What are Bonds and How do They Work?

Understand the basics of bond investing in our comprehensive guide. Optimize your investment portfolio with our expert advice on bonds.

• Question 01

  What is a bond?

  Your Answer

  • A. A type of stock

  • B.A loan where the bondholder lends money to a company or government

  • C.A form of cryptocurrency

  • D.A type of insurance policy

• Question 01

  What is the final amount that the bond issuer repays to the bondholder called?

  Your Answer

  • A.Interest

  • B.Principal

  • C.Coupon

  • D.Yield

• Question 01

  What are the periodic interest payments made to bondholders called?

  Your Answer

  • A.Principal

  • B.Yield

  • C.Coupons

  • D.Face value

• Question 01

  How are bond prices determined?

  Your Answer

  • A.Solely by the issuer

  • B.By market forces of supply and demand

  • C.By government regulation

  • D.Based on the company's revenue

• Question 01

  Which of the following is NOT a common type of bond?

  Your Answer

  • A.Government Bonds

  • B.Corporate Bonds

  • C.Stock Bonds

  • D.Local Bonds

• Question 01

  What are government bonds called in America?

  Your Answer

  • A.Treasuries

  • B.Gilts

  • C.Bunds

  • D.Munis

• Question 01

  What is the primary method of assessing the default risk of bond issuers?

  Your Answer

  • A.Market demand

  • B.Government regulation

  • C.Credit ratings from agencies like Standard & Poor's and Moody's

  • D.Bond coupon rates

• Question 01

  Which rating indicates the lowest risk for long-term bonds according to the Fitch Rating Scale?

  Your Answer

  • A.AA+

  • B.BBB

  • C.AAA

  • D.BB+

• Question 01

  What type of bond gives the issuer the right, but not the obligation, to redeem the par value before maturity?

  Your Answer

  • A.Corporate Bonds

  • B.Zero-coupon Bonds

  • C.Local Bonds

  • D.Callable Bonds

• Question 01

  What is the effect of Federal Reserve interest rate cuts on bond prices?

  Your Answer

  • A.Bond prices increase

  • B.Bond prices decrease

  • C.Bond prices remain constant

  • D.Bond prices fluctuate randomly