18 Questions
What is the main purpose of issuing bonds in the bond market?
To raise capital for various purposes
What is the primary difference between the money market and the bond market?
The maturity period of debt securities
What is the term for the periodic interest payments made to bondholders?
Coupons
What is the role of the bondholder in a bond transaction?
Lender to the issuer
What is the term for the initial amount collected by the issuer when issuing a bond?
Face value
What is the term for the entity that issues a bond?
Issuer
Which type of investor is likely to invest in bonds to hedge against interest rate risk?
Corporations
What is the primary reason for central banks to invest in government bonds?
To manage their foreign exchange reserves
Which of the following is a characteristic of bonds issued by high-quality corporate issuers?
Lower risk compared to equities
What is the likely effect on the price of a bond when interest rates rise?
The price of the bond will fall
What is the primary benefit of bond investments for retirees or those seeking regular cash flow?
Income generation
Which of the following types of bonds is most sensitive to changes in interest rates?
Longer-maturity bonds
Which type of investor is likely to invest in bonds for regulatory compliance purposes?
Banks and financial institutions
What is the primary risk associated with bonds issued by companies with lower credit ratings?
Credit risk
What is the primary reason for individual investors to invest in bond mutual funds or ETFs?
To generate income and preserve capital
What is the likely effect on the real return of a bond when inflation rises?
The real return will decrease
Why may an investor in a bond issued by a smaller company face liquidity risk?
Because the bond has a limited number of buyers in the secondary market
What is the benefit of a bond's price increasing due to a decline in interest rates or an improvement in the credit quality of the issuer?
It provides capital gains for the investor
Learn about the benefits and risks of investing in bonds, including interest rate risk and how changes in interest rates can affect bond prices. Understand how credit quality and maturity can impact bond investments.
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