Question 1

Interest rate on bonds is usually quoted as an annual rate,and paid:

Accepted Answer

Interest payments on bonds are typically made semi-annually, meaning twice a year. While some bonds may make interest payments on a different schedule (such as quarterly or monthly), semi-annual payments are the most common for bonds.

Question 2

Bond prices in the newspaper or online are quoted as a percentage of their face value of $1000.If the bond price is 103.25,this bond's value =

Accepted Answer

The bond price is quoted as a percentage of the face value of $1000. Therefore, to find the actual value of the bond, we need to multiply the bond price by $10 for every 1% increase in value.

So, for a bond price of 103.25, we need to do the following calculation:

$10 x 103.25 = $1,032.50

Therefore, the actual value of the bond is $1,032.50.

Option B is the correct answer.

Question 3

Elaine plans to purchase 100 shares of Michigan International stock at $44 per share.The current margin rate is 40%.The maximum amount that Elaine could borrow from her broker is:

Accepted Answer

First, we need to calculate the cost of 100 shares at $44 per share: 
100 x $44 = $4,400

Next, we need to calculate the amount of Elaine's own money that she needs to put down as margin: 
$4,400 x 0.40 (margin rate) = $1,760

Finally, we can calculate the maximum amount she can borrow from her broker: 
$4,400 - $1,760 = $2,640

Therefore, the answer is C.

Question 4

The new issue $1,000 face value bonds due in 2020 issued by Bay Books,Ltd.are perceived by investors as being less attractive than other bonds offered by other businesses at the same time.The coupon rate attached to these bonds will need to be __________ than other corporate bond issues in order to attract investors.

Accepted Answer

Since the Bay Books, Ltd. bonds are perceived as less attractive, a higher coupon rate will need to be offered to attract investors. This would make the bond more competitive with other corporate bond issues.

Question 5

Bonds offering a higher interest rate than other bonds of similar risk,will likely sell at a:

Accepted Answer

The answer of Bonds offering a higher interest rate than...

Question 6

U.S.government bonds are considered a secure investment because:

Accepted Answer

U.S. government bonds are backed by the full faith and credit of the federal government, making them a secure investment. This means that investors can be confident that the government will honor its debt obligations and repay the principal and interest on the bonds. The other options provided are incorrect: 
A) The interest rates on U.S. government bonds are not tied to the consumer price index, but they are generally considered a safe hedge against inflation. 
C) The interest rates on U.S. government bonds may be lower or higher than corporate bonds depending on market conditions and duration. 
D) While the federal government does promise to replace lost or stolen bonds, this is not the primary reason why U.S. government bonds are considered a secure investment.

Question 7

When market interest rates increase,the selling price of existing bonds will:

Accepted Answer

When market interest rates increase, the yield on newly issued bonds increases as well. This makes existing bonds with lower yields less attractive to investors, leading to a decrease in demand and a decrease in their selling price.

Question 8

Which of the following offers low risk,guaranteed income,backed by the full faith and credit of the federal government?

Accepted Answer

U.S. government bonds are a low-risk investment option that offer guaranteed income, backed by the full faith and credit of the federal government. Municipal bonds may also offer low risk, but their creditworthiness depends on the financial health of the local government entity issuing the bond. U.S. government preferred stocks and common stock in the U.S. postal service do not offer the same level of security and guaranteed income as U.S. government bonds.

Question 9

Last week,Danielle purchased 200 shares of High Tech Heaven,Inc on margin for $50 per share.This week,the price of High Tech Heaven's shares dropped by $10 per share due to a poor profit outlook.Danielle should anticipate:

Accepted Answer

When a person buys shares on margin, they are borrowing money from a broker to make the purchase. If the price of the shares purchased on margin drops, the investor may receive a margin call from the broker, who requires the investor to put up additional funds to cover the difference between the price paid for the stock and the current stock price. In this case, since the price of High Tech Heaven's shares dropped by $10 per share, Danielle may not have enough equity in her account to cover the difference, and may receive a margin call from her broker.

Question 10

Bondholders can sell their bonds:

Accepted Answer

Bondholders can sell their bonds on the secondary market prior to the maturity date. This is a common practice and allows bondholders to receive money for their bonds before the maturity date. Option B is only applicable if the bonds were issued with a callable option, which is not always the case. Option C is not accurate because once bonds are converted into common stock, they are no longer considered bonds and cannot be sold as such. Option D is also not accurate as bondholders do not need permission from other stakeholders to sell their bonds.

Question 11

Erica invests $5,000 in five ABC Corporation bonds that mature in ten years.Unexpectedly just the week after she invests,she has the opportunity to work abroad,which she has always wanted to do,but she needs cash.Which of the following most likely applies to Erica?

Accepted Answer

While Erica may sell the bonds immediately to get cash, the amount she would receive is uncertain as it depends on the current market conditions and the prevailing interest rates. It may be more or less than the $5000 she invested, plus a week's worth of interest.

Question 12

Which of the following organizations provides an assessment of the relative level of risk of a particular firm's bond issue?

Accepted Answer

Standard & Poor's (S&P) is a leading provider of credit ratings, including assessments of the relative level of risk of a particular firm's bond issue. They analyze the creditworthiness of issuers and assign ratings based on their ability to pay back debt.

Question 13

High-risk,high-interest bonds are called:

Accepted Answer

High-risk, high-interest bonds are commonly referred to as junk bonds. These bonds have a higher risk of default, which is why they offer higher interest rates to compensate for the risk.

Question 14

The higher the risk associated with a bond issue,the ________ the interest rate the organization must offer investors.

Accepted Answer

Investors require a higher return on investment if they are taking on higher risk. Therefore, the organization must offer a higher interest rate to compensate for the increased risk.

Question 15

Bonds that pay very high interest rates and typically have a higher risk of default are known as:

Accepted Answer

Junk bonds are known for paying very high interest rates but also have a higher risk of default, hence the name "junk." Zero-coupon bonds are bonds that do not pay interest but are sold at a discount and redeemed at face value, bearer bonds are rare and have no record of ownership, and volatile bonds do not have a specific definition and may refer to any bond that experiences fluctuations in value.

Question 16

Bonds sold at a ________,sell for less than face value.

Accepted Answer

Bonds sold at a discount means that they are sold for less than their face value. This is because the interest rate on the bond is lower than the prevailing market rate, making the bond less attractive to investors.

Question 17

The risk associated with Firm A's bond is greater than the risk of Firm B's bond.All other things being equal,investors would be willing to pay ________ for Firm B's bond.

Accepted Answer

Since Firm B's bond is less risky than Firm A's bond, investors would be willing to pay more for Firm B's bond to compensate for the lower level of risk.

Question 18

Laura read about Living Longer Biotechnology,Inc.and wants to buy 100 common shares at $45 per share.Unfortunately,she only has $3000 available to invest.One risky strategy Laura could consider is:

Accepted Answer

Buying on margin involves borrowing money from a broker to purchase shares, allowing Laura to leverage her available funds and potentially increase her return on investment. However, this strategy is risky, as if the stock price decreases, Laura will have to pay back the loan with interest and may lose more money than she initially invested. It is important for Laura to carefully consider the potential risks before deciding to buy on margin.

Question 19

Abraham found a $1000 face value bond that belonged to his father.He checked the Wall Street Journal and found the bond was currently selling for $1220.This bond sells at a:

Accepted Answer

The bond is selling for more than its face value, indicating that it is selling at a premium.

Question 20

A recent publication referred to a series of bonds as "the 6s of 25".

Accepted Answer

The answer of A recent publication referred to a series...

Quiz 19: Using Securities Markets for Financing and Investing Opportunities