The Ultimate Junk Bonds Quiz
by Staff
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:

  • bank
  • agent
  • bond issuer

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
  • embezzlement

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"
  • "investment"
  • "risk"

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:

  • default
  • investment
  • returns