FA-5.4-5.6: Investing Review

Front

What is a bond?

Back

A bond is a fixed income instrument that represents a loan made by an investor to a borrower, typically corporate or governmental.

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What is a coupon rate?

Back

The coupon rate is the interest rate that the issuer of the bond agrees to pay bondholders, usually expressed as a percentage of the face value.

Front

What happens to bond prices when interest rates rise?

Back

When interest rates rise, bond prices typically fall because new bonds are issued at higher rates, making existing bonds with lower rates less attractive.

Front

How much total interest would you earn from a bond with a face value of $1,000 and a 4% coupon rate over 10 years?

Back

$400

Front

What is a bond fund?

Back

A bond fund is a mutual fund that invests in a variety of bonds, providing investors with diversification and professional management.

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What is inflation?

Back

Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.

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How do you calculate the present value of money considering inflation?

Back

Present value can be calculated using the formula: PV = FV / (1 + r)^n, where FV is the future value, r is the inflation rate, and n is the number of years.

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What are large cap stocks?

Back

Large cap stocks are shares of companies with a market capitalization over $10 billion.

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Why might an investor choose a low-rated bond?

Back

Investors might choose low-rated bonds because they typically offer higher yields (coupons) to compensate for the increased risk.

Front

What is the face value of a bond?

Back

The face value is the amount paid back to the bondholder at maturity, also known as par value.