Face Amount of Bond

### Is the face amount of a bond the same as its market value? - [ ] Yes, they are always the same. - [x] No, the face amount is fixed while the market value fluctuates. - [ ] They are the same most of the time. - [ ] The face amount changes annually. > **Explanation:** The face amount of a bond is the fixed nominal value stated on the bond certificate, whereas the market value can fluctuate due to changes in interest rates, the issuer's credit rating, and market conditions. ### What does the face amount determine regarding interest payments? - [x] The amount of interest payments - [ ] The bond's market value - [ ] The bond's issuance price - [ ] The bond's maturity date > **Explanation:** The face amount of a bond is used to calculate interest payments, which are a fixed percentage of the face amount. This is known as the bond's coupon rate. ### Can the face amount of a bond change during its lifetime? - [ ] Yes, it changes with market conditions. - [ ] Yes, it can be adjusted annually. - [x] No, it remains fixed. - [ ] No, unless the bond is reissued. > **Explanation:** The face amount of a bond remains fixed throughout its lifetime and does not change. What can change is the bond's market price. ### What is typically the relationship between face amount and coupon rate? - [ ] There is no relationship. - [ ] The coupon rate is not linked to the face amount. - [x] The coupon rate is a percentage of the face amount. - [ ] The coupon rate fluctuates with the face amount. > **Explanation:** The coupon rate of a bond is the annual interest rate paid on its face amount. For example, a 5% coupon rate on a $1,000 face amount bond yields $50 in interest annually. ### Why is the face amount important at the bond's maturity? - [ ] It determines the final interest payment. - [ ] It is not important. - [ ] It determines the bond's resale value. - [x] It is the amount repaid to the bondholder. > **Explanation:** At maturity, the issuer repays the bondholder the face amount of the bond, which is the full nominal value stated on the bond certificate. ### What happens to the face amount if a bond is sold in the secondary market? - [ ] It decreases. - [ ] It increases. - [ ] It depends on buyer's preference. - [x] It remains the same. > **Explanation:** The face amount of a bond remains fixed and does not change if the bond is sold in the secondary market. The market price at which it is sold is what fluctuates. ### What does a bond’s face amount ensure the investor? - [x] The principal repayment at maturity - [ ] Interim payments at uneven intervals - [ ] Additional shares in the issuing company - [ ] Stock dividends > **Explanation:** The face amount ensures the investor will receive the principal (original investment amount) back from the issuer at the bond’s maturity. ### How is Yield to Maturity (YTM) related to the bond's face amount? - [ ] It is the same as the face amount. - [ ] It does not consider the face amount. - [ ] It lowers the face amount. - [x] It includes the total return of the face amount and interest payments till maturity. > **Explanation:** Yield to Maturity (YTM) includes the total return anticipated if the bond is held until maturity, considering both interest (coupon) payments and the repayment of the face amount. ### Who usually determines the face amount of a bond at issuance? - [x] The bond issuer - [ ] Stock market regulators - [ ] Bondholders - [ ] Financial advisors > **Explanation:** The issuer of the bond typically determines the face amount at the time of issuance, which will be repaid to the bondholder at maturity. ### What aspect of a bond remains constant throughout its life? - [ ] Market value - [ ] Coupon payments - [x] Face amount - [ ] Interest rates > **Explanation:** The face amount of a bond remains constant throughout the bond's life, regardless of changes in market value or interest rates.