Bond Fundamentals and Characteristics Quiz

Bonds represent debt obligations where investors lend money to borrowers.

Coupon rate signifies the annual interest payment as a percentage of the bond's face value.

Duration indicates how much the bond's price will change in response to a change in interest rates.

Callable bonds give issuers the option to repurchase the bond before its maturity, usually when interest rates fall.

Yield spread measures the difference between the yield of a bond and the yield of another bond with different characteristics.

Credit ratings reflect the creditworthiness of bond issuers and their likelihood to repay debts.

Junk bonds carry higher risk due to their lower credit ratings, often offering higher yields to compensate for the risk.

YTM reflects the total return an investor receives if the bond is held until maturity, considering both interest payments and any capital gains or losses.

Zero-coupon bonds do not make periodic interest payments but instead are sold at a discount and redeemed at face value upon maturity.

Duration risk refers to the potential loss investors face when interest rates change, impacting bond prices.

Convertible bonds provide the option for bondholders to convert their bonds into a predetermined number of shares of the issuer's common stock.

Bond prices typically move inversely to interest rates: when rates rise, bond prices fall, and vice versa.