Bonds (basics & terminology)

Question 1

Term that is defined as “the total estimated rate of return earned by a bondholder who holds a bond to the maturity date, and receives all cash flows at specified intervals”

Answer 1

Yield-to-maturity (YTM)

Question 2

The relationship that describes how bond prices move in response to changes in the required rate of return (required yield)?

Answer 2

Inverse

Question 3

2 factors that determine the required rate of return on a bond

Answer 3

Credit Quality
Yields on other securities

Question 4

Define “Indenture”

Answer 4

Legal obligation/agreement

Question 5

A bond has 25 years to maturity, face value of $100, a coupon of 9% and a required rate of 5%

What is the semi annual coupon? ($)

Answer 5

$45

Question 6

A bond has 25 years to maturity, face value of $100, a coupon of 9% and a required rate of 5%

What is the present value of future cash flows?

Answer 6

$156.72

Question 7

A bond has 25 years to maturity, face value of $100, a coupon of 7% and a required rate of 8%

What is the present value of future cash flows?

Answer 7

$89.26

Question 8

A bond that can be redeemed or paid off by the issuer before maturity

Answer 8

Callable Bond

Question 9

Municipal Bonds are…

Answer 9

Bonds that are issued by a state or local governments