Free 5-question sample test with instant feedback. See how ready you are.
Question 1
What is the relationship between a bond's price and its yield?
Answer: Bond prices and yields move in opposite (inverse) directions. When interest rates rise, existing bond prices fall; when rates fall, prices rise.
Question 2
What is the par value (face value) of a standard corporate bond, and what does it represent?
Answer: The standard par value is $1,000. It represents the principal amount the issuer promises to repay to the bondholder at maturity.
Question 3
What is a bond's coupon rate, and how is the annual interest payment calculated?
Answer: The coupon rate is the stated annual interest rate on the bond. The annual interest payment equals the coupon rate multiplied by the par value (e.g., 6% × $1,000 = $60/year).
Question 4
When a bond is trading at a premium, what is the relationship among its coupon rate, current yield, and yield to maturity?
Answer: When a bond trades at a premium, coupon rate > current yield > yield to maturity. The investor pays more than par, so the effective yield is lower than the stated coupon.
Question 5
When a bond is trading at a discount, what is the relationship among its coupon rate, current yield, and yield to maturity?
Answer: When a bond trades at a discount, coupon rate < current yield < yield to maturity. The investor pays less than par, so the effective yield is higher than the stated coupon.