Unit study guide · NISM Series II-B
Characteristics of Debt Securities
7 questions in this unit
What this unit covers
- What does the coupon on a fixed-rate bond normally describe?
- A ₹1,000 bond pays ₹80 interest yearly and trades at ₹800. What is its current yield?
- If market yields rise, what generally happens to the price of an existing fixed-rate bond?
- What does maturity mean for a conventional bond?
- What most directly changes the coupon on a floating-rate debt instrument?
- A credit rating mainly expresses an opinion about what risk?
- A bond pays a ₹60 coupon on ₹1,000 face value but trades at ₹1,200. Which statement is correct?
Key ideas
From the practice bank · 1
What does the coupon on a fixed-rate bond normally describe?
A fixed-rate bond's coupon states its contractual interest rate on principal.
Hint Recall which amount a debt contract promises.
II-B-013From the practice bank · 2
A ₹1,000 bond pays ₹80 interest yearly and trades at ₹800. What is its current yield?
Current yield equals ₹80 ÷ ₹800 × 100 = 10%.
Hint Compare annual interest with the price paid today.
II-B-014From the practice bank · 3
If market yields rise, what generally happens to the price of an existing fixed-rate bond?
Fixed-rate bond prices generally move inversely to market yields.
Hint Compare the old fixed coupon with newly available yields.
II-B-015From the practice bank · 4
What does maturity mean for a conventional bond?
Maturity is the scheduled date when bond principal becomes repayable under its terms.
Hint Think about when the lender expects principal back.
II-B-016From the practice bank · 5
What most directly changes the coupon on a floating-rate debt instrument?
A floating coupon is periodically reset using the contract's benchmark and spread.
Hint Find what a variable interest rate follows.
II-B-017From the practice bank · 6
A credit rating mainly expresses an opinion about what risk?
A credit rating evaluates credit risk associated with meeting promised obligations.
Hint Think about repayment and default, not price targets.
II-B-018From the practice bank · 7
A bond pays a ₹60 coupon on ₹1,000 face value but trades at ₹1,200. Which statement is correct?
Current yield is ₹60 ÷ ₹1,200 = 5%, while coupon rate is ₹60 ÷ ₹1,000 = 6%.
Hint Do not use the same denominator for both yields.
II-B-019