#1
What does the term 'coupon rate' refer to in bond valuation?
The annual interest payment as a percentage of the bond's face value
ExplanationAnnual interest as percentage of face value
#2
What is the face value of a bond?
The original amount borrowed by the issuer
ExplanationOriginal borrowed amount
#3
What is the relationship between bond prices and interest rates?
Inverse relationship
ExplanationBond price and interest rate correlation
#4
What is the difference between a fixed-rate bond and a floating-rate bond?
Fixed-rate bonds have a fixed interest rate, while floating-rate bonds have a variable interest rate
ExplanationFixed vs. variable interest rate bonds
#5
Which formula is used for calculating the present value of a bond?
PV = FV / (1 + r)^n
ExplanationPV formula for bond valuation
#6
How does an increase in interest rates affect the price of existing bonds?
Decreases the bond prices
ExplanationInterest rate increase reduces bond prices
#7
In bond terminology, what does 'Yield to Maturity (YTM)' represent?
The annual rate of return if held until maturity
ExplanationAnnual return if held until maturity
#8
What is the primary factor influencing interest rate risk in bonds?
Time to maturity
ExplanationImpact of time until maturity on risk
#9
What does the term 'bond indenture' refer to in bond issuance?
The legal agreement between the bond issuer and bondholder outlining the terms and conditions of the bond
ExplanationLegal agreement between issuer and holder
#10
How does the credit rating of a bond issuer affect bond prices?
Higher credit rating leads to higher bond prices
ExplanationCredit rating impact on bond prices
#11
What is duration in bond valuation?
The sensitivity of the bond's price to changes in interest rates
ExplanationSensitivity of bond price to rate changes
#12
What is convexity in bond valuation?
The sensitivity of bond prices to changes in interest rates
ExplanationBond price sensitivity to rate changes
#13
What is the difference between a callable bond and a puttable bond?
Callable bonds can be redeemed by the issuer before maturity, while puttable bonds can be sold back to the issuer before maturity.
ExplanationIssuer's redemption vs. holder's sale before maturity
#14
What is a zero-coupon bond?
A bond that pays no annual interest but is sold at a discount
ExplanationNo interest, sold at discount
#15
What is the purpose of a sinking fund in bond issuance?
To retire a portion of the bond issue periodically
ExplanationPeriodic retirement of bond portions
#16
What is the impact of inflation on bond prices?
Decreases bond prices
ExplanationInflation reduces bond prices