What is the most straightforward type of bond?
U.S. Treasury Bills
it is the amount returned to the bondholders if they held the bond until its maturity
Yield to maturity
What refers to the length of time an investor plans on holding an asset?
investment horizon
When determined that interest rates will increase and so bond prices ________
decreases
The probability that a borrower will not repay a loan.
Default Risk
A promise to pay the face value of the bond without a coupon payment (Ex. Treasury Bills).
zero-coupon bond
What is the formula to calculate current yield?
Yearly coupon payment/Price paid
What is the name of the curve which there is a relationship between price and the quantity of bonds that investors demand?
The bond demand curve
If an economy in a country is going through a recession, the interest rates tend to _______.
fall
____________ has a probability of rising or decline over the years, it can affect the bond's price
Interest rate risk
How much will a one year treasury bill pay out? Its face value is $100, with an annual interest of 0.05.
$95.24
What is the definition of a return from purchasing and selling a bond?
holding period return
The higher the price of a bond, the larger the quantity supplied will be. How is it called the curve affected by this change?
The bond supply curve
Interest rates move in response to __________.
Expected inflation
changes in general business conditions
What possible risks are there related to bonds?
Default risk
Inflation risk
Interest rate risk
How long do you have to hold on to a treasury bill with a face value of $100 and an annual interest rate of 5%, so it pays out $97.59?
6 months
Two possible results when a bond price changes?
Capital gain
Capital loss
_____________ is when the bond market achieve a point at supply equals demand.
Equilibrium
The ______________ of interest rates is the relationship between the level of bond yields to the maturity of the bonds.
The risk the real value of the payments from owning a bond will be different from what was expected; that the real interest rate on a bond will differ from what was expected.
Inflation Risk
What are the four types of bonds?
Zero-coupon rate or Discount bond
Fixed-Payment loan
Coupon Bond
Consol
What happens if face value is greater than bond price?
Yield to maturity is greater than current yield is greater than coupon rate
What are the three factors that can be identified as shifting the supply curve and changing the quantity of bonds supplied at a provided price?
Changes in government borrowing
General business conditions
Expected Inflation
Changes in ______________ are about to fall, bond prices are presume to rise.
Expected Interest Rates
The cost of borrowing can be lower by the efficiency of markets used in securitization. Provide 2 of the 5 ways of diminishing it.
Diversification of risk or risk-spreading
Creating Liquidity
Fostering specialization
Broadening markets
Promoting innovation