Bond Concepts and Definitions Quiz

Questions and Answers

What is the face value of a bond?

Interest payments made to the bondholder

The bond's rating by agencies

The amount the bondholder will be repaid at maturity (correct)

The current market value of the bond

What is a callable bond?

A bond that the issuer has the right to pay off before its maturity date.

What defines a debenture?

A corporate bond that is based on the general creditworthiness of the company.

What is a secured bond?

A bond that is backed by specific assets as collateral. Signup and view all the answers

What is a convertible bond?

A corporate bond that can be exchanged for common stock. Signup and view all the answers

Define a zero-coupon bond.

A bond that is sold at a deep discount, makes no interest payments, and is redeemable for its face value at maturity. Signup and view all the answers

What is a municipal bond?

A bond issued by state or local governments. Signup and view all the answers

What is a revenue bond?

A municipal bond issued to raise money for a public-works project. Signup and view all the answers

What does a general obligation bond do?

It is backed by the power of the issuing state or local government to levy taxes to pay back the debt. Signup and view all the answers

What is an agency bond?

A bond issued by a federal agency. Signup and view all the answers

What is bond redemption?

Occurs when a bond is paid off at maturity. Signup and view all the answers

Define a hedge in investment terms.

Any investment or action that helps offset against loss from another investment or action. Signup and view all the answers

What does a bond rating indicate?

It tells the investor the risk category that has been assigned to a bond. Signup and view all the answers

What is bond default?

When a bond issuer cannot meet the interest or principal payment on a bond. Signup and view all the answers

What are investment-grade bonds?

A bond that is considered of the highest quality. Signup and view all the answers

Define a junk bond.

A bond that has a low rating or no rating at all. Signup and view all the answers

What is a bond fund?

A group of bonds that have been bundled together for investment purposes. Signup and view all the answers

Study Notes

Bond Concepts and Definitions

Face value refers to the amount a bondholder will receive upon the bond's maturity.
Callable bond allows the issuer to pay off the bond before its scheduled maturity date.
Debenture is a type of corporate bond that relies on the overall creditworthiness of the issuing company, rather than specific collateral.
Secured bond is supported by specific assets which serve as collateral in case of default.
Convertible bond can be converted into a predetermined number of common shares of the issuing company.
Zero-coupon bond is sold at a price significantly below its face value, pays no interest during its life, and repays face value at maturity.

Municipal Bonds

Municipal bond is issued by state or local governments to finance public projects.
Revenue bond is a municipal bond specifically issued to fund public-works projects, with repayment sourced from the generated revenues.
General obligation bond is a type of municipal bond secured by the issuer’s ability to levy taxes to satisfy bondholder obligations.

Bond Characteristics and Risks

Agency bond is issued by a federal agency, typically backed by government funds or government guarantees.
Bond redemption occurs when the bond reaches maturity and is repaid.
Hedge refers to investments or strategies that mitigate potential losses from other investments.
Bond rating indicates the level of risk associated with a bond, helping investors evaluate the bond's default risk.
Bond default happens when the issuer fails to make interest or principal payments on the bond.

Bond Investment Classifications

Investment-grade bonds are recognized for their high quality and low risk of default, making them suitable for more conservative investors.
Junk bond describes bonds with low ratings or no ratings, indicating a higher risk of default but potentially offering higher yields.
Bond fund is a collective investment vehicle that bundles a variety of bonds together, allowing investors to diversify their bond investments easily.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

Test your understanding of key bond concepts like face value, callable bonds, and municipal bonds. This quiz covers various types of bonds, including secured and convertible bonds, and their definitions. Perfect for finance students or anyone looking to deepen their knowledge of bonds.