17) The reason people buy bonds is to:
A) earn interest.
B) reduce their income taxes.
C) save money.
D) receive dividend payments.
18) The interest rate on which cash payments to bondholders are based is the:
A) market rate.
B) discount rate.
C) stated rate.
D) amortization rate.
19) Which of the following describes a term bond?
A) A bond that repays principal in installments
B) A bond that gives the bondholder a claim for specific assets if the issuer fails to pay
C) A bond that matures at one specified time
D) A bond that is not backed by specific assets
20) Which of the following describes a serial bond?
A) A bond that repays principal in installments
B) A bond that gives the bondholder a claim for specific assets if the issuer fails to pay
C) A bond that matures at one specified time
D) A bond that is not backed by specific assets
21) Which of the following describes a secured bond?
A) A bond that repays principal in installments
B) A bond that gives the bondholder a claim for specific assets if the issuer fails to pay
C) A bond that matures at one specified time
D) A bond that is not backed by specific assets
22) Which of the following describes a debenture?
A) A bond that repays principal in installments
B) A bond that gives the bondholder a claim for specific assets if the issuer fails to pay
C) A bond that matures at one specified time
D) A bond that is not backed by specific assets
23) Which of the following statements is TRUE about a bond that is issued at a discount?
A) It will be sold at par.
B) Its interest rate is higher than the prevailing market rate.
C) It will repay principal at less than the face value.
D) It will be sold for less than the face value.
24) Which of the following statements is TRUE about a bond that is issued at a premium?
A) It will be sold above par.
B) Its interest rate lower than the prevailing market rate.
C) It will repay principal at more than the face value.
D) It will be sold at par.
25) If bonds with a face value of $100,000 are sold at 88, the amount of cash proceeds is:
A) $108,800.
B) $100,000.
C) $88,000.
D) $99,912.
26) If bonds with a face value of $100,000 are sold at par, the amount of cash proceeds is:
A) $108,800.
B) $100,000.
C) $88,000.
D) $99,912.