Question:

Answer: Mortgage bonds are less secure than other types of corporate bonds.

Question:

Answer: Convertible bonds are backed only by the reputation of the issuing corporation.

Question:

Answer: High-yield bonds have a lower risk of default.

Question:

Answer: T-Bills are sold in maximum units of $500.

Question:

Answer: Maturities for Treasury Notes can range from a few days to one year.

Question: The principal or face value of Treasury Inflation-Protected Securities (TIPS) _____________ with inflation and interest payments ______________ with inflation.

Decrease; decrease

Increase; increase

Increase; stay the same

Increase; decrease

Decrease; increase

Answer: Increase; increase

Question: Jean Miller purchased a $1,000 corporate bond for $900. The bond paid 6 percent annual interest. Three years later, she sold the bond for $1,045. Calculate the total return for Ms. Miller’s bond investment.

Answer: $325

Total interest = Annual interest × Number of years

= (Face value × Interest rate) × Number of years

= ($1,000 × 0.06) × 3

= $180

Total return = Total interest + Capital gain

= Total interest + (Sale price − Purchase price)

= $180 + ($1,045 − 900)

= $325

Question:

Answer:

Question: Assume that 10 years ago you purchased a $1,000 bond for $905. The bond pays 8.70 percent interest and will mature this year.

a) Calculate the current yield on your bond investment at the time of the purchase.

b) Determine the yield to maturity on your bond investment at the time of purchase.

Answer:

Question: Calculate the purchase price for a 52-week, $1,000 Treasury bill with a stated interest rate of 1.70 percent.

Answer: $983

Discount amount = Maturity value × Interest rate

= $1,000 × 0.0170

= $17.00

Purchase price = Maturity value − Discount amount

= $1,000 − 17.00

= $983.00