicates that the Sasha Deal Corporation bonds are of the lowest quality and highest risk, meaning there is a high likelihood of default.

Question 12

Creating a portfolio by buying several different types of investments to spread the risk of investing is called ______________.

Accepted Answer

Diversification is the process of investing in different types of assets to spread the risk of investing. By creating a portfolio with a mix of stocks, bonds, and other investments, an investor can reduce the impact of any one investment's poor performance on the overall portfolio. This is considered one of the best ways to manage risk in investing. Modulation, re-allocation, and formula investing are not equivalent to diversification.

Question 13

Investors trading online:

Accepted Answer

Investors trading online generally do their own research and make their own investment decisions. They may use online resources and tools to aid their decision-making, but they are ultimately responsible for their own investments. Online trading does not necessarily provide more advice than traditional stockbrokers and investors are not typically insured against market downturns. Buying and selling securities without using a brokerage firm would be considered direct investing, which is not typically done through online trading platforms.

Question 14

Which of the following is not an important criterion to consider before investing?

Accepted Answer

The answer of Which of the following is not an...

Question 15

The ABC Corporation issues a $1,000 bond,with an interest rate of 10%,and a maturity date of 2015.This creates a liability for the ABC Corporation to pay the bondholder:

Accepted Answer

The interest rate of 10% means that the bondholder will receive $100 in interest payments annually until the maturity date of 2015, at which point they will also receive the principal amount of $1,000. Therefore, choice A is the correct answer.

Question 16

A convertible bond allows the bondholder to exchange the bond for:

Accepted Answer

The answer of A convertible bond allows the bondholder to...

Question 17

When an investor places a buy order with a stockbroker,the broker contacts a(n)__________ to complete the transaction.

Accepted Answer

When an investor places a buy order with a stockbroker, the broker contacts a stock exchange member or dealer where the stock is traded to complete the transaction. The stock exchange member or dealer acts as a middleman between the buyer and the seller, facilitating the sale of the stock on the exchange. The other options listed (certified underwriter, investment banker, and trading officer of the SEC) do not typically play a role in completing buy orders for individual investors.

Question 18

Maplewood Toy Company hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years.Additionally,the certificate issued by Maplewood promises to pay 5% interest annually for the ten year life of the security.Maplewood intends to issue:

Accepted Answer

The characteristics described in the scenario are typical of bonds, which are debt securities that promise to pay interest periodically and repay the principal at maturity. Stocks represent ownership in a company and do not have an obligation to pay interest or return the invested capital. Mutual funds are investment vehicles that pool money from investors to buy a diversified portfolio of securities, but they do not represent a promise to pay interest or principal. Commodities are physical goods like oil or grains, and they do not have a fixed return or maturity date.

Question 19

Investors buying bonds and corporations issuing bonds (both)accept investment risk.Which of the following statements is most correct when it comes to the investment that one or the other party accepts?

Accepted Answer

When market interest rates go down, the value of existing bonds that pay higher interest rates goes up. Therefore, if investor Joe holds a bond that pays 5% and market interest rates on similar bonds go down, Joe's bond is now worth more than its face value, and if he needed to sell it on the secondary market, he could probably sell it at a premium. This is because investors are willing to pay more for the higher interest rate than they would for a bond paying a lower interest rate.

Question 20

Ashleigh is looking for an investment that will pay a little better than what she can get from a government bond.You suggest that she consider a new issue of debenture bonds by Very Vegetarian that pay 8.5% annually and mature in 2025.A debenture bond:

Accepted Answer

A debenture bond is an unsecured corporate bond that pays a higher interest rate because the investor is taking more risk. Therefore, option D is the best choice. The other options are incorrect because debenture bonds do not necessarily provide added security, are legally callable, and typically pay interest semi-annually or quarterly instead of once a year.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities