Question

A bond is a contract between the bond issuer and the bond holder.

1. True or False: For a conventional or "vanilla" bond, the bond's face value is set permanently by the contract until the maturity of the bond. The bond's face value cannot change.

2. True or False: For a conventional or "vanilla" bond, the bond's yield is set permanently by the contract until the maturity of the bond. The bond's yield cannot change.

3. True or False: For a conventional or "vanilla" bond, the bond's term is set permanently by the contract. The bond's term cannot change.

4. True or False: For a conventional or "vanilla" bond, the frequency of the bond's coupon payment (annual, semi-annual, quarterly, monthly, etc.) is set permanently by the contract until the maturity of the bond. The bond's coupon-payment frequency cannot change.

Answer 1

1. True

It is correct. The bond’s face value is normally fixed at the initial contract and it remains the same throughout the period or maturity of the bond. The bond’s face value does not change.

2. False.

The bonds yield is not fixed throughout the period. It can change as the market price of the bond changes. The price can be affected because of the liquidity in the market and market interest rate can change.

3. True

The term or the maturity of the bond is normally set at the beginning of the period and matures at that time period.

4. True

It is true that the frequency of the coupon payment is fixed at the beginning while issuing the bond and it does not change throughout the maturity of the bond.