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Personal Finance: Investing in Bonds and Other Alternatives
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What are bonds? Bonds, also known as fixed income instruments, are used by governments or companies to raise money by borrowing from investors. Bonds are typically issued to raise funds for specific projects. In return, the bond issuer promises to pay back the investment, with interest, over a certain period of time. On the other hand, alternative investments are supplemental strategies to traditional long-only positions in stocks, bonds, and cash. Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and... Show more
Personal Finance: Investing in Bonds and Other Alternatives
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25 Questions

1. What is the par value of a corporate bond that was issued with an 9% annual coupon, pays $45 in semiannual interest, and is due in 15 years?
2. The current yield, the coupon rate, and the yield to maturity are equal if the bond sells at par value.
3. If you were to own a stock that offers voting rights and may pay dividends, you would most likely own ________ stock.
4. Collectibles such as baseball cards and beanie babies can be fun, but one should not expect them to provide for your financial future.
5. Michael Milkman has suggested that you consider the purchase of some bonds that are rated BB or below- He is asking you to purchase ________ bonds.
6. Randall has $25,000 and is considering investing in bonds- With this amount of start up money he should look into which of the following bonds?
7. Sherman has three bonds with a $1,000 par value that pay a 9% coupon interest rate- How much will he earn every six months?
8. The issuer of the bond is effectively loaning money to the bondholder when the bond is purchased.
9. When a bond is bought at a premium price above its par value, the current yield will be lower than the coupon rate.
10. A corporation that issues preferred stock will mostly likely call the stock when the market rates of interest increase.
11. Bonds which are very low rated, yet high yielding bonds are known as junk bonds.
12. A debenture is a long-term bond secured by collateral.
13. Corporations receive a tax break on the dividend income from preferred stock.
14. Karyn wants to evaluate some bonds she is contemplating buying- In order to adequately evaluate them, she should check the bond yields, read the bond quotes in a paper, and check the
15. When a bond is described as AA, what does this refer to?
16. You have a corporate bond that pays interest every six months- Its par value is $1,000 and it carries a coupon rate of 10%- What is your accrued interest on the bond if it has been four months since interest was last paid?
17. There is an inverse relationship between interest rates and bond values.
18. Bond issuers may do something very important for the bondholder that increases the probability the debt will be successfully paid off at maturity- The issuer
19. The novice investor can easily make big returns investing in real estate.
20. An indenture is an unsecured long-term bond.
21. Interest payments on municipal bonds are exempt from federal taxes and state taxes as long as you live in the state in which the bonds were issued.
22. The yield to maturity for a bond with eight years to maturity, with a face value of $1,000, pays percent annual coupon and currently sells for $1,950, is 5 percent.
23. When a preferred stock requires that all past unpaid preferred stock dividends must be paid before any common stock dividends can be declared, this preferred stock has a ________ feature.
24. Because there is no default or call risk associated with government bonds, they generally pay ________ rate of interest than other bonds.
25. If the school district wants to build a new high school, they can sell municipal bonds.

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