Question

Please match off the term with its definition or description.

-       A.       B.       C.       D.    Face value of a bond, Principal Value       -       A.       B.       C.       D.    The expected return of a bond investor       -       A.       B.       C.       D.    The contractual rate of interest due to be paid by the issuer and received by the bond investor       -       A.       B.       C.       D.    The amount of cash exepected to be paid when a bond is bought/sold

A. Coupon B. Par Value C. Yield to Maturity D. Market Value

Answer 1

Below are the matched answers:

• Face value of a bond, Principal Value: this is the maturity value and the value of the bont when the market interest rate and the coupon rate are at par. Therefore it is also called the par value. So the answer is B
• The expected return of a bond investor: this is the market interest rate that is expected by the investor if he holds the bond till maturity.So this is the yield to  maturity. So the answer is C
• The contractual rate of interest due to be paid by the issuer and received by the bond investor: This is the Percentage on the par value which is given out as interest to the bond holders at each period also known as the coupon of the bond. So the answer is A
• The amount of cash exepected to be paid when a bond is bought/sold: The bond is sold at the current market price. If YTM> coupon of the bond, the market price or value < par value and vice versa. So the answer is D

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