Chapter 15 – Investing in Bonds
1. (p. 500) A corporate bond is a corporation’s written pledge that it will repay a specified
amount of money with interest.
2. (p. 501) Maturity dates for corporate bonds generally range from 5 to 10 years.
3. (p. 501) The bond debenture is a legal document that details all of the conditions relating to a
bond issue.
Chapter 15 – Investing in Bonds
4. (p. 502) Bond interest payments are a tax-deductible business expense.
5. (p. 502) Corporate bonds are a form of equity financing that does not have to be repaid.
6. (p. 502) A mortgage bond is a corporate bond that is secured by various assets of the issuing
firm.
Chapter 15 – Investing in Bonds
7. (p. 503) A subordinated debenture is a more secure investment than a mortgage bond.
8. (p. 503) 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.
9. (p. 503) In reality, there is no guarantee that convertible bondholders will convert to common
stock even if the price of the common stock does increase.
Chapter 15 – Investing in Bonds
10. (p. 504) A sinking fund is a fund to which deposits are made each year for the purpose of
redeeming a bond issue.
11. (p. 504) All bonds in a serial bond issue mature on the same date.
12. (p. 507) A registered bond is a bond whose ownership is registered in the owner’s name by
the issuing company.
13. (p. 507) Interest payments for registered bonds are usually mailed directly to the bondholder
of record.
Chapter 15 – Investing in Bonds
14. (p. 507) With the use of technology and computers, the book entry form of bond ownership
is no longer used.
15. (p. 507) Although unpopular a few years back, more and more corporations are issuing
bearer bonds.
16. (p. 507) Because of higher interest rates, zero-coupon bonds are sold at a premium price
above the face value that will be paid at maturity.
17. (p. 508) If overall interest rates in the economy fall, then a corporate bond with a fixed
interest rate will decrease in value.
Chapter 15 – Investing in Bonds
18. (p. 508) The only way an investor can make money on a bond investment is to hold the bond
until maturity.
19. (p. 508) Because bonds are considered debt financing that must be repaid at maturity, the
corporation’s financial stability has little effect on the bond’s value between the issue date and
the maturity date.
20. (p. 512) Treasury bills are issued in minimum units of $10,000 with maturities that range
from 10 to 30 years.
21. (p. 513) Treasury notes are issued in $100 units with a maturity of more than 1 year, but not
more than 10 years.
Chapter 15 – Investing in Bonds
22. (p. 513) Treasury bonds are issued in $5,000 units with 10-year maturities.
23. (p. 515) A general obligation bond is a bond that is repaid from the income generated by the
project it is designed to finance.
24. (p. 515) Insured municipal bonds offer slightly lower interest rates than uninsured bonds
because of the reduced risk of default.
25. (p. 515) Tax-exempt bonds offer slightly higher interest rates than corporate bonds.
Chapter 15 – Investing in Bonds
26. (p. 517) Although there is a great deal of information on the Internet about stock
investments, it is impossible to evaluate bonds using the Internet.
27. (p. 518) For government bonds, the bid price is the price that a dealer is willing to pay for a
government security.
28. (p. 520) For Moody’s and Standard & Poor’s, the first four individual bond-rating categories
represent investment-grade securities.
29. (p. 522) The current yield for a bond is determined by dividing the annual income amount by
the current market value.
Chapter 15 – Investing in Bonds
30. (p. 522) 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.
31. (p. 501) Assume that you purchase a $1,000 corporate bond that pays 9.25 percent interest.
What is the amount of interest that you receive each year?
32. (p. 501) You own a $1,000 bond that pays 9.25 percent interest. What is the amount of
interest you will receive each six months?
Chapter 15 – Investing in Bonds
33. (p. 501) Generally, interest on corporate bonds is paid every:
34. (p. 501) Nancy Groom owns a $1,000 corporate bond that pays 8.5 percent. What is the
amount of each interest payment?
35. (p. 501) Which one of the following statements is true?
Chapter 15 – Investing in Bonds
36. (p. 501) The legal conditions for a corporate bond are described in the:
37. (p. 501) The financially independent firm or individual that acts as the bondholders’
representative is the:
38. (p. 502) Which one of the following statements is correct?
Chapter 15 – Investing in Bonds
39. (p. 502) A bond that is backed only by the reputation of the issuing corporation is called a(n)
____________ bond.
40. (p. 502) A corporate bond that is secured by various assets of the issuing firm is called a(n)
____________ bond.
41. (p. 503) A type of bond that is unsecured and gives bondholders a claim secondary to that of
other designated bondholders with respect to both income and assets is called a:
Chapter 15 – Investing in Bonds
42. (p. 503) A bond that can be exchanged, at the owner’s option, for a specified number of
shares of the corporation’s stock is called a(n) ____________ bond.
43. (p. 502) Sandra Peterson has been thinking about investing in corporate bonds. She is
concerned about safety and wants the most secure bond investment possible. She would most
likely invest in ____________ bonds.
44. (p. 503) Which one of the following statements is true?
Chapter 15 – Investing in Bonds
45. (p. 503) A $l,000 corporate bond is convertible to 25 shares of the corporation’s common
stock. What is the minimum price that the stock must obtain before bondholders would
consider converting the bond to stock?
46. (p. 504) A call feature:
47. (p. 504) A fund to which annual or semiannual deposits are made for the purpose of
redeeming a bond issue is called a(n) ____________ fund.
Chapter 15 – Investing in Bonds
48. (p. 504) Bonds of a single issue that mature on different dates are called ____________
bonds.
49. (p. 504) 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?
50. (p. 507) A bond that is listed in the owner’s name by the issuing company is called a
______________ bond.
Chapter 15 – Investing in Bonds
51. (p. 507) Today, bond ownership records are maintained using a process called:
52. (p. 507) John Peterson purchased a bond that is priced far below its face value, that makes no
interest payments, and that will be redeemed at its face value at maturity. In all likelihood, he
purchased a(n) ____________ bond.
53. (p. 507) Which type of bond is not registered in the investor’s name?
Chapter 15 – Investing in Bonds
54. (p. 508) If overall interest rates in the economy rise, a corporate bond with a fixed interest
rate will generally:
55. (p. 508) If overall interest rates in the economy fall, a corporate bond with a fixed interest
rate will generally:
56. (p. 508) What is the approximate market value of a $1,000 corporate bond that pays 8
percent interest when comparable bonds are paying 9 percent interest?
Chapter 15 – Investing in Bonds
57. (p. 508) What is the approximate market value for of a $1,000 corporate bond that pays 9
percent interest when comparable bonds are paying 8 percent?
58. (p. 506) Investors purchase corporate bonds for:
59. (p. 509) When investors purchase bonds that mature at regular intervals in order to balance
risk and return, they are creating a:
Chapter 15 – Investing in Bonds
60. (p. 501, 508) Which type of bond would provide the most price stability?
61. (p. 508) The interest rate for a $1,000 bond is 6 percent. If comparable bonds are paying 8
percent, what is the approximate market value for of the 6 percent bond?
62. (p. 508) The interest rate for a $1,000 bond is 9 percent. If comparable bonds are paying 7
percent, what is the approximate market value for of the 9 percent bond?
Chapter 15 – Investing in Bonds
63. (p. 511) The commission for purchasing a $1,000 bond would most likely be:
64. (p. 512) Which one of the following statements is false?
65. (p. 512) A government security issued in minimum units of $100 with maturities that are one
year or less is called a: