#1
What is the formula to calculate the present value of a bond?
PV = C / (1 + r)^n
ExplanationPresent value of a bond is calculated using the formula PV = C / (1 + r)^n.
#2
Which of the following factors affects the yield to maturity (YTM) of a bond?
Market interest rate
ExplanationYield to maturity (YTM) of a bond is affected by the prevailing market interest rate.
#3
What is the relationship between bond price and yield to maturity (YTM)?
Inverse relationship
ExplanationBond price and yield to maturity (YTM) have an inverse relationship.
#4
Which of the following bond types provides a fixed interest payment over its lifetime?
Fixed-rate bond
ExplanationA fixed-rate bond provides a consistent interest payment throughout its lifetime.
#5
What is the main risk associated with investing in high-yield bonds?
Credit risk
ExplanationThe primary risk of investing in high-yield bonds is credit risk.
#6
What does the term 'coupon rate' refer to in bond valuation?
The interest rate the bond pays annually
ExplanationCoupon rate in bond valuation refers to the annual interest rate the bond pays.
#7
Which of the following is a characteristic of a zero-coupon bond?
Issued at a discount to par value
ExplanationZero-coupon bonds are typically issued at a discount to their par value.
#8
What does the term 'duration' of a bond measure?
The sensitivity of bond price to interest rate changes
ExplanationDuration of a bond measures its sensitivity to changes in interest rates.
#9
What does the term 'call provision' refer to in bond agreements?
The right of the bond issuer to redeem the bond before maturity
ExplanationCall provision in bond agreements gives the issuer the right to redeem the bond before maturity.
#10
How does an increase in interest rates affect the value of existing bonds?
Decreases the bond's value
ExplanationAn increase in interest rates leads to a decrease in the value of existing bonds.
#11
Which of the following measures the sensitivity of a bond's price to changes in interest rates?
Duration
ExplanationDuration measures the sensitivity of a bond's price to changes in interest rates.
#12
What is the primary difference between a bond's yield to maturity (YTM) and its current yield?
YTM considers only coupon payments, while current yield considers both coupon payments and changes in market price.
ExplanationYield to maturity (YTM) considers only coupon payments, while current yield considers both coupon payments and changes in market price.