Bond Investment Quiz

A bond can be bought back by the issuer before its maturity date, potentially resulting in a lower return for the investor.

The risk that an investor will receive a lower interest rate when reinvesting coupon payments, potentially affecting their overall returns.

The interest rate offered when a bond is issued and held until maturity.

The price of a bond changes in the secondary market, impacting the return an investor receives when selling it before maturity.

The relationship between interest rates and bond prices is inverse. When interest rates rise, bond prices fall, and vice versa.

A bond's coupon rate determines the annual interest payment as a percentage of its face value.

The face value or nominal value of a bond, which is usually the amount the investor receives at maturity.

The market where bonds are bought and sold after they are initially issued.

The risk that a bond will not be repaid by the issuer.

The difference in yield offered on a bond due to its riskiness.

A rating assigned to bonds that indicates their creditworthiness and risk of default.

The risk that a bond issuer will 'call' or redeem a bond before its maturity date.

The risk that the purchasing power of a bond's future payments will be eroded by inflation.

The risk that a bond is difficult to sell quickly without lowering the price.

The risk that a bond's price will fall in response to rising interest rates.

A bond that pays a fixed interest rate over its lifetime.

A bond with a higher chance of default, typically yielding a higher return to compensate for the risk.

A bond that pays a variable interest rate that adjusts with market conditions.

The value of a bond at its maturity date, usually $1,000.

The date on which a bond's principal amount is repaid to the bondholder.

A bond investment strategy where investors select bonds with maturity dates that align with their future expenses. This helps ensure funds are available when needed to cover specific obligations.

This app helps calculate the yield to maturity (YTM) of a bond, which is the total return an investor can expect if they hold the bond until maturity.

This investment management app allows users to track their bond investments, analyze portfolios, and stay updated on bond market news and changes.

A conservative investment strategy that focuses on covering future expenses with bond payments rather than aiming to beat the market's overall returns.

An app offers a feature for screening bonds based on specific criteria. This allows investors to identify and select bonds that match their individual investment needs and preferences.

The income you receive from owning bonds, calculated as a percentage of the bond's face value.

A capital gain occurs when you sell a bond for a higher price than you paid for it. A capital loss occurs when you sell a bond for a lower price than you paid for it.

The price at which a bond is bought or sold in the market. This price can fluctuate based on various factors like interest rates and the issuer's creditworthiness.

The inverse relationship between bond prices and interest rates. When interest rates rise, bond prices tend to fall, and vice versa.

A bond feature that allows the issuer to buy back the bond before its maturity date, usually at a predetermined price.

The original value of a bond, typically the amount the issuer will pay to the bondholder at maturity.

The annual interest rate paid on a bond, stated as a percentage of the face value.

The process of buying and selling bonds before their maturity date, usually on an organized exchange like the New York Stock Exchange.

Taxable income earned from selling a bond at a higher price than the initial purchase price.

A loss that can be used to offset capital gains, reducing the amount of taxes owed.

The rate at which your income is taxed, typically increasing as your income increases.

The situation where you sell a bond for a price lower than the initial purchase price.

Interest earned on bond investments is considered regular earnings for federal income tax purposes.

The difference between the selling price and the original purchase price of a bond is a capital gain or loss. Only half of the gain is taxable, while half of the loss is deductible.

A bond's value is determined by discounting its future cash flows, such as coupon payments and principal repayment, back to the present.

The rate of return required by an investor to justify investing in a bond; it reflects the investor's desired compensation for risk and opportunity cost.

Bonds, by nature, offer fixed income payments and are suitable for investors seeking predictable cash flows and stability. However, they are not necessarily risk-free and are susceptible to several risks including default, interest rate, and inflation risks.

The price of a bond is inversely related to interest rates; when rates go up, the price of existing bonds goes down.

Bonds with longer maturities are more sensitive to interest rate changes than those with shorter maturities. A longer maturity means more time for interest rates to impact your investment.

When interest rates rise, investors prefer newly issued bonds with higher rates. Older bonds with lower rates become less attractive and their prices fall.

A bond investment strategy where you select bonds based on your expectations of future interest rate changes.

To maximize potential gains, investors use the Interest Rate Strategy to buy long-term bonds when they expect rates to fall and short-term bonds when they expect rates to rise.

This strategy involves investing in a mix of bonds held for a long time. It emphasizes stability and regular income.

A passive strategy usually involves diversifying across different bond maturities to minimize interest rate risk.

Bond laddering is a passive strategy that involves spreading out investments across bonds with different maturities to reduce interest rate risk.

Investing in bonds with a maturity that matches the time you'll need the funds helps minimize interest rate risk.

When interest rates are expected to fall, investing in long-term bonds can potentially generate higher returns later when you sell them.

A bond investment strategy where you aim to profit by frequently buying and selling bonds based on changes in interest rate expectations.

Frequent bond trading in an Active Bond Strategy usually entails high transaction costs.

Investors use a bond mutual fund to diversify their investments across a wide range of bonds. This helps reduce risk associated with investing in a single bond.

Bond mutual funds typically have lower minimum investment requirements than investing in individual bonds.