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.