Bond Fundamentals

Which of the following correctly describes a debenture in the United States?

• A secured bond backed by real property

• An unsecured corporate bond

• A short-term government note

• A convertible preferred share

Which bond type pays interest that depends on royalties from an asset such as a film or book?

• Catastrophe bond

• Indexed bond

• Asset-backed bond

• Inverse floater

A bond callable only after five years is said to have which feature?

• Deferred call

• Noncallable

• Nonrefunding

• Convertible

The relationship between bond price and yield is:

• Linear and positive

• Non-linear and convex

• Constant

• Inverse and linear

What is the yield on a bond if its coupon rate equals its market yield?

• Premium

• Discount

• At par

• Zero-coupon

Which of the following statements about high-yield (junk) bonds is TRUE?

• They are rated BBB or above

• They are also called speculative bonds

• They offer lower returns than investment-grade bonds

• They are always issued by governments

The risk that an issuer will not make interest or principal payments is known as:

• Liquidity risk

• Market risk

• Default risk

• Call risk

The yield to maturity (YTM) assumes:

• The bond is sold before maturity

• All coupons are reinvested at the YTM rate

• The bond has a floating coupon rate

• There are no reinvestments

The market price of a zero-coupon bond will always be:

• Greater than par

• Equal to par

• Less than par

• The same as its coupon rate

In a corporate bond quote, the 'spread' usually represents:

• Difference between coupon and par value

• Difference between YTM of a corporate and a government bond

• Difference between bid and ask price

• Change in bond price