FIN 202 FIN202 Module 7 Homework Solution (AAU Online)

FIN 202 FIN202 Module 7 Homework Solution (AAU Online)


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1.How do interest rates in the economy affect the price of a corporate bond?

2.You are trying to evaluate two bond issues.  One bond issue is rated "A" by Moody's; the other is rated "B."  How important are the bond ratings issued by Moody's Investors Service?  Based on your feedback, would you purchase the "A" bond or the "B" bond?

3.If your primary goal is current yield, which one of these bonds is the wiser investment?  Bond A: $1,000 corporate bond that pays 7 percent and has a current market value of $800; or Bond B: $1,000 corporate bond that pays 8.25 percent and has a current market value of $950?

4.Why do investors purchase mutual funds instead of purchasing stocks, bonds, or other investments on their own?

5.Your parents are considering the purchase of shares in a mutual fund.  Discuss three advantages and three disadvantages of mutual fund investing that you believe are important for potential investors to consider.

6.In what ways can a bond investor make money?

7.Define five of the following six terms: (1) corporate bond (2) bond indenture (3) trustee (4) mortgage bond (5) debenture bond (6) convertible bond.

8.Bonds are generally considered a relatively safe investment.  How is it possible to lose money on bonds?

9.What is the difference between a U.S. government Treasury bill, Treasury note, and Treasury bond?

10.Corporate and Treasury bonds generally produce more interest revenue than municipal bonds.  Why do investors choose to buy municipal bonds?

11.Describe either the purchase options or withdrawal options that can be used to invest in or withdraw money from the investment company that sponsors an open-end mutual fund.

12.Cindy and John Appleby just inherited $30,000 and would like to invest the money in a conservative mutual fund.  Since they have never invested in mutual funds, they ask for your help.  In your own words, describe the sources of information available for evaluating a mutual fund investment.

13.Explain the difference between a load fund and a no-load fund.  From a performance standpoint, is there a significant difference between mutual funds that charge commissions and those that do not?


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