Bonds

Q U E S T I O N   1 :
What is a bond?
	a)	A loan from an investor to a corporation or a government entity that makes fixed interest payments for a set time period and ultimately pays back the principal in full.
	b)	Ownership in a corporation and the right to a percentage of earnings.
	c)	A commitment from an investor to pay a corporation quarterly for the rights to future profits.
	d)	An amalgam of stocks bundled together for a set price.
Q U E S T I O N   2 :
What is a bond's coupon?
	a)	The right to invest for less than the real value of the bond.
	b)	The predetermined rate of interest to be paid by a bond issuer.
	c)	The value of the bond at its maturity date.
	d)	The value of the bond at its issue date.
Q U E S T I O N   3 :
What is the current yield of a 30-year bond with a face value of $1,000, a coupon of 5% and a price of $800?
	a)	5%
	b)	1%
	c)	6.25%
	d)	10%
Q U E S T I O N   4 :
Why is inflation a bondholder's biggest fear?
	a)	Bonds thrive in a low pressure environment.
	b)	Inflation forces bond coupons to sink lower because corporations begin to get nervous and spend less.
	c)	Corporations never issue debt during strong economic times.
	d)	Inflation erodes the future value of the dollar, thereby diminishing the real value of long-term investments with fixed rates of return.
Q U E S T I O N   5 :
Which bonds carry maturities ranging from 90 days to one year and are generally considered the safest bond investments?
	a)	U.S. Treasury notes
	b)	Municipal bonds
	c)	U.S. Treasury bills
	d)	Corporate bonds
Q U E S T I O N   6 :
Why might an investor saving for college or retirement favor a zero-coupon bond?
	a)	They are tax-free.
	b)	They pay all of the compound interest and principal in a lump sum at a set date so planning is easier.
	c)	Zeros pay investors in steady increments at double-digit coupon rates.
	d)	Only corporations in outstanding financial shape issue zeros.
Q U E S T I O N   7 :
Why don't bond funds necessarily act like the bonds they hold?
	a)	Stock funds that hold at least two bonds are also referred to as bond funds.
	b)	Bond funds always lock in bond yields.
	c)	Bond funds have neither fixed yields nor a requirement to pay back principal.
	d)	Bond funds have averaged a 20% return since 1992.
Q U E S T I O N   8 :
Why does a 30-year bond from Company A typically have a higher yield than a 10-year bond from Company A?
	a)	The 10-year bond carries more risk because the bond might not reach its full value in 10 years.
	b)	The 30-year bond carries more risk because there is a greater chance the corporation will not be able to pay its obligations or that inflation will ultimately erode the bond's value.
	c)	The 30-year bond will always have a lower face value, and thus a higher yield.
	d)	The Internet is likely to obliterate most existing corporations within 20 years.
Q U E S T I O N   9 :
How does yield to maturity differ from current yield?
	a)	Yield to maturity is the total return that can be expected from a bond, including repayment of principal and coupon reinvestment.
	b)	Current yield assumes that the prices of bonds will rise by their maturity date.
	c)	Yield to maturity factors in an investor's potential for better decision making in the future.
	d)	Current yield uses the risk-free rate of return and not the coupon.
Q U E S T I O N   10 :
What does it mean when a bond is 'called'?
	a)	A corporation changes the coupon.
	b)	Investors can bid on the bond in the open market.
	c)	The bond's issuer pays back investors' money earlier than the maturity date.
	d)	Q or Moneypenny gets in touch with 007.