Chapter 11 Smartbook

which of the following are advantages of purchasing securities issued by the U.S. Treasury

- backed by the government - safe investment - decreased risk of default

which of the following investments are included in a diversified portfolio

- cash - small company stocks - large company stocks - bonds

three ways that the internet can help you invest in bonds are

- lower commission with online trades - research information online - price information

the maturity on a treasury bond is

30 years

tom has invested in TIPS. in the past year, the inflation rate was 4 percent. tom earns

4 percent on his investment

treasury inflation-protected securities pays interest every ___ months at a fixed rate

6

a price quote of 79 on a bond means

79 percent of face value.

bonds that are judged to be of the best quality would have which rating

AAA or Aaa

for standard & poor's the bond ratings generally range from

AAA to D

which of the following is NOT true about bonds

Bonds are often recommended over bond funds for small investors

which of the following has the shortest maturity

T-bills

a typical bond transaction would not include

advice and information from your discount broker

treasury ___ have a maturity of 4 to 52 weeks

bills

a mortgage bond is a corporate bond secured by various ___ of the issuing ___

blank 1: assets blank 2: firm

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

blank 1: convertible blank 2: stock

useful investment goals are ___ and ___

blank 1: specific blank 2: measurable

a municipal bond is a debt security issued by a ___ or local ___

blank 1: state blank 2: government

business periodicals and federal agency publications are two additional sources of information that can be valuable when evaluating

bonds

a feature that allows the corporation to call in or buy outstanding bonds from current bondholders before the maturity date is a

call feature

for Treasury securities, if investors bid ___ (competitively/non-competitively), they must specify the rate of interest yield they are willing to accept

competitively

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

convertible bond

with a lower risk of a bond and the possible high return of a stock, investors may choose which investment option

convertible bonds

a corporation's written pledge to repay a specified amount of money with interest is called a

corporate bond

a bond that is backed only by the reputation of the issuing corporation is called a

debenture

a(n) ___ is a bond that is backed only by the reputation of the issuing corporation

debenture

a(n) ___ fund is an amount of money you can obtain quickly in case of an immediate need

emergency

An amount of money that you obtain quickly in case of an immediate need is a(n):

emergency fund

for Moody's (not standard and poor's) rating system the highest rating is AAA while the lowest is D

false

investors may choose a convertible bond because it has the higher risk of a corporate bond but they can also take advantage of the speculative nature of common stock

false

speculative investments are medium-risk investments made with the hope of earning a relatively large profit in a short amount of time

false

the U.S. treasury is an example of a

federal agency publications with information on bonds

a municipal government bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called

general obligation bond

Speculative investments assume a:

high level of risk

interest for Treasury notes is slightly ___ than T-bills since investors must wait longer to get their money back

higher

treasury bonds have a slightly ___ interest rate than T-notes or T-bills

higher

which of the following statements is not a factor to consider in choosing different investments

if you invest in high quality stocks, there is no need to monitor your investments

a rise in the general level of prices is called

inflation

U.S. Treasury securities are a very low-risk investment that many investors use to allocate their investments and bring their overall risk down. because of this low risk, they also offer a low ___ rate

interest

a corporate bond is a corporation's written pledge to repay a specified amount of money along with ___

interest

a person may prefer bonds over stocks because the bond ___ payments are guaranteed

interest

which is used to provide up-to-date price, research, and lower commission for bonds

internet

the ability to buy or sell an investment quickly without substantially affecting the investments value is called

liquidity

which of the following is not true about the time value of money affecting investments

many investors today seek higher returns by investing in certificates of deposit

Which of the following is NOT true?

many people in today's economy choose CD's because of their high rates of return

an investor may prefer stocks over bonds because of the possible increase in

market value per share

"I want to make $300 quarterly for the next three years". This goal is not only specific but because it mentions a number, it is also:

measurable

a corporate bond secured by various assets of the issuing firm is called a

mortgage bond

a debt security issued by a state or local government is called a

municipal bond

for treasury securities, most investors are willing to accept the interest rate determined at auction so they are using

noncompetitive bids

bond quotations are given as a ___ of face value

percentage

inflation is the rise in the general level of ___

prices

a bond that is repaid from the income generated by the project it is designed to finance is called a

revenue bond

government and corporate bonds are often seen as ___ (riskier/safer) investments than stocks

safer

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

sinking

a fund to which annual or semiannual deposits are made for the purpose of redeeming a bond issue is a

sinking fund

which of the following is NOT a factor to consider when choosing different investments

tax consequence of selling investments

a general obligation bond is a bond backed by the full faith, credit, and unlimited ___ power of the government that issued it

taxing

maturity for Treasury notes ranges from two years to

ten years

which of the following is NOT true regarding callable bonds

the bonds are redeemed early at the option of the bondholder

mutual funds are not included in the list of typical investments because

they invest in the assets on the list

liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value

true

revenue bonds are municipal bonds that are repaid from the income generated by the project it is designed to finance

true

the advantage for an investor to trade bonds through an online broker is discounted commissions on trades

true

among other factors, a person's priorities, age, and personal ___ affect his or her investment goals

values

When looking at investment you should first ask yourself:

what is important to you and what do you value?

the ___ is the percentage rate of return earned by an investor who holds a bond for a stated period of time

yield

the rate of return earned by an investor who holds a bond for a stated period of time is called

yield