or Federal Deposit Insurance Corporation, insures investments such as stocks an
ID: 340422 • Letter: O
Question
or Federal Deposit Insurance Corporation, insures investments such as stocks an bonds, against loss, but only up to a $250,000 limit. A. True B. False 19. If you own a bond that has a call date, it means: A. the issuer can call you and ask you to complete a brief survey B. the issuer can demand that you sell the bond to someone else C. the issuer can redeem your bond prior to maturity D. the bond will be issued on that date E. None of the above 20. Zero Coupon Bonds have a par value of zero. A. True B. False 21, what is the value of a 20 year bond, annual payments, 8% coupon, $1,000 par value using a 6% interest rate? A. $1,000 B. $1,229 C. $804 D. $0 E. None of the above 22. If a bond sells for less than par, it can generally be assumed that the coupon rate is lower than current interest rates. A. True B. False 23. If you pay $1,250 for a 25 year bond, annual payments, 6% coupon rate, $1,000 par value, what is your interest rate A. Error 5, need more information B. 6% C. 4.34% D. 10.34% E. None of the above 24, what is your rate of return if you pay $1,037 for a 5 year bond, annual payments, 6% coupon, and you sell the bond three years later for $1,073? A. 6.87% B. 6% C. Error 5, need more information D. less than .01% E. None of the aboveExplanation / Answer
1) FDIC, an independent agency of US government has a standard coverage limit of insured amount of $250,000 per ownership category. So, the answer is True.
2) If someone owns a bond that is callable, that means the bond can be redeemed by the issuer before its maturity. This is done if the interest rate have become lower since the issue of the bond, the debt can be refinanced by decreasing the interest rates. The company then calles a date and reissues the bond at lower rates. So, Option C is correct.
3) A zero coupon bond is a bond where the face value of the bond is repaid at the time of maturity. This bond doesnot have interest payments or any kind of coupons. Hence the name zero coupon also called discount bond. So by studying the definition we can say that it is not possible to have par value of zero in zero coupon bonds as it will only mature during a period of time. So the answer is False.
4) If the bond sells less than the par value then it can be said that the interest rate is higher than that of coupon rates. Issuer sells bond to avoid the increasing risk and maturity. So, the answer is True.
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