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Questions and Answers
What is the current yield of a bond?
What is the current yield of a bond?
- The amount to be paid by the issuer to the holder at maturity
- The annual income divided by the current price of the security (correct)
- The interest rate that the issuer pays to the holders
- The total return earned on a bond
What is the redemption price/ face value of a bond?
What is the redemption price/ face value of a bond?
- The amount to be paid by the issuer to the holder at maturity (correct)
- The total return earned on a bond
- The interest rate that the issuer pays to the holders
- The initial price of the bond when it is first issued
What does the yield to maturity (YTM) of a bond take into account?
What does the yield to maturity (YTM) of a bond take into account?
- The remaining/ residual maturity of the bond
- The interest rate that the issuer pays to the holders
- The amount to be paid by the issuer to the holder at maturity
- The time value of money and internal rate of return associated with buying that bond (correct)
What happens to the bond price when its yield goes up?
What happens to the bond price when its yield goes up?
When is a bond said to be trading at a premium to par?
When is a bond said to be trading at a premium to par?
What is the main characteristic of a debt security?
What is the main characteristic of a debt security?
What does the tenor of a debt security refer to?
What does the tenor of a debt security refer to?
What is the key entitlement of the holder of a debt security?
What is the key entitlement of the holder of a debt security?
What is the redemption date of a debt security?
What is the redemption date of a debt security?
What is the primary purpose of a debt security?
What is the primary purpose of a debt security?
Study Notes
Bond Basics
- The current yield of a bond is the bond's annual return based on its current market price and coupon rate.
Bond Characteristics
- The redemption price or face value of a bond is the amount paid to the bondholder at maturity.
- The yield to maturity (YTM) of a bond takes into account the bond's coupon rate, face value, and market price.
Bond Price and Yield
- When the yield of a bond goes up, its price goes down, and vice versa.
- A bond is said to be trading at a premium to par when its market price is higher than its face value.
Debt Securities
- The main characteristic of a debt security is that it represents a borrowing arrangement between the issuer and the investor.
- The tenor of a debt security refers to its time to maturity.
- The key entitlement of the holder of a debt security is the right to receive regular interest payments and the return of principal at maturity.
- The redemption date of a debt security is the date on which the issuer repays the principal amount.
- The primary purpose of a debt security is to raise capital from investors.
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Description
Test your knowledge about the features of debt securities with this quiz. Explore concepts like entitlement to repayment, fixed maturity date, income stream, and capital preservation.
