Bond Basics Quiz

What is a bond in financial terms?

• A legal agreement to perform or refrain from performing certain acts.

• A certificate of indebtedness issued by an entity to raise capital.

• A type of stock issued by corporations.

• A mutual fund investment.

What is typically printed on the face of a bond?

• The interest rate and maturity date.

• The initial loan amount and the issuer's name.

• The bond's serial number.

• The issuer's corporate logo.

How do fixed-income securities like bonds differ from common stocks?

• Bonds are a type of equity, while stocks are not.

• Bondholders are creditors, while stockholders are owners.

• Bonds offer variable interest rates, while stocks offer fixed dividends.

• Bonds are less regulated than stocks.

What happens to a bond's price if interest rates drop after its purchase?

• The price remains the same.

• The price decreases.

• The price increases.

• The bond is automatically redeemed.

What is the 'current yield' of a bond?

• The original interest rate agreed upon at issuance.

• The yield calculated based on the bond's face value.

• The annual return on the bond based on its current price.

• A fixed percentage that does not change over time.

What type of bond is generally backed by specific property such as a factory or a machine?

• Callable bond

• Debenture bond

• Mortgage bond

• Zero-coupon bond

Which type of bonds do not pay interest until maturity?

• Callable bonds

• Zero-coupon bonds

• Mortgage bonds

• Debenture bonds

What are short-term bonds sometimes called?

• Notes

• Debentures

• Mortgages

• Coupons

What characteristic defines callable bonds?

• They are backed by specific property.

• They do not pay interest until maturity.

• They can be redeemed by the issuer before the bond's maturity date.

• They are issued at a higher interest rate for high-risk entities.

What term is used to describe bonds issued by corporations with poor credit ratings, requiring them to offer higher interest rates?

• Investment-grade bonds

• Mortgage bonds

• High-yield or junk bonds

• Callable bonds