FIN 430 Fixed Income Securities Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. Which characteristic most directly distinguishes a fixed-income security
from common stock?
A. It always has a guaranteed market value.
B. It represents an ownership claim.
C. It generally promises specified cash flows to investors.
D. It cannot be traded in secondary markets.
**Answer: C. It generally promises specified cash flows to investors.
Rationale: Fixed-income securities generally provide contractual interest
and principal payments, although the actual payments may be affected by
default or other risks.
2. The face value of a typical bond is also known as its:
A. Coupon rate
B. Par value
C. Yield spread
D. Market yield
**Answer: B. Par value.
,Rationale: Par value, or face value, is the amount the issuer typically
promises to repay at maturity.
3. A bond with a coupon rate of 6% and a $1,000 face value pays annual
coupon interest of:
A. $6
B. $60
C. $600
D. $1,060
**Answer: B. $60.
Rationale: Annual coupon payment equals coupon rate × face value = 0.06
× $1,000 = $60.
4. What is the primary relationship between bond prices and market
interest rates?
A. They generally move in the same direction.
B. They generally move in opposite directions.
C. They are always unrelated.
D. Bond prices never change when rates change.
**Answer: B. They generally move in opposite directions.
Rationale: When market interest rates rise, existing bonds with lower
coupon rates become less attractive, causing their prices to fall.
5. A bond selling above its par value is said to be trading at:
,A. A discount
B. Par
C. A premium
D. A spread
**Answer: C. A premium.
Rationale: A bond trades at a premium when its market price exceeds its
face or par value.
6. A bond trading below par value is called a:
A. Premium bond
B. Discount bond
C. Treasury bond
D. Callable bond
**Answer: B. Discount bond.
Rationale: A discount bond has a market price below its face value.
7. Which measure represents the annual coupon payment divided by the
bond's current market price?
A. Coupon rate
B. Current yield
C. Yield to maturity
D. Real yield
**Answer: B. Current yield.
Rationale: Current yield is calculated as annual coupon payment divided by
the bond's current market price.
, 8. A $1,000 bond has an annual coupon of $70 and currently sells for $875.
What is its approximate current yield?
A. 6.00%
B. 7.00%
C. 8.00%
D. 8.75%
**Answer: C. 8.00%.
Rationale: Current yield = $70 ÷ $875 = 0.08, or 8%.
9. Yield to maturity is best described as the:
A. Coupon rate stated on the bond certificate
B. Expected annual return if the bond is held to maturity and payments
occur as expected
C. Current dividend yield
D. Inflation rate expected over the bond's life
**Answer: B. Expected annual return if the bond is held to maturity and
payments occur as expected.
Rationale: YTM incorporates the bond's coupon payments, purchase price,
face value, and time to maturity.
10. Which bond generally has the greatest interest-rate sensitivity, holding
other factors constant?
A. Short-term bond
B. Long-term bond
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
1. Which characteristic most directly distinguishes a fixed-income security
from common stock?
A. It always has a guaranteed market value.
B. It represents an ownership claim.
C. It generally promises specified cash flows to investors.
D. It cannot be traded in secondary markets.
**Answer: C. It generally promises specified cash flows to investors.
Rationale: Fixed-income securities generally provide contractual interest
and principal payments, although the actual payments may be affected by
default or other risks.
2. The face value of a typical bond is also known as its:
A. Coupon rate
B. Par value
C. Yield spread
D. Market yield
**Answer: B. Par value.
,Rationale: Par value, or face value, is the amount the issuer typically
promises to repay at maturity.
3. A bond with a coupon rate of 6% and a $1,000 face value pays annual
coupon interest of:
A. $6
B. $60
C. $600
D. $1,060
**Answer: B. $60.
Rationale: Annual coupon payment equals coupon rate × face value = 0.06
× $1,000 = $60.
4. What is the primary relationship between bond prices and market
interest rates?
A. They generally move in the same direction.
B. They generally move in opposite directions.
C. They are always unrelated.
D. Bond prices never change when rates change.
**Answer: B. They generally move in opposite directions.
Rationale: When market interest rates rise, existing bonds with lower
coupon rates become less attractive, causing their prices to fall.
5. A bond selling above its par value is said to be trading at:
,A. A discount
B. Par
C. A premium
D. A spread
**Answer: C. A premium.
Rationale: A bond trades at a premium when its market price exceeds its
face or par value.
6. A bond trading below par value is called a:
A. Premium bond
B. Discount bond
C. Treasury bond
D. Callable bond
**Answer: B. Discount bond.
Rationale: A discount bond has a market price below its face value.
7. Which measure represents the annual coupon payment divided by the
bond's current market price?
A. Coupon rate
B. Current yield
C. Yield to maturity
D. Real yield
**Answer: B. Current yield.
Rationale: Current yield is calculated as annual coupon payment divided by
the bond's current market price.
, 8. A $1,000 bond has an annual coupon of $70 and currently sells for $875.
What is its approximate current yield?
A. 6.00%
B. 7.00%
C. 8.00%
D. 8.75%
**Answer: C. 8.00%.
Rationale: Current yield = $70 ÷ $875 = 0.08, or 8%.
9. Yield to maturity is best described as the:
A. Coupon rate stated on the bond certificate
B. Expected annual return if the bond is held to maturity and payments
occur as expected
C. Current dividend yield
D. Inflation rate expected over the bond's life
**Answer: B. Expected annual return if the bond is held to maturity and
payments occur as expected.
Rationale: YTM incorporates the bond's coupon payments, purchase price,
face value, and time to maturity.
10. Which bond generally has the greatest interest-rate sensitivity, holding
other factors constant?
A. Short-term bond
B. Long-term bond
