6-Final

Question 1

Bond

Answer 1

company borrows money and agrees to pay interest + return the full amount later. Companies like bonds to raise large amounts of money without giving up ownership

Question 2

Face Value

Answer 2

The amount the company agrees to repay at maturity

Question 3

Coupon Rate

Answer 3

The annual interest rate paid to bondholders

Question 4

Coupon Payment

Answer 4

The actual dollar amount of interest paid

Question 5

Maturity Date

Answer 5

When the company must repay the face value

Question 6

Issue Price

Answer 6

The price investors pay for the bond when it’s first sold

Question 7

Yield

Answer 7

The bond’s actual return, which may differ from the coupon rate if the bond’s price changes

Question 8

Interest Rate Risk

Answer 8

Rates rise → bond price falls

Question 9

Credit Risk

Answer 9

Issuer can’t pay → you lose money

Question 10

Inflation Risk

Answer 10

Inflation rises → real value of payments drops

Question 11

Reinvestment Risk

Answer 11

Can’t reinvest payments at the same high rate

Question 12

Liquidity Risk

Answer 12

Hard to sell the bond quickly at fair value

Question 13

Call Risk

Answer 13

Issuer pays bond off early → you lose future interest

Question 14

Interest Rates go up

Answer 14

bond prices go down

Question 15

Interest Rates go down

Answer 15

bond prices go up

Question 16

Long-term bond

Answer 16

interest rate risk is high

Question 17

Short-term bond

Answer 17

interest rate risk is low

Question 18

Coupon Payments

Answer 18

Regular interest payments

Question 19

Face Value

Answer 19

full repayment of principal

Question 20

Equity Securities

Answer 20

ownership (you share in profits and losses)

Question 21

Debt Securities

Answer 21

lending (you get paid back with interest)

Question 22

Registered Bond

Answer 22

The owner’s name is recorded by the issuer, Payments go directly to the owner

Question 23

Bearer Bond

Answer 23

No record of ownership, whoever physically holds the bond gets paid

Question 24

Short-term Bond

Answer 24

matures in 1 to 5 years

Question 25

Medium-term bond

Answer 25

Matures in 5 to 12 years

Question 26

Long-term Bond

Answer 26

Matures in 12+ years

Question 27

Trustee

Answer 27

A third party that oversees the bond and protects bondholders

Question 28

Indenture

Answer 28

The legal contract outlining the bond’s full terms and rules

Question 29

Sinking Fund

Answer 29

A savings plan the issuer uses to make sure they can repay the bond

Question 30

Call Provision

Answer 30

gives the issuer (company) the right to repay (call back) the bond early, before it matters

Question 31

Put Option

Answer 31

gives the investor (bondholder) the right to sell the bond back early to the issuer at a set price

Question 32

Bond Ratings

Answer 32

grades showing risk of default

Question 33

Two Big Rating Agencies

Answer 33

Moody's and S&P

Question 34

Junk Bonds

Answer 34

High-risk, high-reward

Question 35

Nominal Rate

Answer 35

The stated interest rate, before inflation

Question 36

Real Rate

Answer 36

the actual return after accounting for inflation

Question 37

Inflation's Role

Answer 37

higher inflation makes the real rate lower