Practice Quiz

FRM Financial Risk Manager Practice Test

Category - Bond

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Coupons are fixed periodic interest payments. They are paid from the bond’s issue date to the bond’s maturity date. What is the relationship between a bond’s yield and its coupons?
  1. A bond’s yield is the sum of total coupons.
  2. A bond’s yield is the sum of total coupons divided by the bond’s face value.
  3. A bond’s yield is the final coupon paid on the maturity date of the bond.
  4. A bond’s yield is another name for a coupon.
Explanation
Yield is the sum of total coupons divided by the bond’s face value. It is the annual interest rate established when the bond is issued. This amount is figured as a percentage of the bond's face value and will not change during the life of the bond.

Key Takeaway : The higher the yield to the bond is, the higher value of the coupons are.
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