FIN376 - CHAPTER ONE

What is a bond?

• An equity investment

• A short-term security

• A commodity

• A long-term fixed-income security

What do bondholders receive periodically while holding a bond?

• Dividends

• Capital gains

• Principal repayment

• Fixed interest payment

What are the bonds issued by corporations called?

• Government bonds

• Corporate bonds

• Municipal bonds

• International bonds

Why do issuers issue bonds?

• To pay dividends

• To raise capital

• To increase stock price

• To reduce debt

What is the main reason for investors to invest in bonds?

• To gain ownership in the issuing company

• To receive fixed interest payments

• To speculate on price movements

• To avoid inflation risk

What is the role of the Trustee in the bond market?

• Trading bonds

• Issuing bonds

• Facilitating communication between bond issuers and bondholders

• Regulating the market

What is the impact of rising interest rates on bondholders?

• No impact

• Decrease in bond value

• Increase in bond value

• Higher coupon payments

What type of bonds are backed by specific assets of the issuer as collateral?

• Unsecured bonds

• Secured bonds

• High-yield bonds

• Convertible bonds

What is the risk that the bond may not be easily tradable in the market?

• Interest rate risk

• Liquidity risk

• Inflation risk

• Credit risk

What is the interest rate that the issuer pays to bondholders?

• Maturity rate

• Credit rating

• Yield

• Coupon rate