Bonds as Sources of Finance Quiz

What is a bond?

• A. A type of equity

• B. A long-term debt instrument

• C. A short-term investment

• D. A type of stock

What is the principal amount of a bond called?

• A. Coupon

• B. Maturity value

• C. Face value

• D. Market value

Why might a company issue bonds instead of stocks?

• A. To avoid diluting ownership

• B. To increase equity

• C. To reduce debt

• D. To increase dividends

Which of the following best explains the term 'maturity date' of a bond?

• A. The date when the bond is issued

• B. The date when the bondholder receives the coupon payment

• C. The date when the bondholder must return the bond to the issuer

• D. The date when the principal amount of the bond is repaid to the bondholder

How does a callable bond benefit the issuing company?

• A. It allows the company to call the bondholders for meetings

• B. It gives the company the right to repay the bond before maturity

• C. It increases the interest payments to bondholders

• D. It decreases the bond’s face value

If a company issues a bond with a face value of ₹1,000 and an annual coupon rate of 5%, what is the annual interest payment?

• A. ₹50

• B. ₹500

• C. ₹5

• D. ₹1,000

If an investor buys a bond at a premium, what does this imply about the bond’s coupon rate compared to the current market interest rate?

• A. The coupon rate is lower than the market interest rate

• B. The coupon rate is equal to the market interest rate

• C. The coupon rate is higher than the market interest rate

• D. The coupon rate does not affect the bond's premium