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Exam 15: Investing in Bonds

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Question 61

Multiple Choice

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Dave Johnson's objective was to purchase a government bond that provided some protection against inflation and higher prices. To fulfill this objective, John purchased a:

A) T-bill.
B) T-note.
C) T-bond.
D) TIPS.
E) general obligation bond.

F) A) and E)
G) A) and B)

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Question 62

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A general obligation bond is a bond that is repaid from the income generated by the project it is designed to finance. Issued in minimum units of $100 that have a 30-year maturity date.

A) True
B) False

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Question 63

Multiple Choice

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Which one of the following bonds pays interest only at maturity?

Anyone who is in physical possession of a bearer bond can collect interest payments and the face value of the bond at maturity regardless of whether or not they are the rightful owner.

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.

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

Which of the following bonds would have the lowest interest rate? All of the bonds have 10 years to maturity.

What is the difference between a U.S. government Treasury bill, Treasury note, and Treasury bond?

The yield to maturity takes into account the relationship among a bond's maturity value, the time to maturity, the current price, and the dollar amount of interest.

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

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

Frank Riley just purchased a bond that is unsecured and is secondary to other unsecured bonds should the issuer declare bankruptcy. What type of bond has Frank purchased?

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

With a registered coupon bond, only the registered owner can collect the principal at maturity, but interest payments can be paid to anyone.

A government security issued in minimum units of $100 with maturities that are one year or less is called a:

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

In what ways can a bond investor make money?

If your primary goal is current yield, which one of these bonds is the wiser investment? Bond A: $1,000 corporate bond that pays 7 percent and has a current market value of $800; or Bond B: $1,000 corporate bond that pays 8.25 percent and has a current market value of $950?

A ______ is a financially independent firm that acts as the bondholder's representative.

XYZ Corporation wants to retire a $60 million bond issue before the maturity date. In order to call the bonds in this issue, the corporation must pay the bondholders the face value plus a premium. What is the typical premium for bonds that have been called?