#1
What does the term 'Yield to Maturity (YTM)' refer to in bond valuation?
The interest rate at which the present value of a bond's cash flows equals its current market price.
The rate of return earned by an investor who buys a bond and holds it until maturity.
The annual coupon rate of a bond.
The rate at which a bond's coupon payments are reinvested.
#2
What happens to the price of a bond when its yield to maturity (YTM) increases?
The bond's price decreases.
The bond's price remains constant.
The bond's price increases.
The bond's price fluctuates randomly.
#3
Which of the following bond types pays no periodic interest?
Zero-coupon bond
Convertible bond
Callable bond
Fixed-rate bond
#4
What is the relationship between bond prices and interest rates?
Bond prices and interest rates move inversely.
Bond prices and interest rates move directly.
There is no relationship between bond prices and interest rates.
Bond prices and interest rates move randomly.
#5
What does a bond's coupon rate represent?
The interest rate at which the bond is issued.
The interest rate at which the bond pays interest.
The interest rate at which the bond matures.
The interest rate at which the bond is traded in the secondary market.
#6
Which of the following formulas is used to calculate the price of a bond?
PMT / (1 - (1 + r)^-n)
C / (1 + r)^n
PV = C / r
PV = C / (1 + r)^n
#7
Which of the following factors affects the sensitivity of bond prices to changes in interest rates?
Coupon rate
Maturity date
Market demand for bonds
All of the above
#8
How does the market price of a bond typically compare to its face value when interest rates rise above the bond's coupon rate?
Market price is higher than face value
Market price equals face value
Market price is lower than face value
Market price may be higher or lower than face value
#9
What is the term used to describe the total return an investor earns on a bond, including both coupon payments and any capital gains or losses?
Yield to maturity
Current yield
Total return
Modified duration
#10
Which bond valuation method discounts future cash flows at the discount rate that reflects the riskiness of the cash flows?
Net present value (NPV)
Internal rate of return (IRR)
Present value of annuity
Discounted cash flow (DCF)
#11
What is the primary risk associated with investing in zero-coupon bonds?
Default risk
Interest rate risk
Reinvestment risk
Inflation risk
#12
What does the term 'bond duration' refer to?
The time until a bond's maturity date
The weighted average time it takes for a bond's cash flows to be received
The rate at which a bond's price changes in response to interest rate changes
The percentage of a bond's par value that is repaid at maturity
#13
When does a bond sell at a premium?
When its coupon rate is lower than the market interest rate
When its coupon rate is higher than the market interest rate
When its yield to maturity is lower than its coupon rate
When its yield to maturity is higher than its coupon rate
#14
What is the duration of a perpetuity?
Indefinite
Equal to its maturity
Variable
Zero
#15
Which term describes the increase in a bond's value as it approaches its maturity date?
Yield to maturity
Capital gain
Accretion
Amortization