Understanding Bonds

What is the primary role of a bond in financial terms?

• A bond is a form of insurance.

• A bond is a savings account.

• A bond is a loan where the buyer lends money to an entity.

• A bond is a type of stock.

What does the face value of a bond represent?

• The interest rate of the bond.

• The annual yield of the bond.

• The market price of the bond.

• The principal amount to be repaid at maturity.

How does the market price of a bond differ from its face value?

• The market price is always higher than the face value.

• The market price can fluctuate based on interest rates and credit ratings.

• The market price is determined by the bond's maturity date.

• The market price is fixed and does not change.

What happens to bond prices when market interest rates rise?

• Bond prices increase.

• Bond prices become unpredictable.

• Bond prices remain unchanged.

• Bond prices decrease.

Why is it important to consider the maturity date of a bond?

• It determines the bond's interest rate.

• It affects the bond's sensitivity to interest rate changes and risk profile.

• It indicates the bond's market price.

• It shows the bond's annual yield.