#1
Which of the following factors does NOT affect bond prices?
Inflation rate
ExplanationInflation rate is not directly linked to bond prices.
#2
Which term refers to a bond's face value, or the amount the issuer promises to repay at maturity?
Par value
ExplanationPar value is the nominal value of a bond.
#3
Which term refers to the risk that rising interest rates will decrease the value of a bond's cash flows?
Interest rate risk
ExplanationInterest rate risk pertains to the potential loss from fluctuating interest rates.
#4
Which of the following factors is NOT typically considered when calculating the yield to maturity (YTM) of a bond?
Market demand for the bond
ExplanationMarket demand is not a direct factor in YTM calculation.
#5
Which term refers to the rate of return an investor would earn if they held a bond until maturity?
Yield to maturity (YTM)
ExplanationYTM represents the total return expected from holding a bond till maturity.
#6
What is the primary determinant of a bond's coupon rate?
Prevailing interest rates
ExplanationCoupon rates are primarily influenced by current interest rates.
#7
What is the relationship between bond prices and interest rates?
Inverse
ExplanationBond prices generally move inversely to interest rates.
#8
Which bond type typically carries the highest interest rate?
Corporate bonds
ExplanationCorporate bonds usually offer higher interest rates compared to other bonds.
#9
Which bond valuation method discounts all future cash flows to their present value?
Discounted Cash Flow (DCF)
ExplanationDCF calculates a bond's present value based on expected future cash flows.
#10
What happens to bond prices when interest rates rise?
Bond prices fall
ExplanationWhen interest rates rise, bond prices generally decrease.
#11
What is the term for the risk associated with a bond issuer's inability to pay interest or principal?
Default risk
ExplanationDefault risk refers to the possibility of a bond issuer failing to make payments as promised.
#12
What does a negative yield to maturity (YTM) indicate?
Bond is overvalued
ExplanationA negative YTM suggests the bond is trading at a premium.
#13
What is the formula to calculate the yield to maturity (YTM) of a bond?
YTM = (Coupon rate + (Face value - Bond price) / Number of years to maturity) / ((Face value + Bond price) / 2)
ExplanationYTM computes the total return anticipated on a bond if held till maturity.
#14
Which of the following factors does NOT affect a bond's duration?
Credit rating
ExplanationCredit rating doesn't directly influence a bond's duration.
#15
What is the primary factor that influences a bond's convexity?
Maturity
ExplanationMaturity is a key determinant of a bond's convexity.