If the interest rates for long-term investments are lower than those for short-term investments, how would the yield curve be described?

• a.)
• Flat
• b.)
• Inverted
• c.)
• Steep
• d.)
• Normal

Who is responsible for holding the legal contract for a bond, orbond indenture?

• a.)
• The borrower
• b.)
• The bondholder
• c.)
• A trustee, like a financial institution
• d.)
• Government officials

Franklin purchased a $10,000 20-year Treasury bond that promised to pay him 1.25% interest every six months for the life of the loan.

Which of those numbers is the par value of the bond?

• a.)
• 1.25
• b.)
• Six
• c.)
• 10,000
• d.)
• 20

Which of the following is a disadvantage of bonds for a potential investor?

• a.)
• They are less likely than stocks to be recovered if the issuer goes bankrupt.
• b.)
• They are generally riskier and more volatile than stocks.
• c.)
• They lack diversity and do not respond to the needs of investors very well.
• d.)
• Bondholders risk falling prices if market interest rates rise

Charlie wants a bond that will pay him regular interest payments, but also provides him with the ability to exchange the bond for stock.

What kind of bond should he buy?

• a.)
• Subordinated
• b.)
• Floating-rate
• c.)
• Asset-backed
• d.)
• Convertible

Consider what you have learned about valuing bonds.

• A: Coupon rate = 3%, YTM = 2.5%
• B: Coupon rate = 3%, YTM = 3%
• C: Coupon rate = 3%, YTM = 2.75%
• D: Coupon rate = 3%, YTM = 3.25%

Which of the bonds is selling at par?

• a.) A
• b.) B
• c.) C
• d.) D

Select the true statement about reinvestment risk.

• a.)
• A zero-coupon bond carries the greatest reinvestment risk.
• b.)
• Reinvestment risk is directly correlated to interest rate risk.
• c.)
• Only holders of callable bonds are subject to reinvestment risk.
• d.)
• Reinvestment risk increases when market interest rates fall.