Bond Characteristics and Valuation Quiz

Coupon rate represents the annual interest paid by a bond, expressed as a percentage of its face value.

Par value is the face value of a bond, repaid to the bondholder at maturity.

Credit rating assesses the issuer's capacity to meet interest payments and repay the principal amount.

Treasury bonds pay interest semi-annually.

Zero-coupon bonds have no annual interest payments.

A bond trading at a premium means its market price exceeds the face value.

Various factors, including interest rates, credit rating, and market conditions, collectively influence bond prices.

Yield to maturity is the interest rate making the present value of bond cash flows equal to its market price.

Bond prices and interest rates have an inverse relationship, meaning they move in opposite directions.

Calculating duration helps measure how a bond's price reacts to changes in interest rates.

Current yield focuses on annual interest; YTM considers the total return until maturity.

Investing in high-yield bonds carries the primary risk of credit default.

Duration measures how sensitive a bond's price is to fluctuations in interest rates.

Callable bonds give the issuer the right to redeem before maturity; putable bonds allow the holder to demand early repayment.

Expectations of higher inflation result in lower bond prices.

Convexity measures the curvature of a bond's price-yield curve.

Duration rises as a bond's time to maturity increases.

A sinking fund provision creates a reserve for the repayment of bond principal.