12 Questions
What is the primary purpose of bond valuation?
To determine the theoretical fair value of a bond
What is the coupon rate of a bond?
The fixed return that an investor earns periodically until the bond matures
What happens when a bond matures?
The bond issuer repays the investor the face value of the bond
What is the typical face value of a corporate bond?
$1,000
Why might an investor purchase a bond at a price below its face value?
Because the interest rate in the environment is high
What is the main benefit of a bond to an investor?
A steady income stream in the form of coupon payments
What happens to the value of a bond when interest rates increase?
It decreases
What is the purpose of bond valuation?
To determine the intrinsic value of the bond
What is the yield to maturity used for in bond valuation?
To determine the present value of the bond's expected future coupon payments
What is compounding in the context of time value of money?
The process of determining the future value of an investment made today
What is the purpose of discounting in the context of time value of money?
To determine the present value of money to be received in the future
What is the total number of compounding or discounting periods in the holding period referred to as?
Periods
Test your knowledge on bond valuation, a technique used to determine the theoretical fair value of a bond. Learn how to calculate the present value of a bond's future interest payments and its value upon maturity. Assess your understanding of bond valuation and its application in investment decisions.
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