41.Assumethebondsbelowhavethesametermandprincipalandthatthestateorlocalgovernmentthatissuesthemunicipalbondhasagoodcreditrating.Whichlisthasbondscorrectlyorderedfromtheonethatpaysthehighestinterestratetotheonethatpaysthelowestinterestrate?
a.corporatebond,municipalbond,U.S.governmentbond
b.corporatebond,U.S.governmentbond,municipalbond
c.municipalbond,U.S.governmentbond,corporatebond
d.U.S.governmentbond,municipalbond,corporatebond
42.Otherthingsthesame,asthematurityofabondbecomeslonger,thebondwillpay
a.alowerinterestratebecauseithaslessrisk.
b.alowerinterestratebecauseithasmorerisk.
c.ahigherinterestratebecauseithasmorerisk.
d.thesameinterestrate,becausethereisnorelationshipbetweentermandrisk.
43.Supposetheissuerofabondfailstopaysomeoftheinterestorprincipalthatwaspromisedtothebondholders.Thisfailureisreferredtoasa
a.breach.
b.default.
c.risk.
d.termfailure.
44.SupposethecityofDesMoineshasahighcreditrating,andsowhenDesMoinesborrowsfundsbysellingbonds,
a.thecity’shighcreditratingandthetaxstatusofmunicipalbondsbothcontributetoalowerinterestratethanwouldotherwiseapply.
b.thecity’shighcreditratingandthetaxstatusofmunicipalbondsbothcontributetoahigherinterestratethanwouldotherwiseapply.
c.thecity’shighcreditratingcontributestoalowerinterestratethanwouldotherwiseapply,whilethetaxstatusofmunicipalbondscontributestoahigherinterestratethanwouldotherwiseapply.
d.thecity’shighcreditratingcontributestoahigherinterestratethanwouldotherwiseapply,whilethetaxstatusofmunicipalbondscontributestoalowerinterestratethanwouldotherwiseapply.
45.Municipalbondspayarelatively
a.lowrateofinterestbecauseoftheirhighdefaultriskandbecausetheinteresttheypayissubjecttofederalincometax.
b.lowrateofinterestbecauseoftheirlowdefaultriskandbecausetheinteresttheypayisnotsubjecttofederalincometax.
c.highrateofinterestbecauseoftheirhighdefaultriskandbecausefederaltaxesmustbepaidontheinteresttheypay.
d.highrateofinterestbecauseoftheirlowdefaultriskandbecausetheinteresttheypayisnotsubjecttofederalincometax.
46.Amunicipal bond is
a.issuedbythefederalgovernment.
b.issuedbystateandlocalgovernments.
c.issuedbycorporations.
d.issuedbyhouseholds.
47.Ownersofmunicipalbonds
a.arenotrequiredtopayfederalincometaxontheinterestincome.
b.usuallyreceiveahigherinterestratecomparedtobondsissuedbycorporations.
c.usuallyreceiveahigherinterestratecomparedtostockissuedbycorporations.
d.paytaxesonthedividendsearnedfromthesebonds.
48.Whichofthefollowingistrueconcerninginterestratesonbonds?
a.Thetaxtreatmentofinterestearnedonmunicipalsbondsmakestheinterestrateonthemhigherthanotherwise.Highdefaultriskmakestheinterestrateonabondhigherthanotherwise.
b.Thetaxtreatmentofinterestearnedonmunicipalsbondsmakestheinterestrateonthemhigherthanotherwise.Highdefaultriskmakestheinterestrateonabondlowerthanotherwise.
c.Thetaxtreatmentofinterestearnedonmunicipalsbondsmakestheinterestrateonthemlowerthanotherwise.Highdefaultriskmakestheinterestrateonabondhigherthanotherwise.
d.Thetaxtreatmentofinterestearnedonmunicipalsbondsmakestheinterestrateonthemlowerthanotherwise.Highdefaultriskmakestheinterestrateonabondlowerthanotherwise.
49.Which of the following bond buyers didnotbuythebondthatbestmethisorherobjective?
a.Jackiewantedabondwithahighinterestrateandwaswillingtotakealotofrisk.Shepurchasedajunkbond.
b.Andrewwantedabondthatwouldallowhimtolegallyavoidpayingfederalincometaxes.Hepurchasedamunicipalbond.
c.Suzywantedtopurchaseabondwhosesellerwasunlikelytodefault.ShepurchasedabondthatStandardsandPoor’sratedalowcreditrisk.
d.Ceciliaheldlong-termbondsratherthanshort-termbondstoavoidrisk.
50.YouholdbondsissuedbythecityofSacramento,California.Theinterestyouearneachyearonthesebonds
a.isnotsubjecttofederalincometaxandsothesebondspayahigherinterestratethanotherwisecomparablebondsissuedbytheU.S.government.
b.isnotsubjecttofederalincometaxandsothesebondspayalowerinterestratethanotherwisecomparablebondsissuedbytheU.S.government.
c.issubjecttofederalincometaxandsothesebondspayahigherinterestratethanotherwisecomparablebondsissuedbytheU.S.government.
d.issubjecttofederalincometaxandsothesebondspayalowerinterestratethanotherwisecomparablebondsissuedbytheU.S.government.
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