The Ultimate Junk Bonds Quiz
Junk bonds are a controversial subject for some. For others, they may be the make-or-break purchase in their financial decisions. Find out where you stand taking this quiz.
Generally speaking, what's the difference between stocks and bonds?
- Bonds represent a share of a company; stocks are a loan.
- Stocks represent a share of a company; bonds are a loan.
- Stocks earn you more interest than bonds do.
When you purchase bonds, you agree to lend money to the:
What is meant by the "date of maturity"?
- the last date by which the loan will be paid back
- the date by which you become an adult
- the date that you purchase the bonds
Why are bonds called fixed-income securities?
- because they are purchased by people with fixed incomes
- because they set you a fixed income and make you feel secure
- because of the regular interest payments at fixed amounts
How do junk bonds differ from regular bonds?
- They're pretty worthless, nothing but junk.
- They're issued by companies with low credit ratings.
- They cost less than regular bonds.
Junk bonds usually entail high rates of returns or high yields. Why do junk-bond companies offer this?
- to raise their own credit rating
- because they have excess money
- as a kind gesture
Why was Michael Milken named the Junk Bond King?
- because he invented the concept of junk bonds and was top in his profession
- because his junk-bond successes in the 1980s earned him the British title of OBE
- because he made junk-bond successes in the 1980s and became very rich
How did Michael Milken intend to fund the takeovers of hostile companies?
- by borrowing 20-year loans to generate finances to fund the takeovers
- by generating instant profit from the newly acquired companies and repaying the loans used to purchase them
- by stealing money from banks
How was tax law a willing partner to the junk-bond schemes of Milken?
- through the fact that immediate profit from newly acquired companies was tax deductible
- through the fact that junk bonds were tax-free
- through the fact that interest payments on debt were tax deductible
When did the junk bond craze reach its anti-climax?
- at the end of the 1970s
- at the beginning of the 1980s
- at the end of the 1980s
Michael Milken was sentenced to 10 years in jail. What was he found guilty of?
- securities fraud
- tax evasion
How do you figure out if the bonds you've purchased are junk bonds?
- You check out the potential yield.
- You look at the ratings.
- You ask the bond issuer.
Which of these pairs are well known ratings agencies?
- Fitch Ratings Inc. and Drexel Burnham Lambert
- Moody's Investors Service and Standard and Poor's
- Standard and Poor's and the U.S. Securities and Exchange Commission
Ratings agencies give ratings for both "grade" and:
- "debt repayment"
How do they determine the willingness of a company to pay its debts?
- from its financial plans
- from its readiness to pay
- from its promises
Which body oversees the securities market?
- the Internal Revenue Service (IRS)
- the U.S. Securities and Exchange Commission (SEC)
- M.B. Trading Financial Services, Inc.
What is the recommended percentage of junk bonds within a diversified portfolio?
- 2 to 5 percent
- 5 to 10 percent
- 10 to 12 percent
Should you buy junk bonds only during economic boom or only during a recession?
- only during a recession
- only during economic boom
- either, depending on who you ask
If a company takes risks, what sort of rating might it get?
- a low rating
- a high rating
- a medium rating
A bond that has a short maturity date has less chance of: