Question

The time it takes before a bond will repay its principal is called _____.


Select the best answer from the choices provided.
a coupon
maturity
a yield
a call

Answer 1

@zaibali.qasmi

Answer 2

when a bond or loan expires and it is fully paid back (principal + interest), it reaches the point of maturity

think of a person aging and becoming mature

Answer 3

@jim_thompson5910 Its B?

Answer 4

@zaibali.qasmi

Answer 5

yes

Answer 6

jim_thompson5910

Answer 7

Arthur buys a zero coupon bond with a face value of $5,000 for $4,000. The bond has five years until it matures. How much would Arthur earn if he holds this bond to maturity?


Select the best answer from the choices provided.
$2,000
$1,000
$6,000
$7,000

Answer 8

@ jim_thompson5910

Answer 9

@jim_thompson5910

Answer 10

hint:

http://en.wikipedia.org/wiki/Zero-coupon_bond

"A zero-coupon bond (also discount bond or deep discount bond) is a bond bought at a price lower than its face value, with the face value repaid at the time of maturity.[1] It does not make periodic interest payments, or have so-called "coupons", hence the term zero-coupon bond. When the bond reaches maturity, its investor receives its par (or face) value"

Answer 11

Honestly I had to look it up because it's been a while since I've heard of that term, but the concept isn't that complicated thankfully.

Answer 12

So the idea is he buys the bond at $4000 and when it when the bond reaches maturity, he is paid back $5000. There are no periodic interest payments (aka coupons). The investor is paid this $5000 all at once.

Answer 13

@jim_thompson5910 so the answer is ?

Answer 14

you tell me based off what I posted above

Answer 15

he buys it for $4000, gets paid back $5000

Answer 16

@jim_thompson5910 $1,000?

Answer 17

yes

Answer 18

@jim_thompson5910 Thank you .. sorry im slow

Answer 19

Read the following scenarios. Who is better positioned to invest in bonds and why?

Jim is 24 and earns $62,000 a year. He wishes to invest for his newborn daughter's college education, which is 18 years away. Inflation is currently running at 4.1%, while real interest rates are rising.

Elizabeth is 63 years old and earns $137,000 a year. She wishes to invest for retirement, which is four years away. Inflation is currently running at 1.1%, while real interest rates are falling.


Select the best answer from the choices provided.
Jim is better positioned to invest in bonds because he makes less and has longer before his investment matures.
Jim is better positioned to invest in bonds because inflation is high.
Elizabeth is better positioned to invest in bonds because she has less time before her investment matures.
Elizabeth is better positioned to invest in bonds because real interest rates are falling

Answer 20

@jim_thompson5910

Answer 21

hint:

http://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp

look for the section that says "Inflation Expectations Determine Investors Yield Requirements"

Answer 22

@jim_thompson5910 its A?

Answer 23

@zaibali.qasmi

Answer 24

@zaibali.qasmi please help

Answer 25

on that page, it says "Inflation is a bond's worst enemy."

Answer 26

Why? Because you get paid fixed payments and inflation eats away at those payments to make them reduce in their effective amount.

Answer 27

@jim_thompson5910 I know but i can't figure which is the answer

Answer 28

@jim_thompson5910 Elizabeth is better positioned to invest in bonds because real interest rates are falling.

Answer 29

@jim_thompson5910 its D?

Answer 30

good, inflation is falling for her which means her payments aren't reduced

Answer 31

if anything, they increase

Answer 32

@jim_thompson5910 Thanks mate