#1
Which of the following is a characteristic of bonds?
Fixed interest payments
ExplanationBonds typically offer fixed interest payments to investors.
#2
What does the term 'coupon rate' refer to in bond investing?
The rate at which a bond's interest is paid
ExplanationCoupon rate indicates the annual interest payment percentage.
#3
Which of the following is a type of government bond in the United States?
TIPS
ExplanationTIPS (Treasury Inflation-Protected Securities) are U.S. government bonds indexed to inflation.
#4
What is the purpose of a debt instrument?
To raise capital by borrowing funds
ExplanationDebt instruments are used by entities to raise funds by borrowing.
#5
What is a zero-coupon bond?
A bond that pays no interest
ExplanationZero-coupon bonds are issued at a discount and pay no interest until maturity.
#6
What is the primary risk associated with investing in high-yield bonds?
Credit risk
ExplanationHigh-yield bonds carry higher credit risk due to lower credit ratings.
#7
What is the main difference between a bond and a debenture?
Bonds are always secured by collateral, while debentures are not.
ExplanationBonds are backed by collateral, while debentures are not secured.
#8
What does the term 'maturity date' refer to in bond investing?
The date when a bond's principal is repaid
ExplanationMaturity date is when the bond issuer repays the principal amount.
#9
What is the relationship between bond prices and interest rates?
Bond prices decrease as interest rates increase
ExplanationRising interest rates lead to lower bond prices.
#10
What is a callable bond?
A bond that can be redeemed at the option of the issuer before maturity
ExplanationCallable bonds can be redeemed by the issuer before the maturity date.
#11
What is the primary advantage of investing in municipal bonds?
Tax-exempt interest income
ExplanationInvestors in municipal bonds enjoy tax-exempt interest income.
#12
What is the main risk associated with investing in foreign bonds?
Currency risk
ExplanationForeign bond investments are subject to currency exchange rate fluctuations.
#13
What is the primary purpose of a bond indenture?
To outline the rights and obligations of the issuer and bondholders
ExplanationBond indentures define terms and conditions between issuers and bondholders.
#14
What is the difference between a bond's yield to maturity (YTM) and its coupon rate?
YTM represents the total return over the bond's lifetime, while the coupon rate is the annual interest payment.
ExplanationYTM considers total returns, including interest and capital gains, while coupon rate is the annual interest payment percentage.