#1
What is a fixed-income security?
A security with a fixed interest rate
ExplanationFixed-income securities offer a fixed interest rate.
#2
Which of the following is NOT a type of fixed-income security?
Stock option
ExplanationStock options are not fixed-income securities.
#3
What is the term for the interest rate stated on a bond at issuance?
Coupon rate
ExplanationCoupon rate is the fixed interest rate paid by a bond.
#4
What is the main advantage of investing in fixed-income securities?
Lower risk compared to stocks
ExplanationFixed-income securities typically offer lower risk compared to stocks.
#5
What is the main characteristic of a zero-coupon bond?
It is issued at a discount and pays no interest until maturity
ExplanationZero-coupon bonds are sold at a discount and don't pay interest until maturity.
#6
Which of the following factors affects the price of fixed-income securities?
All of the above
ExplanationVarious factors such as interest rates, credit risk, and market conditions affect fixed-income security prices.
#7
What is the difference between a bond and a debenture?
Bonds are secured, while debentures are not
ExplanationBonds are backed by specific assets, while debentures are not secured by collateral.
#8
Which of the following is a risk associated with investing in fixed-income securities?
All of the above
ExplanationInvesting in fixed-income securities involves risks like interest rate risk, credit risk, and liquidity risk.
#9
What is the primary difference between bonds and preferred stocks?
Bonds pay fixed interest, while preferred stocks pay dividends
ExplanationBonds pay fixed interest payments, while preferred stocks pay dividends.
#10
What is a callable bond?
A bond that the issuer can redeem before maturity
ExplanationCallable bonds can be redeemed by the issuer before their maturity date.
#11
What is the duration of a fixed-income security?
The time it takes for the security's price to change by one percent for a given change in interest rates
ExplanationDuration measures the sensitivity of a bond's price to changes in interest rates.
#12
What is the role of a trustee in the issuance of bonds?
To represent the bondholders' interests
ExplanationTrustees act as representatives of bondholders, safeguarding their interests.
#13
What is the duration of a perpetuity?
Indefinite
ExplanationPerpetuities have no maturity date, making their duration indefinite.
#14
Which of the following is NOT a factor affecting interest rate risk in bonds?
Credit rating of the issuer
ExplanationThe credit rating of the issuer primarily affects credit risk, not interest rate risk.