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T F 1. A call provision allows the corporation to retire a bond before maturity by paying a small discount below par value. T F 2. The IRS taxes zero coupon bonds as if interest were paid semiannually even though no cash flow is received until maturity. T F 3. An important feature of the GNMA pass-through certificate is that there is no principal balance at maturity. T F 4. Interest and capital gains on municipal bonds are tax-exempt by the IRS. T F 5. Like the stock market, there is a strong secondary market for bond issues, particularly corporate bonds. T F 6. The major provisions in the bond agreement are spelled out in the bond indenture. T F 7. A secured corporate bond is referred to as a debenture. T F 8. A Treasury bill is a long-term obligation of the federal government. T F 9. The Federal Reserve Board of Governors controls money supply and interest rates through its monetary policy. T F 10. The higher the bond rating of a corporation, the higher the interest rate that is likely to be paid. T F 11. Money market funds represent a vehicle to buy short-term fixed-income securities through a mutual fund arrangement.
12. Which of the following types of bond issues are the most price sensitive? A) Fixed rate long-term bonds B) Floating rate bonds C) Zero coupon bonds D) Fixed rate short-term bonds
14. Junk bonds normally provide A) a higher yield than treasury bonds B) a lower yield than treasury bonds C) a lower yield than AA corporate bonds D) more than one of the above is true
15. A call feature may be valuable to: A) Investors B) the issuing company C) corporate employers D) the IRS
16. Corporate bonds generally trade in units of A) $100 B) $1,000 C) $5,000 D) $10,000
Answer Key – Bond Fundamentals
1. False 2. True 3. True 4. False 5. True 6. True 7. False 8. False 9. True 10. False 11. True 12. C 14. A 15. B 16. B
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