#1
Which of the following represents a bond?
A debt security that represents a loan
ExplanationBonds are debt securities representing loans.
#2
What does the term 'coupon rate' refer to in bonds?
The rate of interest paid annually on a bond
ExplanationCoupon rate is the annual interest rate paid on a bond.
#3
What is the term for the process of dividing a bond issue into smaller denominations?
Fractionalization
ExplanationFractionalization is dividing a bond issue into smaller denominations.
#4
What is the term for the process of repaying a bond's face value at maturity?
Redemption
ExplanationRedemption is repaying a bond's face value at maturity.
#5
What is the term for the date on which the face value of a bond must be repaid to the bondholder?
Maturity date
ExplanationMaturity date is when the face value is repaid to the bondholder.
#6
What is the term for the period of time between the purchase date and the maturity date of a bond?
Term to maturity
ExplanationTerm to maturity is the time between purchase and maturity.
#7
What happens to bond prices when interest rates rise?
Bond prices fall
ExplanationBond prices decrease when interest rates increase.
#8
What is the term for the risk that interest rates will rise after an investor has purchased bonds?
Interest rate risk
ExplanationInterest rate risk refers to the risk of rising interest rates after bond purchase.
#9
What is the term for a bond that is issued at a price lower than its face value?
Discount bond
ExplanationA bond issued below its face value is termed as a discount bond.
#10
Which type of bond pays interest based on a fixed percentage of its face value?
Fixed-rate bond
ExplanationFixed-rate bonds pay interest based on a fixed percentage of face value.
#11
Which of the following is a characteristic of callable bonds?
They give the issuer the right to repay the bond before maturity
ExplanationCallable bonds allow the issuer to repay before maturity.
#12
What is the term for the risk that a bond issuer will fail to make interest payments or repay the principal?
Credit risk
ExplanationCredit risk is the risk of issuer defaulting on interest or principal payments.
#13
How are bond prices and yields related?
They have an inverse relationship
ExplanationBond prices and yields move inversely.
#14
What does the term 'duration' measure in the context of bonds?
The sensitivity of a bond's price to changes in interest rates
ExplanationDuration measures bond price sensitivity to interest rate changes.
#15
What is the primary determinant of a bond's yield to maturity?
The bond's market price
ExplanationThe bond's market price is the primary determinant of yield to maturity.
#16
What is the primary factor that determines the credit rating of a bond?
The issuer's financial health and creditworthiness
ExplanationThe issuer's financial health and creditworthiness determine credit rating.