Question

1. What is a Bond?

A)Ownership of a company

B) A guaranteed loan to a company at a predetermined rate of interest

C) A government issued security which is safer than a stock

D) A debt security in which the issuer pays specific interest payments to the bondholder

2. Interest rates and bond prices have a(n) __________________________ relationship.

A) Variegated

B) Unknown

C) Inverse

D) Direct

3)The coupon rate for a bond is always the same as the interest rate for that bond.

True or False

Answer 1

1. Bond is a fixed income security where issuer pays specific interest to the investor and repays the principal at end of tenor

Correct option D

2. Interest Rates and Bond prices have inverse relationship

Bond valuation is the determination of the fair price of a bond. As with any security or capital investment, the expected value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate (Interest Rate)

Correct option is C

3. The coupon rate and interest rate shall not always be the same.

On the date of issue the coupons and interest rate can be same when bond is issued at par. Interest Rate is the expected return on the bond. This expectancy can change over a period resulting in the deviation from coupon rate. Bond prices effectively adjust to the interest rate.

Correct option False