SIE Debt Securities and Fixed Income 1 — Questions and Answers
Question 1: What is the par value of a standard corporate bond?
- $100
- $500
- $1,000 (Correct answer)
- $10,000
Correct answer: $1,000
The standard par value (face value) for a corporate bond is $1,000, which is repaid at maturity.
Question 2: When interest rates rise, what happens to existing bond prices?
- Bond prices rise
- Bond prices fall (Correct answer)
- Bond prices remain unchanged
- Bond yields fall
Correct answer: Bond prices fall
Bond prices and interest rates have an inverse relationship — when rates rise, existing bond prices fall.
Question 3: What is a callable bond?
- A bond that can be converted to stock
- A bond the issuer can redeem before maturity (Correct answer)
- A bond that pays variable interest
- A bond backed by collateral
Correct answer: A bond the issuer can redeem before maturity
A callable bond allows the issuer to redeem the bond before its stated maturity date, usually when interest rates decline.
Question 4: Which type of bond is backed by the full faith and credit of the US government?
- Municipal bonds
- Corporate bonds
- US Treasury securities (Correct answer)
- Agency bonds
Correct answer: US Treasury securities
US Treasury securities are backed by the full faith and credit of the federal government, making them the safest bonds.
Question 5: What is the coupon rate of a bond?
- The bond's current yield in the market
- The annual interest rate stated on the bond at issuance (Correct answer)
- The bond's yield to maturity
- The discount rate used to price the bond
Correct answer: The annual interest rate stated on the bond at issuance
The coupon rate is the annual interest rate fixed at issuance, determining the periodic interest payments.
Question 6: Zero-coupon bonds are sold:
- At par with no interest payments
- At a premium above par
- At a discount and pay no periodic interest (Correct answer)
- With floating interest rates
Correct answer: At a discount and pay no periodic interest
Zero-coupon bonds are issued at a deep discount and pay no periodic interest, with the investor receiving par at maturity.
SIE Debt Securities and Fixed Income 1
What is the par value of a standard corporate bond?