Bond valuation is primarily based on:
A) Coupon payments
B) Maturity date
C) Face value
D) All of the above
Answer: D
The price of a bond is influenced by:
A) Coupon rate
B) Yield to maturity
C) Market interest rates
D) All of the above
Answer: D
True or False: Bonds always sell at their face value in the secondary market.
A) True
B) False
Answer: B
The current yield of a bond is calculated as:
A) Annual coupon payment divided by current market price
B) Annual coupon payment divided by face value
C) Annual coupon payment divided by yield to maturity
D) Annual coupon payment multiplied by face value
Answer: A
A bond’s yield to maturity (YTM) represents:
A) Current market interest rates
B) Annual return on investment
C) Discount rate that equates the bond’s present value with its future cash flows
D) Coupon rate
Answer: C
Which of the following bonds is likely to have the highest yield to maturity (YTM)?
A) Bond with a 5% coupon selling at par
B) Bond with a 5% coupon selling at a premium
C) Bond with a 5% coupon selling at a discount
D) Bond with a 10% coupon selling at par
Answer: C
The price of a bond will be equal to its face value when:
A) Coupon rate equals yield to maturity (YTM)
B) Coupon rate is greater than YTM
C) Coupon rate is less than YTM
D) None of the above
Answer: A
The term “bond indenture” refers to:
A) The annual coupon payment
B) The contract that outlines the terms of the bond issue
C) The bond’s maturity date
D) The bond issuer’s credit rating
Answer: B
The term “callable bond” means that:
A) The bond can be converted into shares of stock
B) The bond issuer has the right to repay the bond before maturity
C) The bond has no coupon payments
D) The bond can only be sold in the secondary market
Answer: B
True or False: A bond’s coupon rate is fixed and never changes.
A) True
B) False
Answer: A
A bond’s duration measures:
A) Its time to maturity
B) Its sensitivity to changes in interest rates
C) Its coupon payment frequency
D) Its face value
Answer: B
A bond selling at a premium implies that:
A) Its coupon rate is less than its yield to maturity
B) Its coupon rate is equal to its yield to maturity
C) Its coupon rate is greater than its yield to maturity
D) It has a long maturity period
Answer: A
The term “bond rating” refers to:
A) The bond’s face value
B) The bond issuer’s creditworthiness
C) The bond’s market price
D) The bond’s coupon payment
Answer: B
A zero-coupon bond:
A) Pays no interest during its term
B) Pays interest at maturity only
C) Pays interest semi-annually
D) Pays interest annually
Answer: A
True or False: The face value of a bond is also known as its par value.
A) True
B) False
Answer: A
A bond’s credit spread is:
A) The difference between its coupon rate and yield to maturity
B) The difference between its yield to maturity and risk-free rate
C) The difference between its market price and face value
D) The difference between its coupon payments and yield to maturity
Answer: B
Which of the following factors affects bond prices?
A) Inflation expectations
B) Economic growth
C) Changes in interest rates
D) All of the above
Answer: D
The term “bond yield” refers to:
A) The bond’s coupon rate
B) The bond’s market price
C) The annual return earned on the bond
D) The bond’s duration
Answer: C
Which of the following statements is true regarding coupon payments on bonds?
A) Coupon payments decrease over time
B) Coupon payments are fixed throughout the bond’s life
C) Coupon payments increase over time
D) Coupon payments are paid at maturity
Answer: B
Bond convexity measures:
A) Its sensitivity to changes in interest rates
B) Its yield to maturity
C) Its coupon payment frequency
D) Its face value
Answer: A
True or False: A bond’s price and yield have an inverse relationship.
A) True
B) False
Answer: A
The term “yield spread” refers to:
A) The difference between a bond’s current yield and YTM
B) The difference between a bond’s coupon rate and current yield
C) The difference between a bond’s market price and face value
D) The difference between a bond’s face value and YTM
Answer: A
Which of the following bonds is likely to have the lowest interest rate risk?
A) Short-term bond
B) Long-term bond
C) High-coupon bond
D) Low-coupon bond
Answer: A
A bond with a credit rating of AAA is considered:
A) High risk
B) Junk bond
C) Investment-grade
D) Non-investment grade
Answer: C
True or False: Bond prices are more volatile when interest rates are stable.
A) True
B) False
Answer: B
Which of the following is NOT a factor in determining a bond’s yield to maturity (YTM)?
