10 Questions
What is the current yield of a bond?
The annual income divided by the current price of the security
What is the redemption price/ face value of a bond?
The amount to be paid by the issuer to the holder at maturity
What does the yield to maturity (YTM) of a bond take into account?
The time value of money and internal rate of return associated with buying that bond
What happens to the bond price when its yield goes up?
The price of the bond goes down
When is a bond said to be trading at a premium to par?
When its price is higher than its face value
What is the main characteristic of a debt security?
Fixed income stream
What does the tenor of a debt security refer to?
Number of years from issue date until redemption date
What is the key entitlement of the holder of a debt security?
Repayment of principal + interest from the issuer
What is the redemption date of a debt security?
Date when the principal is due
What is the primary purpose of a debt security?
Capital preservation
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.
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.
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