PERSONAL FINANCE BOND TEST BANK
These multiple-choice items can be used by teachers to construct a quiz or exam, or to enable students to test their understanding as they prepare for a quiz or exam. Answers are provided in a separate document
1. A bond is a
A. equity (ownership) security.
B. option security.
C. commodity security.
D. debt security.
2. At the maturity date of a bond, the issuer of a bond (a corporation, for example) must pay which of the following to the bond holder?
A. The current market price of the bond.
B. What the bond holder paid for the bond.
C. The par or face value of the bond.
D. The discounted value of the bond.
3. If a bond had a par value of $1,000 and an interest rate (coupon rate) of 8 percent, how much interest would be paid annually to the holder of the bond?
A. $.80.
B. $8.00.
C. $80.00.
D. $800.00
4. A convertible bond can be converted into
A. gold.
B. certificates of deposit.
C. Treasury bills.
D. stock.
5. The two returns that can be realized from bond investments are
A. interest and capital gains.
B. dividends and capital gains.
C. interest and dividends.
D. interest and rental income.
6. Which of the following bonds is rated the highest by Standard & Poor's, and thus has the least default risk?
A. A bond rated DDD.
B. A bond rated CCC.
C. A bond rated BBB.
D. A bond rated AAA.
7. A big attraction of municipal bonds is the fact that they
A. offer higher yields than Treasury bonds and corporate bonds.
B. are completely risk free.
C. pay interest which is exempt from federal income tax.
D. are issued by the United States Treasury.
8. Bonds issued by corporations that are unstable (and often not well-known) are called
A. midget bonds.
B. junk bonds.
C. high flying bonds.
D. miniature bonds.
9. You are thinking about selling a bond that has a 7 percent coupon. Since you bought the bond, interest rates have risen and new bonds being sold at par value are offering coupon rates of 10 percent. If you sell the bond, which of the following correctly describes what you will get?
A. You will get an amount equal to par value.
B. You will get less than par value.
C. You will get more than par value.
D. No conclusion as to what you will get can be drawn based upon the information given.
10. The chance that the issuer of a bond will not be able to pay the interest promised, as well as the principal (another term for par or face value) at maturity, is called
A. default risk.
B. interest rate risk.
C. business risk.
D. purchasing power risk.
11. Which of the following bonds is the safest (has the least default risk)?
A. A corporate bond.
B. A Treasury bond.
C. A bond issued by a church.
D. A municipal bond.
12. Which of the following bonds would offer the highest yield?
A. An AAA-rated corporate bond.
B. An A-rated corporate bond.
C. A BB-rated corporate bond.
D. A CCC-rated corporate bond.
13. Jane has a bond with a 6 percent coupon. Recently interest rates have risen so that bonds similar to Jane's bond are paying 10 percent coupons. As a result, Jane's bond has fallen dramatically in price. Jane has been the victim of
A. default risk.
B. financial risk.
C. interest rate risk.
D. business risk.
14. If you were a bond investor and you believed strongly that interest rates would fall in the future, in which of the following bonds should you invest now in order to make the biggest capital gains as interest rates fall?
A. Bonds having maturities of one year.
B. Bonds having maturities of five years.
C. Bonds having maturities of fifteen years.
D. Bonds having maturities of thirty years.
15. If a bond with a face value of $1,000 was quoted at 90, it would be selling for
A. $9.
B. $90.
C. $900.
D. $9,000.