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WorksheetsBond and Investment Quiz
Total questions: 50
Worksheet time: 50mins
A bondholder becomes a creditor of the issuing organization.
True
False
Bonds are considered fixed-income securities because they impose fixed financial obligations on issuers.
True
False
A debenture is secured by specific physical assets of the issuing company.
True
False
Government of Canada bonds are always secured by physical assets.
True
False
The legal document outlining the details of a bond issue is called a trust deed.
True
False
When market interest rates rise above a bond’s coupon rate, the bond price typically:
Rises
Falls
Stays the same
Doubles
A bond priced at 104 is trading at:
Par
Discount
Premium
Face value
A $1,000 bond quoted at 97 costs:
$1,070
$970
$903
$1,003
Yield to maturity represents:
The coupon divided by par
The annual return if the bond is held to maturity
The interest rate on Treasury bills
The difference between bid and ask price
Bonds that pay no periodic interest and are issued at a discount are called:
Step-up bonds
Index-linked notes
Strip bonds
Floating-rate notes
The income from strip bonds is taxed as:
Capital gain
Dividend income
Interest income
Deferred income
The period during which a callable bond cannot be called is the:
Maturity date
Election period
Call protection period
Grace period
An extendible bond allows the:
Issuer to shorten the maturity
Investor to lengthen the maturity
Issuer to change the coupon
Investor to cancel interest payments
A retractable bond allows the investor to:
Convert to common shares
Redeem early at par
Extend the maturity date
Avoid paying taxes
A convertible bond allows investors to:
Exchange bonds for preferred shares
Exchange bonds for common shares
Redeem for cash anytime
Convert into Treasury bills
The right to exchange a bond for common shares is known as the:
Conversion clause
Conversion privilege
Conversion discount
Conversion rate
Forced conversion benefits primarily the:
Bondholder
Issuer
Trustee
Government
Sinking funds are:
Optional payments made by investors
Mandatory reserves set aside to retire debt
Issuer profits held in trust
Premium payments on callable bonds
Purchase funds retire debt only:
If the price is at or below a specified level
When the issuer defaults
If the bondholder agrees
When rates increase
Protective covenants are:
Promises by the investor
Safeguards in the bond contract to protect investors
Tax shelters for issuers
Penalties for early redemption
Provincial bonds are actually:
Mortgages
Debentures
Promissory notes
Treasury bills
Government of Canada bonds are generally:
Callable
Non-callable
Redeemable at any time
Indexed to the prime rate
Real return bonds adjust:
Coupon only
Principal only
Both coupon and principal for inflation
Neither coupon nor principal
Municipalities primarily raise capital through:
Real return bonds
Treasury bills
Instalment debentures
High-yield bonds
Floating-rate securities are advantageous when:
Interest rates fall
Interest rates rise
Inflation decreases
The issuer defaults
A Maple bond is:
A bond issued in the U.S. by a Canadian company
A Canadian dollar bond issued in Canada by a foreign company
A Eurobond issued in Europe
A provincial bond
High-yield bonds are also known as:
Investment-grade bonds
Speculative bonds
Convertible bonds
Debentures
Commercial paper is generally issued by:
Individuals
Large corporations
Municipalities
Retail investors
A guaranteed investment certificate that increases its rate over time is called a:
Laddered GIC
Escalating-rate GIC
Instalment GIC
Index-linked GIC
Bonds rated “Baa” by Moody’s are:
High quality
Medium grade
Speculative
In default
What is the primary focus of the fixed-income marketplace as described in the chapter overview?
Trading equity securities
Issuing debt securities
Managing corporate mergers
Investing in real estate
Which type of securities is specifically associated with the Government of Canada according to the learning objectives?
Corporate bonds
Provincial securities
Government of Canada securities
Municipal securities
What is the primary reason governments issue fixed-income securities?
To finance operations or growth
To take advantage of financial leverage
To raise money for programs and obligations
To reduce tax revenue
What does the par value of a bond represent?
The interest rate paid by the bond issuer.
The principal amount the bond issuer contracts to pay at maturity.
The annual return on a bond held to maturity.
The time remaining before the bond matures.
What is the coupon rate of a bond?
The annual return on a bond held to maturity.
The present discounted value of all future payments.
The interest rate paid by the bond issuer relative to the bond's par value.
The time remaining before the bond matures.
What is the typical frequency of interest payments for most bonds in North America?
Monthly
Quarterly
Twice a year
Annually
What is the most common denomination for bonds issued in a broad retail market?
$500 and $5,000
$1,000 and $10,000
$2,000 and $20,000
$5,000 and $50,000
What does it mean when a bond is trading at a discount?
The bond is trading above its face value.
The bond is trading at its face value.
The bond is trading below its face value.
The bond is trading at a premium.
What does the term "good delivery form" refer to in the context of negotiable bonds?
Bonds that are delivered electronically.
Bonds that are delivered in actual paper copies or fixed-income securities between investment dealers.
Bonds that are delivered with a premium price.
Bonds that are delivered only to international investors.
What is the primary difference between retractable bonds and extendible bonds?
Retractable bonds have a shorter maturity date than extendible bonds.
Retractable bonds allow investors to redeem the bond at par earlier than the maturity date, while extendible bonds allow the maturity date to be extended.
Extendible bonds are issued with a fixed maturity date, while retractable bonds have no fixed maturity date.
Extendible bonds are more commonly issued than retractable bonds.
What happens to the bond price of convertible debt if interest rates rise sharply?
The bond price drops below the conversion price.
The bond price remains unaffected by interest rates.
The bond price does not drop below the conversion price.
The bond price increases above the conversion price.
What is the key difference between a sinking fund and a purchase fund?
A sinking fund is optional, while a purchase fund is mandatory.
A sinking fund involves a fixed schedule, while a purchase fund involves purchases at or below a stipulated price.
A sinking fund is used for equity, while a purchase fund is used for debt.
A sinking fund is for short-term debt, while a purchase fund is for long-term debt.
What does the 'limitation on sale and leaseback transactions' clause protect against?
The firm issuing excessive dividends.
The firm selling and leasing back assets that provide security for the debt.
The firm merging with another company.
The firm exceeding its debt-to-asset ratio.
Which clause establishes rules for the payment of dividends to ensure equity is not drained?
Debt test.
Dividend test.
Sinking fund provision.
Sale of assets or merger clause.
What are provincial bonds, and how do they differ from Government of Canada bonds?
Provincial bonds are secured by assets, while Government of Canada bonds are not.
Provincial bonds are debentures, meaning they are promises to pay without pledged assets, while Government of Canada bonds are secured by assets.
Provincial bonds are issued internationally, while Government of Canada bonds are only issued domestically.
Provincial bonds are guaranteed by the federal government, while Government of Canada bonds are not.
What is one reason provinces borrow extensively in international markets?
To avoid federal government regulations.
To take advantage of lower borrowing costs.
To issue bonds in Canadian dollars only.
To avoid using syndicates of dealers and banks.
What is an instalment debenture, also known as a serial bond?
A bond that matures in a single year.
A bond that matures in equal instalments over its term.
A bond that is callable at any time.
A bond that is issued by private corporations only.
Why are instalment debentures considered non-callable?
Because they can be redeemed by the issuer at any time.
Because they allow investors to know the exact maturity dates in advance.
Because they are issued by private corporations.
Because they are backed by physical assets.
What are bonds issued by a Canadian company in U.S. dollars in the United States called?
Samurai bonds
Maple bonds
Yankee bonds
EuroCanadian bonds
What are Eurobonds denominated in Canadian dollars called?
Maple bonds
EuroCanadian bonds
Yankee bonds
Samurai bonds
