Fixed Income STUDY GUIDE 2026 ACTUAL
QUESTIONS WITH SOLUTIONS GRADED A+
● What is "face value"? Answer: Face value or par value of a bond is
the amount the bond issuer must pay back at the time of maturity. Bonds
are usually issued with a $1,000 face value.
● What is the coupon payment? Answer: The coupon payment is the
amount a company pays its loan and bondholders, usually on an annual,
semi-annual or quarterly basis. It is the coupon rate, or interest rate times
the face value of the bond. For example, the coupon payment on an
annual 10% bond with a $1,000 face value would be $100.
● What is the difference between an investment grade bond and a "junk
bond"? Answer: An investment grade bond is a bond issued by a
company that has a relatively low risk of bankruptcy and therefore has a
low interest payment. A "junk bond" is one issued by a company that has
a high risk of bankruptcy but is paying high interest payments.
● What is the difference between a corporate bond and a consumer
loan? Answer: The main difference between a corporate bond and a
consumer loan is the market that it is traded on. A bond issuance is
usually for a larger amount of capital, is sold in the public market and
can be traded. A loan is issued by a bank, and is not traded on a public
market
, ● How do you determine the discount rate on a bond? Answer: The
discount rate is determined by the company's default risk. Some of the
factors that influence the discount rate include a company's credit rating,
the volatility of their cash flows, the interest rate on comparable U.S.
Bonds, the amount of current debt outstanding, leverage and interest
coverage.
● How do you price a bond? Answer: The price of a bond is the net
present value of all future cash flows (coupon payments and par value)
expected from the bond using the current interest rate.
● If the price of a bond goes up, what happens to the yield? Answer:
The price and yield of a bond move inversely to one another. Therefore,
when the price of a bond goes up the yield goes down.
● If you believe interests rates will fall, and are looking to make money
due to the capital appreciation on bonds, should you buy them or short
sell them? Answer: Since price moves inversely to interest rates, if you
believe interests rates will fall, bond prices will rise, and therefore you
should buy bonds.
● What is the current yield on the 10-year Treasury note? Answer: As of
Month Day, Year, the yield on the 10-year was X.XX%
QUESTIONS WITH SOLUTIONS GRADED A+
● What is "face value"? Answer: Face value or par value of a bond is
the amount the bond issuer must pay back at the time of maturity. Bonds
are usually issued with a $1,000 face value.
● What is the coupon payment? Answer: The coupon payment is the
amount a company pays its loan and bondholders, usually on an annual,
semi-annual or quarterly basis. It is the coupon rate, or interest rate times
the face value of the bond. For example, the coupon payment on an
annual 10% bond with a $1,000 face value would be $100.
● What is the difference between an investment grade bond and a "junk
bond"? Answer: An investment grade bond is a bond issued by a
company that has a relatively low risk of bankruptcy and therefore has a
low interest payment. A "junk bond" is one issued by a company that has
a high risk of bankruptcy but is paying high interest payments.
● What is the difference between a corporate bond and a consumer
loan? Answer: The main difference between a corporate bond and a
consumer loan is the market that it is traded on. A bond issuance is
usually for a larger amount of capital, is sold in the public market and
can be traded. A loan is issued by a bank, and is not traded on a public
market
, ● How do you determine the discount rate on a bond? Answer: The
discount rate is determined by the company's default risk. Some of the
factors that influence the discount rate include a company's credit rating,
the volatility of their cash flows, the interest rate on comparable U.S.
Bonds, the amount of current debt outstanding, leverage and interest
coverage.
● How do you price a bond? Answer: The price of a bond is the net
present value of all future cash flows (coupon payments and par value)
expected from the bond using the current interest rate.
● If the price of a bond goes up, what happens to the yield? Answer:
The price and yield of a bond move inversely to one another. Therefore,
when the price of a bond goes up the yield goes down.
● If you believe interests rates will fall, and are looking to make money
due to the capital appreciation on bonds, should you buy them or short
sell them? Answer: Since price moves inversely to interest rates, if you
believe interests rates will fall, bond prices will rise, and therefore you
should buy bonds.
● What is the current yield on the 10-year Treasury note? Answer: As of
Month Day, Year, the yield on the 10-year was X.XX%
