A Step-by-Step Guide to Buying Bonds

Bonds are described as offering which of the following benefits?

• A. High growth potential equivalent to stock

• B. Stability and periodic income for portfolios

• C. No risk at all and guaranteed returns

• D. Only short-term investment options

Which type of bond is viewed as the “bedrock of safety” in a bond portfolio according to the article?

• A. Corporate high-yield bonds

• B. Municipal bonds (munis)

• C. U.S. Treasury bonds and related securities

• D. Emerging market foreign bonds

Which of the following is not a typical maturity category of U.S. Treasury securities mentioned?

• A. Treasury bills (T-Bills) – maturities of one year or less

• B. Treasury notes – maturities of two to ten years

• C. Treasury bonds – maturities of 20 to 30 years

• D. Treasury shares – equities issued by the Treasury

Corporate bonds are riskier than U.S. Treasury bonds primarily because:

• A. They always have longer maturities

• B. They are issued by private companies and have higher default risk

• C. They pay no interest

• D. They are exempt from taxes

One of the key tax advantages of municipal (muni) bonds is that:

• A. They always offer the highest yields in the market

• B. Their interest is typically exempt from federal income tax

• C. They never default because they are guaranteed by the federal government

• D. They pay interest monthly instead of semi-annually

When comparing direct individual bond purchases vs. bond funds/ETFs, which is a stated drawback of buying individual bonds?

• A. You cannot choose the maturity date

• B. You have less control over exactly what you earn

• C. Many bonds sell in $1,000 increments which can require a large outlay

• D. You are forced to pay very high management fees

According to the article, the website TreasuryDirect is especially useful because:

• A. It lets you buy corporate junk bonds for free

• B. It enables direct purchase of U.S. Treasury securities with zero fees or commissions

• C. It allows you to trade bonds like stocks throughout the day

• D. It is only for professional institutional investors

The “bond laddering” investment strategy involves:

• A. Buying only short-term bonds to avoid maturity risk

• B. Buying bonds with different maturity dates spread out over time so you can reinvest as each matures

• C. Holding just one bond until it matures and then investing the proceeds in stocks

• D. Avoiding reinvestment in bonds altogether

For someone whose primary goal is income rather than growth, the article suggests they might:

• A. Avoid all bonds and invest only in stocks

• B. Focus on higher-yielding bonds and perhaps shorten maturities if rates are low

• C. Choose very long maturities regardless of interest-rate risk

• D. Ignore maturity and yield and only focus on tax benefits

Which of the following statements about bond funds/ETFs is true according to the article?

• A. Bond funds guarantee you the return of principal at a specific maturity date

• B. Bond ETFs trade like stocks and often have lower expense ratios than comparable funds

• C. There are no drawbacks to bond funds compared to individual bonds

• D. Funds never distribute interest income monthly