Question

Bonds are a form of ________, with bond prices and interest rates that move in _________ .

	a.	equity; the same direction
	b.	equity; opposite directions
	c.	debt; the same direction
	d.	debt; opposite directions
	e.	equity/debt split; sometimes the same direction and sometimes opposite directions

If the yield to maturity on a bond is greater than its coupon rate, then

	a.	the corresponding bond price will be greater than its par (face) value.
	b.	the corresponding bond price will be equal to its par (face) value.
	c.	the corresponding bond price will be less than its par (face) value.
	d.	the corresponding stock price will be greater than the bond price.
	e.	the corresponding stock price will be less than the bond price.

__________ stocks are those whose prices tend to move independently or counter to the economy, while ________ stocks tend to move with the economy.

	a.	cyclical; defensive
	b.	defensive; cyclical
	c.	growth; income
	d.	income; growth
	e.	balanced; growth

Answer 1

Question 1.

Bonds are used when a company borrows money with a promise to pay it back at a future point of time, thus they are a form of debt. With a given face value the price of the zero coupon bond is determined by: Face value / ( 1+ YTM/100)^t

Which means, higher the rate, the lower the price. Thus, they move in opposite directions.

Answer - d) debt; opposite direction.

Question 2.

If a bond's YTM is greater than its coupon rate, the bond is said to be selling at a discount, which means its price is less than par.

Answer - c. Bond price will be less than its par value

Question 3.

The economy is said to be cyclical in nature, i.e it follows a certain buisness cycle, thus stocks that move with the economy are said to be cyclical.

Answer - b) defensive; cyclical

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