Question 1

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

Accepted Answer

Bearer bonds have become less popular due to regulatory changes and concerns over security and tax evasion, leading to a decline in their issuance.

Question 2

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

Accepted Answer

When overall interest rates fall, the value of existing bonds with fixed interest rates typically increases because their higher fixed rates become more attractive compared to new bonds issued at the lower current rates.

Question 3

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

Accepted Answer

False

Question 4

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

Accepted Answer

Convertible bondholders have the option to convert their bonds into common stock, but they are not obligated to do so. They may choose to hold onto their bonds and receive their fixed interest payments instead of converting, depending on their investment objectives and market conditions.

Question 5

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.

Accepted Answer

A convertible bond gives the owner the option to convert the bond into a specified number of shares of the corporation's common stock.

Question 6

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

Accepted Answer

Corporate bonds are a form of debt financing that must be repaid with interest at a specified date in the future.

Question 7

Bond interest payments are a tax-deductible business expense.

Accepted Answer

Bond interest payments are considered a business expense and therefore are tax-deductible.

Question 8

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

Accepted Answer

This is the definition of a sinking fund.

Question 9

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

Accepted Answer

The book entry form of bond ownership is still widely used and has been enhanced by technology and computers, making it more efficient and secure for recording and transferring ownership of bonds.

Question 10

Because of higher interest rates, zero-coupon bonds are sold at a premium price above the face value that will be paid at maturity.

Accepted Answer

Zero-coupon bonds are sold at a discount price below the face value, as investors are not being paid any interest during the life of the bond. Therefore, as interest rates increase, the price of zero-coupon bonds decreases, and they are sold at a discount to compensate for the lack of interest payments.

Question 11

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

Accepted Answer

The answer of A mortgage bond is a corporate bond...

Question 12

All bonds in a serial bond issue mature on the same date.

Accepted Answer

In a serial bond issue, bonds are issued with different maturities, not all on the same date. Typically, a portion of the bonds will mature each year or at defined intervals, until all the bonds have reached their maturity date.

Question 13

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

Accepted Answer

Interest payments for registered bonds are usually mailed directly to the bondholder of record, as their information is on file with the bond issuer.

Question 14

A corporate bond is a corporation's written pledge that it will repay a specified amount of money with interest.

Accepted Answer

A corporate bond is a debt security issued by corporations as a way to raise capital. It is essentially a written promise to repay a specified amount of money with interest at a predetermined date.

Question 15

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

The corporation's financial stability can have a significant effect on the bond's value between the issue date and the maturity date. If the corporation's financial health deteriorates, the perceived riskiness of the bond may increase, causing its market value to decrease. On the other hand, if the corporation's financial health improves, the perceived riskiness of the bond may decrease, causing its market value to increase.

Question 16

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

Accepted Answer

An investor can also make money on a bond investment by selling the bond before maturity at a higher price than what they paid for it, taking advantage of changes in interest rates and market conditions.

Question 17

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

The statement is incorrect. Treasury bills are actually issued in minimum units of $1,000, not $10,000 as stated in the first part of the statement. Additionally, T-bills have maturities of 4, 8, 13, 26, and 52 weeks, not just 4, 13, 26, and 52 weeks.

Question 18

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

Accepted Answer

A registered bond is a type of bond where ownership is recorded and maintained by the issuing company in the name of the owner. This is different from a bearer bond, where ownership is not recorded and whoever holds the physical bond paper is considered the owner.

Question 19

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

Accepted Answer

A mortgage bond is secured by the mortgaged property, while a subordinated debenture is unsecured and ranks lower in priority for repayment in the event of default. Therefore, a mortgage bond is typically considered a more secure investment than a subordinated debenture.

Question 20

Maturity dates for corporate bonds generally range from 5 to 10 years.

Accepted Answer

While some corporate bonds may have maturity dates within the 5-10 year range, they can also have shorter or longer maturities. Some corporate bonds have maturities of 20, 30, or even 100 years.

Quiz 15: Investing in Bonds