WorksheetsA Step-by-Step Guide to Buying Bonds
Total questions: 10
Worksheet time: 5mins
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
