Bond Concepts and Definitions Quiz

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.