In general, why do some bonds trade at a premium price relative to their face value?

The fixed coupon is higher than the required yield

If you buy a company's bond...

You have lent money to the company

Which of the following IS NOT a common difference between stock and bond investing?

Bond investors seek yield first, then evaluate risk

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Fin 435: Bond Basics

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A brief overview of essential fixed-income investment concepts

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Questions 13

Answers

1
The size of the U.S. bond market is ________ relative to the U.S. stock market.
Can't say - bond values are not publicly available
About the same
Smaller
Larger
2
The role of fixed-income bonds in a portfolio usually include all EXCEPT...
Capital appreciation
Hedge against a slowing economy
Inflation protection
Diversification
3
Which of the following typically INCREASES the interest rate risk (price volatility) of a bond?
High coupon rate
High (long) maturity
High market value (price)
High credit rating
4
In general, why do some bonds trade at a premium price relative to their face value?
The fixed coupon is lower than the required yield
Credit quality is higher than average for similar issuers
The fixed coupon is higher than the required yield
The maturity date is longer than average for similar issuers
5
Which of the following is the best definition of credit risk?
All the above
Risk of an issuer being downgraded by a rating agency
Risk of an issuer not paying the required coupon or maturity
Risk of credit spreads increasing due to market conditions
6
The systematic risk fixed-income bond investors should monitor most closely is ...
Inflation risk
Interest rate risk
Reinvestment risk
Credit risk
7
Which of the following IS NOT an essential feature of a bond?
Maturity date
Credit quality
Coupon rate
Dividend rate
8
Which organization insures you against losses in the financial markets?
FDIC (Federal Deposit Insurance Corporation)
FINRA (Financial Industry Regulatory Authority)
SIPC (Securities Investor Protection Corporation)
None of the above
9
If you buy a company's bond...
You can vote on shareholder resolutions
You are liable for the company's debts
You have lent money to the company
You own a part of the company
10
Which of the following IS NOT a common difference between stock and bond investing?
Bond price changes are usually more predictable than stocks
Bond investors seek yield first, then evaluate risk
Bond returns come primarily from income rather than price
Bonds are generally more complex than stocks
11
A 'laddered maturity' investment strategy is best characterized as...
Active
Passive
Indexing
Enhanced Indexing
12
The risk-adjusted return of a bond is usually measured by...
Duration
Beta and the Capital Asset Pricing Model (CAPM)
Standard deviation and the Sharpe Measure
Yield-to-maturity (YTM)
13
Which of the following risks is diversifiable?
Interest rate risk
Market risk
Default risk
Inflation risk

Fin 435: Bond Basics Flashcards | StudBud