Bond Risks and Investment
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Questions and Answers

What is the purpose of the issue price of a bond?

  • To decide whether the bond is callable
  • To set the bond's maturity date
  • To indicate the original sale price of the bond (correct)
  • To determine the bond's coupon rate

    • What is the main difference between secured and unsecured bonds?

  • The interest rate offered
  • The issuer's credit rating
  • The collateral backing the bond (correct)
  • The bond's maturity date

    • What is the benefit of a callable bond to the issuer?

  • The guarantee of a specific return on investment
  • The ability to change the bond's coupon rate
  • The ability to issue more bonds
  • The option to pay off the bond early at a premium (correct)

    • What is the primary advantage of secured bonds over unsecured bonds?

    <p>Lower risk due to collateral</p> Signup and view all the answers

    What is a mortgaged-backed security an example of?

    <p>Secured bond</p> Signup and view all the answers

    Why might an issuer choose to call its bonds?

    <p>To issue new bonds at a lower interest rate</p> Signup and view all the answers

    What type of bond is secured by a mortgage on real properties?

    <p>Mortgage bond</p> Signup and view all the answers

    Which type of bond does not have collateral security?

    <p>Debenture bond</p> Signup and view all the answers

    What type of bond can be exchanged for shares of the issuing entity?

    <p>Convertible bond</p> Signup and view all the answers

    Which type of bond has a single date of maturity?

    <p>Term bond</p> Signup and view all the answers

    What type of bond is unregistered in the sense that the name of the bondholder is not recorded on the company books?

    <p>Coupon or bearer bond</p> Signup and view all the answers

    Which type of bond has a series of maturity dates instead of a single one?

    <p>Serial bond</p> Signup and view all the answers

    Why do companies issue debt instead of equity?

    <p>To avoid diluting ownership and potentially earn more from the funds than the cost of interest</p> Signup and view all the answers

    What is the main characteristic of public bonds?

    <p>They are sold to individuals and financial institutions</p> Signup and view all the answers

    What is the obligation of the issuer in a bond issue?

    <p>To pay a fixed amount of interest periodically and repay a fixed amount of principal at the date of maturity</p> Signup and view all the answers

    How often are interest payments usually made on bonds?

    <p>Every six months</p> Signup and view all the answers

    What is the term used to describe the public debt market based on the issue's maturity?

    <p>Money Market, Notes, and Bonds</p> Signup and view all the answers

    What is the main difference between notes and bonds?

    <p>Notes have maturities in excess of 1 year but less than 10 years, while bonds have maturities in excess of 10 years</p> Signup and view all the answers

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