Deck 12: Investing in Bonds

Question 1

The sale of bonds can also improve a corporation's financial leverage.

Answer 1

True

Question 2

The trustee is an independent firm that acts as the bondholders' representative.

Answer 2

True

Question 3

A warrant is an option that is detachable from the associated bond that gives the holder the right to purchase the firms common shares.

Answer 3

True

Question 4

A subordinated debenture is a more secure investment than a mortgage bond.

Question 5

Interest payments for registered bonds are mailed directly to the bondholder of record.

Question 6

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

Question 7

The only way an investor can make money on a bond investment is to hold the bond until maturity.

Question 8

Mortgage bonds are agreements that pledge land, buildings, or equipment as securities for a loan.

Question 9

A convertible bond is a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock.

Question 10

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.

Question 11

A registered coupon bond is registered for interest, but not for the principal amount.

Question 12

A sinking fund is a fund to which deposits are made each year for the purpose of redeeming a bond issue.

Question 13

A registered bond is a bond whose ownership is registered in the owner's name by the issuing company.

Question 14

Although unpopular a few years back, more and more corporations are issuing bearer bonds.

Question 15

Maturity dates for corporate bonds generally range from 5 to 7 years.

Question 16

A mortgage bond is a corporate bond that is secured by various assets of the issuing firm.

Question 17

In reality, there is no guarantee that convertible bondholders will convert to common stock even if the price of the common stock does increase.

Question 18

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

Question 19

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

Question 20

Collateral trust bonds are secured, through a pledge of real property.

Question 21

The main reason why investors choose Canadian government securities is the above average interest rates that these securities pay.

Question 22

The Canada Savings Bond Payroll Program does not allow you to save through regular payroll deductions.

Question 23

The method used to pay bondholders their interest is the same regardless the type of bond.

Question 24

A 'muni' is a municipal serial bond that partially matures every year for its term.

Question 25

A collateral trust bond is secured by a pledge of securities and is oft en issued by companies that do not own many fixed assets but do own other securities.

Question 26

Maturity dates for corporate bonds generally range from 1 to 30 years.

Question 27

A bond with a price quotation of 100 sells for $100.

Question 28

Investors who purchase subordinated debentures usually enjoy higher interest rates than other bondholders because of the increased risk associated with this type of bond.

Question 29

Although there is a great deal of information on the Internet about stock investments, it is impossible to evaluate bonds using the Internet.

Question 30

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

Question 31

A registered bond is registered for principal and for interest.

Question 32

For government bonds, the bid price is the price that a dealer is willing to pay for a government security.

Question 33

The yield on a 365 days T-Bill with a purchase price of $989.50 is 10.6%.

Question 34

Treasury bills are issued in minimum units of $10,000 with maturities that range from 10 to 30 years.

Question 35

Treasury bills are issued in $5,000 units with 10-year maturities.

Question 36

A mortgage bond is a corporate bond secured by various assets of the firm.

Question 37

The yield to maturity takes into account both interest income from the purchase date until the maturity date and the difference between the purchase price and the maturity value.

Question 38

A registered coupon bond is registered for principal only, not for interest.

Question 39

Canada Savings Bonds are issued in $1,000 units with a maturity of more than 1 year, but not more than 10 years.

Question 40

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

Question 41

A $l, 000 corporate bond is convertible to 50 shares of the corporation's common stock.What is the minimum price that the stock must obtain before bondholders would consider converting a bond to the company's common stock?

A)$10
B)$20
C)$30
D)$40
E)$50

Question 42

The financially independent firm or individual that acts as the bondholders' representative is the:

A)chairman of the board.
B)president of the corporation.
C)debenture holder.
D)indenture holder.
E)trustee.

Question 43

A type of bond that is unsecured and gives bondholders a claim secondary to that of other designated bondholders, with respect to both income and assets is called a(n):

A)debenture bond.
B)mortgage bond.
C)preemptive bond.
D)subordinated debenture.
E)treasury bond.

Question 44

Assume that you purchase a $1,000 corporate bond that pays 10-3/4 percent interest.What is the amount of interest that you receive each year?

A)$1,000
B)$107.50
C)$100
D)$10
E)$10.75

Question 45

Generally, interest on corporate bonds is paid every

A)six months.
B)three months.
C)month.
D)nine months.
E)year.

Question 46

Which of the following statements is true?

A)Convertible corporate bonds are more secure than government bonds.
B)Convertible bonds often pay 1 to 2 percent more interest than nonconvertible bonds.
C)Because of the conversion feature, it is not necessary to evaluate convertible, corporate bonds.
D)In reality, 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.

Question 47

Which of the following statements is correct?

A)Stock is a form of debt capital.
B)Bonds are a form of debt capital.
C)Stock must be repaid at maturity.
D)Bonds do not have to be repaid at maturity.
E)Interest payments to bondholders are at the discretion of the corporation.

Question 48

A corporate bond that is secured by various assets of the issuing firm is called a(n) ____________ bond.

A)debenture
B)indenture
C)mortgage
D)preemptive
E)treasury

Question 49

A bond that is unsecured is called a(n)

A)treasury bond.
B)savings bond.
C)junk bond.
D)debenture.
E)debt bond.

Question 50

Canada Savings Bonds are available in denominations of $300, $500, $1,000, $5,000, and $10,000.

Question 51

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.

A)debenture
B)mortgage
C)indenture
D)convertible
E)subordinated

Question 52

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

Question 53

Melanie Nash owns one $1,000 corporate bond issued by Chevron.The bond pays 6.5 percent.If interest is paid semiannually, what is the amount of the cheque that Ms.Nash will receive at the end of each six-month period?

