Personal Finance CH 18
A(n) _________ bond is a corporate bond that can be converted to shares of common stock.
convertible
The face value of a corporate bond is $5,000 and the rate of interest is 6 percent. The tax on interest earned is 28 percent. What is the net annual interest earned on the bond?
216.00
Suppose you buy a $10,000 bond at face value. The bond pays $450 annual interest. What is the yield on this bond? (Calculate to one decimal place.)
4.5%
A(n) _________ bond is a bond that the issuer has the right to pay off before its maturity date.
callable
The percentage of face value that the bondholder will receive as interest each year is called its _______ (or interest rate).
contract rate
The amount a bondholder will be paid at maturity is called
face value.
A(n) ________ is any investment or action that helps offset against loss from another investment or action.
hedge
Corporations usually agree not to call bonds for the first ___ years after issuance.
5
Junk bonds have higher yields than investment-grade bonds.
True
Most corporate, municipal, and agency bonds are purchased on the primary market, also known as the new issue market.
True
Municipal bonds generally pay a lower interest rate than corporate bonds.
True
The interest rate is the main factor that affects bond prices.
True
Today, most bonds are registered.
True
________ bonds are issued by various administrative units of the U.S. government and by government-sponsored enterprises.
agency
When a bond issuer cannot meet the interest and/or principal payments, what has occurred?
bond default
A type of corporate bond based on the general creditworthiness of the company is called a(n)
debenture.
Bond _______ occurs when the bond is paid off at maturity.
redemption
A(n) ________ bond is repaid from the income generated by the facility built with the borrowed funds.
revenue
Bond prices
tend to remain steadier than stock prices.
One main distinction between stocks and bonds is that
unlike stock dividends, a bond's interest does not go up and down.
Bond maturities typically range from 1 to 30 years.
True
Bonds often appreciate in value, especially when interest rates are dropping.
True
Corporate bonds are usually sold in units of $100, making them very attractive for individual investors.
False
Interest received on a corporate bond is not taxable.
False
Typically, a bond fund contains only investment-grade bonds.
False
You can buy up to $100,000 worth of U.S. savings bonds each year.
False
A bond's current yield is computed by dividing the bond's interest rate by its closing value.
False
An investment-grade bond
is considered the highest-quality, lowest-risk bond.
Another name for a secured bond is a convertible bond.
False
Both the interest rate and the market price of a bond are fixed.
False
People who own corporate bonds receive interest payments every month.
False
Which of the following types of bonds cannot be purchased through TreasuryDirect?
corporate bonds
A revenue bond is a type of municipal bond that
finances public-works projects such as airports and hospitals.
A(n) ________ bond is any bond with a rating of Ba/BB or lower.
junk
A bond issued by a state or local government is called a(n) ________ bond.
municipal
When bonds sell for more than their face value, they are selling at a
premium.
A bond _______tells an investor the risk category that has been assigned to a bond.
rating
