AAII

1. Why are individual investors at a disadvantage entering the bond market?

There is no one central exchange for trading bonds

The bond market is dominated by institutions trading in large blocks

Individuals cannot access the resources to research bonds

Many corporate and municipal bonds do not trade very often

All of the above

2. How do you get the best price on a bond you are interested in?

Always go with the bond with the highest credit quality rating

Wait until the bond is close to its maturity date

Check with several bond dealers, especially the larger ones who specialize in a specific type of bonds

3. When a bond starts trading, it will stay at par value for a short period.

True

False

4. Long-term municipal bonds normally trade at a bid/ask spread in what range?

3% to 4%

3/4% to 3%

1/2% or less

5. You should evaluate a bond on its yield-to-call instead of its yield-to-maturity if:

The bid/ask spread of the bond is wider than similar bonds

The current yield on similar bonds is a lot lower than the bond’s coupon rate

The call price of the bond is significantly above par

6. Who pays the interest to the bond seller that has already accrued on a bond?

The bond buyer

The bond issuer

The bond broker

7. If one bond is yielding at 4.93% and another is yielding 5.08%, how is the difference quoted?

3%

0.15 percentage points

15 basis points

QUIZ: Investing in Bonds