Table of Contents
Which of the following statements regarding a bond is correct the face value of a bond is how much you pay for the bond?
Answer and Explanation: Statement Correct / Incorrect C. The price of a bond that is “trading at a discount”, i.e. a discount bond, is above the bond’s face value. The statement is incorrect because a discount bond’s value is less than the face value of the bond.
Which of the following bonds will be most sensitive to a change in interest rates if all bonds?
The answer is A. A bond that has the longest duration is the most sensitive to changes in market interest rate.
What is true bond?
Bonds are debt securities that may or may not pay periodic interest. However, they pay the par value at maturity. The value of the bond is the value of the discounted cash flows.
Are bond prices and yields used interchangeably?
C) Because we can convert any bond price into a yield, and vice versa, bond prices and yields are often used interchangeably.
What are bond terms?
A term bond refers to a bond that matures on a single, specific date in the future. At the time, the bond’s face value (i.e., the principal amount) must be repaid to the bondholder. The term of the bond is the amount of time between the bond’s issuance and its maturity.
What are the 5 types of bonds?
There are five main types of bonds: Treasury, savings, agency, municipal, and corporate. Each type of bond has its own sellers, purposes, buyers, and levels of risk vs. return. If you want to take advantage of bonds, you can also buy securities that are based on bonds, such as bond mutual funds.
Which of the following bonds will be most sensitive to a change?
Generally, bonds with long maturities and low coupons have the longest durations. These bonds are more sensitive to a change in market interest rates and thus are more volatile in a changing rate environment. Conversely, bonds with shorter maturity dates or higher coupons will have shorter durations.
Which of the following two bonds is more price sensitive?
Long-term bonds tend to be more price sensitive than short-term bonds. As maturity increases, price sensitivity increases at a decreasing rate. Interest rate risk is inversely related to the bond’s coupon rate.
Which one of the following bonds is the least sensitive to changes in market interest rates?
A. 4 year bond with 8% annual coupon. Short term bond has the least sensitivity to changes in the market as it has less probability of substantial.
Which statements are true when a bond sells at a discount?
The best answer is A. When bonds are trading at a discount, the stated (nominal) yield will be lowest. The current yield will be higher, since it is based on the discounted market price – not par value.
Which of the following types of bonds has the least default risk?
Terms in this set (23) Which type of bonds have the least default risk? Treasury bonds– have no default risk, because, if needed, the US Treasury can always print more money to repay its debt.
What is a bond quizlet?
A bond is a long or short term debt instrument (a loan) issued by corporations and municipal, state and federal agencies. A bond is a contract; it’s an IOU. Principal, Face Value, Maturity Value, and Par Value. The amount of money the firm borrows and promises to repay at some future date, usually at the maturity date.
What do bond yields tell us?
Yield Tells (Almost) All Bond prices and bond yields are excellent indicators of the economy as a whole, and of inflation in particular. A bond’s yield is the discount rate that can be used to make the present value of all of the bond’s cash flows equal to its price.
What do bond yields indicate?
A bond’s yield is the return to an investor from the bond’s coupon (interest) payments. It can be calculated as a simple coupon yield, which ignores the time value of money, any changes in the bond’s price, or using a more complex method like yield to maturity.
How are bond yields determined?
The yield on U.S. Treasury securities, including Treasury bonds (T-bonds), depends on three factors: the face value of the security, how much the security was purchased for, and how long it is until the security reaches its maturity date.
Are term bonds callable?
However, not all bonds are callable. Treasury bonds and Treasury notes are non-callable, although there are a few exceptions. Most municipal bonds and some corporate bonds are callable. A municipal bond has call features that may be exercised after a set period such as 10 years.
What are bonds examples?
The following are examples of government-issued bonds, which typically offer a lower interest rate compared to corporate bonds. Federal government bonds. Treasury bills. Treasury notes. Treasury bonds. Zero-coupon bond. Municipal bonds.
How do you find a bond’s term?
The formula for the duration is a measure of a bond’s sensitivity to changes in the interest rate, and it is calculated by dividing the sum product of discounted future cash inflow of the bond and a corresponding number of years by a sum of the discounted future cash inflow.
What are the 6 types of bonds?
Treasury bonds, GSE bonds, investment-grade bonds, high-yield bonds, foreign bonds, mortgage-backed bonds and municipal bonds – explained by Beth Stanton.
What are 3 types of common bonds?
There are three main types of bonds: Corporate bonds are debt securities issued by private and public corporations. Investment-grade. High-yield. Municipal bonds, called “munis,” are debt securities issued by states, cities, counties and other government entities.
What are the 3 basic components of bonds?
Bonds have 3 major components: the face value—also called par value—a coupon rate, and a stated maturity date. A bond is essentially a loan an investor makes to the bonds’ issuer.
