20 Questions
How is the term related to maturity when discussing bonds?
The number of years to maturity is the term, and they are often used interchangeably.
What is meant by maturity in the context of bonds?
The date on which the bond issuer will pay the principal and redeem the bond.
How are bonds categorized based on their maturities?
Bonds with maturities of 1 year or less are short-term, those with maturities of more than 1 year up to 10 years are medium-term, and those with maturities exceeding 10 years are long-term.
What is the current yield of a bond and how is it calculated?
The current yield is the effective interest rate for a bond at its current market price, and it is calculated by dividing the annual peso coupon interest by the current price.
What does the yield to maturity of a bond indicate?
It indicates the annual rate the bondholder will receive if the bond is held to maturity.
What does yield to maturity include that current yield does not?
The value of any capital gain or loss when the bond is redeemed
What does duration measure for a bond?
How quickly the investor will receive half of the total payment due over the bond’s remaining life, with an adjustment for the fact that distant payments are worth less.
For a zero-coupon bond with payments only at maturity, what is the relationship between its duration and term?
The duration is precisely equal to its term.
How does a hypothetical bond with a 100% annual yield compare in terms of duration to a bond with the same term but lower yield?
The higher-yield bond has a shorter duration.
Why do traders and investors pay close attention to duration?
It is the most basic measure of a bond’s riskiness.
Bonds with maturities exceeding 30 years are common in many countries.
False
The number of years to maturity is the same as the bond's term.
True
The coupon of a bond changes after it has been issued.
False
If a bond's price has risen since it was issued, the current yield will be greater than the coupon.
False
Yield to maturity indicates the annual rate the bondholder will receive if the bond is held to maturity.
True
Yield to maturity includes the value of any capital gain or loss the bondholder will enjoy when the bond is redeemed.
True
Duration is a number expressing how quickly the investor will receive half of the total payment due over the bond’s remaining life.
False
A ten-year zero-coupon bond has a duration equal to its term.
True
A hypothetical ten-year bond yielding 100% annually has a longer duration than a bond with the same term but lower yield.
False
The longer the duration of a bond, the less likely its price is to fluctuate before maturity.
False
Test your knowledge about bond maturity with this quiz. Learn about the date of bond principal payment, term length, and the categorization of bonds based on maturity.
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