Investment Fixed Income and Bonds

Question 1

What happens to a bond's price when interest rates rise?

Accepted Answer

The price falls

Answer

The price rises proportionally

Answer

The price remains unchanged

Answer

The price doubles

Question 2

What is the 'par value' of a bond?

Accepted Answer

The face value repaid at maturity

Answer

The current market price

Answer

The total interest paid over the bond's life

Answer

The bond's yield to maturity

Question 3

A bond's coupon rate is 5% and its current market price is below par. What is true about its current yield?

Accepted Answer

Current yield is greater than 5%

Answer

Current yield equals 5%

Answer

Current yield is less than 5%

Answer

Current yield cannot be determined

Question 4

Which type of bond is backed by the full faith and credit of the U.S. federal government?

Accepted Answer

Treasury bonds

Answer

Municipal bonds

Answer

Corporate bonds

Answer

Agency bonds

Question 5

What is 'yield to maturity' (YTM)?

Accepted Answer

The total return earned if a bond is held until it matures

Answer

The annual coupon payment divided by par value

Answer

The bond's current market price minus par value

Answer

The spread between corporate and Treasury yields

Question 6

What does a bond's 'duration' measure?

Accepted Answer

The sensitivity of a bond's price to changes in interest rates

Answer

The time until the next coupon payment

Answer

The bond's credit quality

Answer

The number of years since the bond was issued

Question 7

Which bond rating is considered 'investment grade' according to Standard & Poor's?

Accepted Answer

BBB and above

Answer

BB and above

Answer

B and above

Answer

CCC and above