A)$6.25
B)$32.50
C)$65
D)$325
E)$1,000

Question 54

Sarah Peterson has been thinking about investing in corporate bonds.She is concerned about safety and wants the most secure bond investment possible.She would most likely invest in ____________ bonds.

A)debenture
B)subordinated.
C)indenture
D)convertible
E)mortgage

Question 55

A call feature:

A)allows bondholders to convert their bond to a specified number of shares of common stock.
B)is not available on corporate bonds.
C)allows the corporation to buy outstanding bonds from current bondholders before the maturity date.
D)is only available with government securities.
E)is guaranteed by the corporation.

Question 56

Assume that you purchased a $1,000 Mobil Corporation bond that pays 8.25 percent interest.What is the amount of interest you would receive each six months?

A)$4.125
B)$8.25
C)$82.50
D)$41.25
E)$1,000

Question 57

Treasury bills are issued a minimum unit of $1,000 with additional increments of $1,000 above the minimum with terms to maturity of 91, 186, or 364 days

Question 58

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

A)serial
B)money
C)debenture
D)indenture
E)sinking

Question 59

The legal conditions for a corporate bond are described in the:

A)bond indenture.
B)bondholder's covenant.
C)corporate charter.
D)trustee contract.
E)bond debenture.

Question 60

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

A)debenture
B)mortgage
C)indenture
D)preemptive
E)treasury

Question 61

The type of bond that is not registered in the investor's name is a ___________ bond.

A)revenue
B)general obligation
C)tax-exempt
D)zero-coupon
E)bearer

Question 62

If a bond was quoted in the newspaper at 75, the price in dollars was:

A)$7.50
B)$75
C)$750
D)$1,000
E)$1,075

Question 63

The price at which a dealer is willing to sell a government security is known as the ____________ price.

A)bid
B)asked
C)contract
D)government
E)adjusted

Question 64

What is the annualized yield of a 200 days T-Bill with a purchase price of $940.00?

A)20.0%
B)17.15%
C)9.40%
D)6.38%
E)11.90%

Question 65

A government security issued in minimum units of $1,000 with maturities that are less than one year is called a:

A)subordinated bond.
B)treasury bond.
C)treasury note.
D)treasury bill.
E)savings bond.

Question 66

Which of the following statements is true?

A)All local newspapers contain information on bond prices.
B)In bond quotations, prices are given as a percentage of the bond's face value.
C)The face value for most corporate bonds is $5,000.
D)To find the market price of a corporate bond, you must contact the corporation that originally issued the bond.
E)To find the market price of a corporate bond, you must call a stockbroker.

Question 67

If overall interest rates in the economy rise, a corporate bond with a fixed interest rate will generally

A)decrease in value.
B)increase in value.
C)remain unchanged.
D)become worthless.
E)be returned to the corporation.

Question 68

If overall interest rates in the economy decrease, a corporate bond with a fixed interest rate will generally

A)increase in value.
B)decrease in value.
C)remain unchanged.
D)become worthless.
E)be returned to the corporation.

Question 69

When a bond is selling for more than its face value, it is said to be selling at a:

A)discount.
B)premium.
C)commission.
D)conservative value.
E)prospectus value.

Question 70

A bond that is in the owner's name by the issuing company is called a ____________ bond.

A)certified
B)coupon
C)registered
D)zero-coupon
E)general obligation

Question 71

What is the approximate market value for a $1,000 corporate bond that pays 8 percent interest when comparable bonds are paying 9 percent interest?

A)$80
B)$90
C)$889
D)$1,000
E)$1,125

Question 72

Investors purchase corporate bonds for

A)interest income.
B)possible increase in value.
C)repayment at maturity.
D)interest income, possible increase in value, and repayment at maturity.
E)secured promise to pay interest made by the issuing company.

Question 73

Justin Parkinson purchased a bond at a price far below its face value, makes no interest payments, and will be redeemed at its face value at maturity.In all likelihood, he purchased a(n) ____________ bond.

A)debenture
B)convertible
C)indenture
D)registered
E)zero-coupon

Question 74

The interest rate for a $1,000 bond is 6 percent.If comparable bonds are paying 8 percent, what is the approximate market value for the 6 percent bond?

A)$1,000
B)$800
C)$750
D)$600
E)$500

Question 75

A bond issued with detachable coupons that the bondholder must present to a paying agent or the issuer in order to receive interest payments is called a __________ bond.

A)registered coupon
B)certified
C)revenue
D)zero-coupon
E)general obligation

Question 76

Which of the following statements is false?

A)The federal government sells bonds and securities to finance both the national debt and the government's ongoing activities.
B)Federal government securities carry a reduced risk of default when compared to corporate securities.
C)Federal 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.

Question 77

David Leclair purchased a federal government bond.The bond had a face value of $500.He purchased a:

A)treasury bill.
B)treasury note.
C)treasury bond.
D)Canada Savings Bond.
E)general obligation bond.

Question 78

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

A)debenture
B)mortgage
C)sinking fund
D)subordinate
E)serial

Question 79

Sun Corporation wants to retire a $50 million bond issue before the maturity date.What is the typical call premium per bond that Sun Corporation must pay for the bonds to be called back?

A)$100
B)$10 - $50
C)$20 - $75
D)$50 - $100
E)$1 - $10

Question 80

When a bond is selling for less than its face value, it is said to be selling at a:

A)discount.
B)premium.
C)commission.
D)conservative value.
E)prospectus value.