FIN1413 @ 15/11/2024

What is a bond, and how is it typically traded in Malaysia?

• A negotiable debt security traded only on international markets.

• A debt instrument where the issuer borrows money, pays fixed interest, and repays the principal on maturity; traded on Bursa Malaysia or over-the-counter.

• A shareholding security traded on Bursa Malaysia.

• A negotiable instrument with a par value of RM500 per unit in Malaysia.

What are the two types of returns that bondholders can benefit from?

• Interest and dividends.

• Capital gain and profit-sharing.

• Interest and capital gain.

• Fixed coupon rate and equity growth.

Which feature of a bond specifies the interest paid annually based on the par value?

• Bond price.

• Maturity date.

• Coupon rate.

• Par value.

Which of the following is a key risk associated with bond investments?

• Bonds always guarantee high returns regardless of market conditions.

• Bond prices increase when market interest rates rise, leading to capital loss.

• Market interest rate fluctuations can cause bond prices to decrease, leading to potential capital loss.

• Bonds are risk-free and unaffected by changes in interest rates or market conditions.

What is call risk in bond investment?

• The risk that the bond issuer will default on interest payments.

• The risk that the bond issuer will repay the bond before maturity, typically when interest rates decline.

• The risk that market interest rates will increase, reducing the bond's value.

• The risk that bondholders cannot sell the bond in the secondary market.

What does liquidity risk in bond investment refer to?

• The risk that the bond issuer will fail to pay interest or principal.

• The risk that the bondholder will not be able to sell the bond quickly at a fair price.

• The risk that market interest rates will decline, reducing the bond's yield.

• The risk that the bond will be called back by the issuer before maturity.

What is the relationship between coupon rates, market interest rates, and bond prices?

• When market interest rates rise above a bond's coupon rate, the bond price increases.

• When market interest rates fall below a bond's coupon rate, the bond price increases.

• A bond's price is unaffected by changes in market interest rates.

• Bond prices always decrease regardless of coupon rates or market interest rates.

What is one primary reason investors choose to invest in bonds?

• Bonds offer high risk and unpredictable returns.

• Bonds provide a steady income through periodic interest payments and are considered relatively safer than stocks.

• Bonds guarantee capital appreciation regardless of market conditions.

• Bonds eliminate all risks, including market and credit risks.