#1
What is the primary purpose of bond ratings?
To assess credit risk of issuers
ExplanationEvaluate credit risk for issuers.
#2
Which agency is known for providing credit ratings to bonds?
Moody's Investors Service
ExplanationMoody's provides credit ratings for bonds.
#3
What is the relationship between bond prices and interest rates?
Inverse relationship
ExplanationBond prices and interest rates have an inverse relationship.
#4
Which term describes a bond trading below its face value?
Discount bond
ExplanationBond trading below face value is a discount bond.
#5
Which yield curve shape is associated with expectations of future economic growth?
Normal or upward-sloping yield curve
ExplanationNormal yield curve signals expectations of economic growth.
#6
What does an inverted yield curve typically indicate about the economy?
Economic recession is expected
ExplanationInverted yield curve signals economic recession.
#7
How is the yield curve affected during periods of inflation?
Steepens
ExplanationYield curve steepens in inflation periods.
#8
What is the significance of the term 'junk bonds'?
Bonds with a high risk of default
ExplanationJunk bonds have high default risk.
#9
What does the term 'duration' measure in the context of bonds?
The sensitivity of a bond's price to interest rate changes
ExplanationDuration measures price sensitivity to interest rate changes.
#10
In the context of bond investing, what is the 'risk-free rate'?
The interest rate on government bonds
ExplanationRisk-free rate is the interest on government bonds.
#11
What is the key factor influencing bond yields according to the Expectations Theory of the yield curve?
Current inflation expectations
ExplanationCurrent inflation expectations drive bond yields.
#12
How does the Federal Reserve's monetary policy influence the yield curve?
It affects short-term interest rates, influencing the shape of the yield curve
ExplanationFed policy impacts short-term rates, shaping the yield curve.
#13
What is the primary purpose of the yield to maturity (YTM) metric?
To estimate the total return on a bond if held until maturity
ExplanationYTM estimates total return if bond held till maturity.
#14
What is a 'fallen angel' in the context of bond ratings?
A bond downgraded from investment grade to speculative or junk status
ExplanationFallen angel: bond downgraded to junk from investment grade.
#15
What is the primary factor influencing the credit spread of a corporate bond?
Creditworthiness of the issuer
ExplanationCreditworthiness of the issuer influences credit spread.