Valuing Bonds

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Question 1

Free

Multiple Choice

Which of these statements is false?

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Bonds are more important capital sources than stocks for companies and governments.

Some bonds offer high potential for rewards and, consequently, higher risk.

The bond market is larger than the stock market.

Bonds are always less risky than stocks.

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Question 2

Free

Multiple Choice

Bonds are issued by which of the following?

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corporations

federal government or its agencies

state and local governments

All of these choices are correct.

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Question 3

Free

Multiple Choice

Which of these statements answers why bonds are known as fixed income securities?

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Many investors on fixed incomes buy them.

Investors know how much they will receive in interest payments.

Investors will not receive their principal when the bond's term is up.

All of these choices are correct.

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Question 4

Free

Multiple Choice

Which of the following is a legal contract that outlines the precise terms between the issuer and the bondholder?

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debenture

enforcement codes

indenture

prospectus

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Question 5

Free

Multiple Choice

Regarding a bond's characteristics, which of the following is the principal loan amount that the borrower must repay?

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call premium

maturity date

par or face value

time to maturity value

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Question 6

Multiple Choice

To compensate the bondholders for getting the bond called, the issuer pays which of the following?

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call feature

call premium

coupon rate

original issue premium

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Question 7

Multiple Choice

Which of the following determines the dollar amount of interest paid to bondholders?

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original issue discount

call premium

coupon rate

market rate

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Question 8

Multiple Choice

Bond prices are quoted in terms of which of the following?

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original issue discount

percent of par value

coupon rate in dollars

market rate in dollars

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Question 9

Multiple Choice

Which of the following are main issuers of bonds?

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U.S. Treasury bonds

corporate bonds

municipal bonds

All of these choices are correct.

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Question 10

Multiple Choice

Which of the following statements is true?

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Interest payments paid to U.S. Treasury bondholders are not taxed at the federal level.

Interest payments paid to corporate bondholders are not taxed at the federal level.

Interest payments paid to corporate bondholders are not taxed at the state level.

Interest payments paid to municipal bondholders are not taxed at the federal level, or by the state for which the bond is issued.

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Question 11

Multiple Choice

Which of the following issues Treasury Inflation Protected Securities (TIPS)?

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U.S. Treasury

corporations

municipalities

nonprofits

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Question 12

Multiple Choice

Which of the following is true regarding U.S. Government Agency Securities?

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They carry the federal government's full faith and credit guarantee.

They do not carry the federal government's full faith and credit guarantee.

They are insured by the FDIC.

They are treated the same as U.S. Treasury bonds with regard to the federal government's full faith and credit guarantee.

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Question 13

Multiple Choice

Which of the following is a debt security whose payments originate from other loans, such as credit card debt, auto loans, and home equity loans?

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asset-backed securities

credit quality securities

debentures

junk bonds

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Question 14

Multiple Choice

Which of the following is NOT a factor that determines the coupon rate of a company's bonds?

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the amount of uncertainty about whether the company will be able to make all the payments.

the term of the loan.

the level of interest rates in the overall economy at the time.

All of these choices are correct.

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Question 15

Multiple Choice

Which of the following bonds makes no interest payments?

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a bond whose coupon rate is equal to the market interest rates

a bond whose coupon rates are greater than market interest rates

a bond whose coupon rates are less than the market interest rates

zero-coupon bond

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Question 16

Multiple Choice

Which of the following is a true statement?

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If interest rates fall, U.S. Treasury bonds will have decreasing values.

If interest rates fall, corporate bonds will have decreasing values.

If interest rates fall, no bonds will enjoy rising values.

If interest rates fall, all bonds will enjoy rising values.

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Question 17

Multiple Choice

Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

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credit quality risk

interest rate risk

liquidity rate risk

reinvestment rate risk

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Question 18

Multiple Choice

Which of the following terms means the chance that future interest payments will have to be reinvested at a lower interest rate?

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credit quality risk

interest rate risk

liquidity rate risk

reinvestment rate risk

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Question 19

Multiple Choice

Which of the following terms is a comparison of market yields on securities, assuming all characteristics except maturity are the same?

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credit quality risk

interest rate risk

liquidity of interest rate risk

term structure of interest rates

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Question 20

Multiple Choice

A bond's current yield is defined as

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the bond's annual coupon rate divided by the bond's par value.

the bond's annual coupon rate divided by the market interest rate.

the bond's annual coupon rate divided by the bond's current market price.

the bond's annual coupon rate divided by the bond's original issue price.

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