3.4 EXIT TICKET- What is a Bond? Exit Ticket

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1. Which of the following most accurately describes what a bond is?

• A bond is a government loan made to an individual investor with the expectation that it will be paid back with interest
• A bond is an investment in which a corporation lends an individual investor money with the expectation that it will be paid back with interest
• A bond is a government loan made to a corporation with the expectation that it will be paid back with interest
• A bond is an investment in which an investor lends money to a corporation or government with the expectation that it will be paid back with interest

2. Juan buys a bond with a fixed coupon rate of 3%. Six months later, similar bonds that are issued have a coupon rate of 4%. Which of the following is TRUE if he chooses to sell the bond before maturity?

• The price of Juan’s bond will increase
• More investors will be willing to buy Juan’s bond
• The interest rate of Juan’s bond will increase to reflect the current market
• The price of Juan’s bond will decrease

3. One difference between bonds and bond funds is…

• Buying an individual bond is generally cheaper than buying a bond fund
• A bond fund can help you diversify your investment portfolio
• Bonds pay dividends to its investors
• You receive the principal amount you invest in a bond fund after a certain amount of time