Fixed Income Securities Flashcards

What is the standard par value (face value) of a typical corporate bond?

Answer: $1,000

The standard par value of a corporate bond is $1,000, which is the amount the issuer repays at maturity.

When market interest rates rise, what generally happens to existing bond prices?

Answer: They fall

Bond prices and interest rates have an inverse relationship — when rates rise, existing bonds with lower coupons become less attractive, so their prices fall.

A bond is said to be trading at a premium when its market price is:

Answer: Above par value

A bond trades at a premium when investors pay more than the $1,000 par value, typically because its coupon rate exceeds current market rates.

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

Answer: Treasury bonds

U.S. Treasury bonds are direct obligations of the federal government, backed by its full faith and credit and taxing authority.

A zero-coupon bond is best described as one that:

Answer: Pays no periodic interest and is issued at a discount to par

Zero-coupon bonds make no periodic interest payments; instead, they are sold at a deep discount and mature at par value, with the difference representing the investor's return.

Interest income from which type of bond is generally exempt from federal income tax?

Answer: Municipal bonds

Interest on municipal bonds is generally exempt from federal income tax, making them attractive to investors in higher tax brackets.

The coupon rate of a bond refers to:

Answer: The annual interest rate stated on the bond at issuance

The coupon rate is the fixed annual interest rate stated on the bond certificate at issuance, expressed as a percentage of par value.