A) Coupon rate
B) Market price
C) Maturity date
D) Credit rating
Answer: D
The term “floating-rate bond” refers to a bond that:
A) Has a variable coupon rate
B) Pays interest only at maturity
C) Is issued at a discount
D) Has no coupon payments
Answer: A
The term “callable bond” gives the issuer the right to:
A) Convert the bond into shares of stock
B) Repay the bond before maturity
C) Delay coupon payments
D) Issue additional bonds
Answer: B
A bond’s credit rating is important because it:
A) Determines the bond’s face value
B) Influences the bond’s coupon rate
C) Affects the bond’s market price
D) Determines the bond’s yield to maturity
Answer: C
Which of the following statements about bond prices is true?
A) Bond prices are fixed throughout their term
B) Bond prices are inversely related to interest rates
C) Bond prices increase with inflation
D) Bond prices are unrelated to market conditions
Answer: B
A bond’s yield curve shows the relationship between:
A) Bond prices and coupon rates
B) Bond ratings and coupon payments
C) Bond yields and maturities
D) Bond durations and credit spreads
Answer: C
True or False: A bond’s coupon rate is the same as its yield to maturity (YTM).
A) True
B) False
Answer: B
The term “bond indenture” refers to:
A) The bond issuer’s credit rating
B) The contract outlining the terms of the bond issue
C) The bond’s market price
D) The bond’s coupon payment
Answer: B
The term “debenture” refers to:
A) A secured bond backed by collateral
B) An unsecured bond backed by the issuer’s credit
C) A bond with a zero coupon
D) A bond with a high yield
Answer: B
Which of the following bonds is likely to have the highest interest rate risk?
A) Long-term bond
B) Short-term bond
C) High-coupon bond
D) Floating-rate bond
Answer: A
The term “inflation-linked bond” refers to a bond that:
A) Pays interest only at maturity
B) Adjusts its coupon payments based on inflation
C) Has a fixed coupon rate
D) Has a variable coupon rate
Answer: B
Which of the following is a feature of a convertible bond?
A) It has a variable coupon rate
B) It can be converted into shares of stock
C) It has no maturity date
D) It pays interest only at maturity
Answer: B
The term “collateralized bond obligation (CBO)” refers to:
A) A bond secured by the issuer’s assets
B) A bond backed by the U.S. government
C) A bond issued by foreign governments
D) A bond issued by corporations
Answer: A
Which of the following bonds is considered to have the lowest credit risk?
A) Junk bond
B) Treasury bond
C) Corporate bond
D) Municipal bond
Answer: B
True or False: A bond’s face value is the amount paid to bondholders at maturity.
A) True
B) False
Answer: A
A bond’s coupon rate is:
A) Its annual interest payment divided by its face value
B) Its current market price divided by its face value
C) Its yield to maturity divided by its current price
D) Its face value multiplied by its yield to maturity
Answer: A
Which of the following factors does NOT affect bond prices?
A) Inflation expectations
B) Coupon payments
C) Maturity date
D) Currency exchange rates
Answer: D
A bond’s duration measures:
A) Its time to maturity
B) Its sensitivity to changes in interest rates
C) Its coupon payment frequency
D) Its face value
Answer: B
The term “bond rating” refers to:
A) The bond’s face value
B) The bond issuer’s creditworthiness
C) The bond’s market price
D) The bond’s coupon payment
Answer: B
A zero-coupon bond:
A) Pays no interest during its term
B) Pays interest at maturity only
C) Pays interest semi-annually
D) Pays interest annually
Answer: A
True or False: The face value of a bond is also known as its par value.
A) True
B) False
Answer: A
A bond’s credit spread is:
A) The difference between its coupon rate and yield to maturity
B) The difference between its yield to maturity and risk-free rate
C) The difference between its market price and face value
D) The difference between its coupon payments and yield to maturity
Answer: B
Which of the following factors affects bond prices?
A) Inflation expectations
B) Economic growth
C) Changes in interest rates
D) All of the above
Answer: D
The term “bond yield” refers to:
A) The bond’s coupon rate
B) The bond’s market price
C) The annual return earned on the bond
D) The bond’s duration
Answer: C
Which of the following statements about coupon payments on bonds is true?
A) Coupon payments decrease over time
B) Coupon payments are fixed throughout the bond’s life
C) Coupon payments increase over time
D) Coupon payments are paid at maturity
Answer: B