#1
What is the face value of a bond?
The value of the bond when issued
ExplanationInitial value of the bond.
#2
What does the term 'coupon rate' refer to in the context of bonds?
The annual interest payment as a percentage of the bond's face value
ExplanationAnnual interest rate on the bond.
#3
What is the relationship between bond prices and interest rates?
As interest rates increase, bond prices decrease
ExplanationInverse correlation between interest rates and bond prices.
#4
What does the term 'yield to maturity' (YTM) represent for a bond investor?
The total return anticipated on a bond if held until it matures
ExplanationExpected return if bond is held until maturity.
#5
What is the purpose of a sinking fund in the context of bonds?
To accumulate funds for the gradual repayment of the bond's principal
ExplanationAccumulates funds for gradual repayment of principal.
#6
What is the main purpose of a bond's indenture?
To outline the rights and obligations of the bond issuer and bondholders
ExplanationDefines rights and obligations of issuer and bondholders.
#7
What is the difference between a callable bond and a putable bond?
Callable bonds can be redeemed by the issuer before maturity, while putable bonds can be sold back to the issuer before maturity
ExplanationIssuer's vs. holder's right to terminate before maturity.
#8
What is a zero-coupon bond?
A bond that does not make periodic interest payments
ExplanationBond without periodic interest payments.
#9
What is the role of a bond rating agency?
To assess and assign credit ratings to bonds based on their creditworthiness
ExplanationAssigns credit ratings to bonds based on creditworthiness.
#10
What is the difference between a secured bond and an unsecured bond?
Secured bonds are backed by specific assets, while unsecured bonds are not
ExplanationPresence or absence of asset backing.
#11
What is the duration of a bond?
The sensitivity of a bond's price to changes in interest rates
ExplanationSensitivity of bond price to interest rate changes.
#12
What is the difference between a treasury bond and a corporate bond?
Treasury bonds are issued by governments, while corporate bonds are issued by private companies
ExplanationIssuing authority: government vs. private company.
#13
What is the impact of inflation on bond prices?
Bond prices decrease with inflation
ExplanationInverse relationship between bond prices and inflation.
#14
In bond terminology, what does the term 'spread' refer to?
The difference between the yields of two different bonds
ExplanationDifference in yields between two bonds.
#15
How does the credit spread change during periods of economic uncertainty?
Credit spread widens
ExplanationCredit spread increases during economic uncertainty.