Which of the following is NOT a characteristic of bonds?
Principal amount
Maturity date
Dividend payment
Coupon rate
#2
What does the coupon rate of a bond represent?
The bond's face value
The bond's maturity date
The bond's annual interest payment as a percentage of its face value
The bond's yield to maturity
#3
Which of the following statements about zero-coupon bonds is true?
They do not pay interest
They always have a fixed interest rate
They have a coupon payment at maturity
They are also known as floating-rate bonds
#4
What is the relationship between bond prices and interest rates?
Bond prices and interest rates move in the same direction
Bond prices and interest rates move in opposite directions
There is no relationship between bond prices and interest rates
Bond prices are unaffected by changes in interest rates
#5
What is a callable bond?
A bond that can be redeemed before maturity
A bond that cannot be redeemed before maturity
A bond that the issuer can redeem before maturity
A bond with a variable interest rate
#6
What is the primary risk associated with investing in bonds?
Credit risk
Market risk
Interest rate risk
Liquidity risk
#7
What is a junk bond?
A bond issued by a financially stable company
A bond with a credit rating below investment grade
A bond with a high coupon rate
A bond backed by the government
#8
What is the duration of a bond?
The time until the bond matures
The time it takes for the bond to double in value
A measure of a bond's sensitivity to interest rate changes
The time it takes for the bond to pay back its initial investment
#9
What is the difference between a bond's yield to maturity and its coupon rate?
They are the same thing
Yield to maturity is the total return anticipated on the bond if held until maturity, whereas the coupon rate is the annual interest rate paid on the bond
Yield to maturity is the interest rate the bond pays, whereas the coupon rate is the bond's expected market price
Yield to maturity is always higher than the coupon rate
#10
What is a convertible bond?
A bond that can be exchanged for shares of the issuing company's common stock
A bond that cannot be redeemed before maturity
A bond with a fixed interest rate
A bond that pays no interest
#11
What is the difference between a bond's current yield and yield to maturity?
They are the same
Current yield measures the annual interest payment as a percentage of the bond's market price, whereas yield to maturity accounts for both the interest payments and any capital gains or losses if the bond is held until maturity
Current yield is always higher than yield to maturity
Yield to maturity measures the annual interest payment as a percentage of the bond's market price, whereas current yield accounts for both the interest payments and any capital gains or losses if the bond is held until maturity
#12
What is the primary risk associated with inflation for bond investors?