A customer owns a 5% corporate bond. New comparable bonds are issued at 7%. What generally happens to the customer's bond price?

Bond prices and market yields move inversely. If new comparable yields are higher than the existing coupon, the older lower-coupon bond usually trades at a discount.

A bond has a $60 annual coupon and trades at $1,200. What is its current yield?

Current yield equals annual interest divided by market price. $60 / $1,200 = 5%. Do not divide by par when the question asks for current yield.

A bond purchased at a premium and held to maturity will generally have a yield to maturity that is what compared with its coupon rate?

A premium bond costs more than par but matures at par. That premium loss pulls yield to maturity below the stated coupon rate.

Which bondholder is most exposed to call risk?

When rates fall, issuers are more likely to call higher-coupon debt. A premium bondholder can lose the above-par premium sooner than expected and must reinvest at lower rates.

A zero-coupon bond is issued at a deep discount. How does the investor generally receive the return?

Zero-coupon bonds do not make periodic coupon payments. The investor buys at a discount and receives par at maturity if the issuer pays as promised.

A bond rating is downgraded from investment grade to below investment grade. Which risk has most directly increased?

A downgrade signals weaker credit quality and higher default risk. Higher yield may compensate investors, but it does not remove credit risk.

In a secondary-market bond trade between coupon dates, who usually pays accrued interest to whom?

The buyer compensates the seller for interest earned from the last coupon date through settlement. The buyer then receives the full next coupon from the issuer.

All else equal, which bond is usually more sensitive to interest-rate changes?

Longer maturities generally carry more interest-rate risk because cash flows are received farther in the future and price moves more when rates change.

A retired income investor wants predictable payments and low default risk. Which feature should be weighed most heavily?

Income needs do not justify ignoring default risk. For a conservative income investor, credit quality, maturity, call features, and payment stability matter more than headline yield.

What feature distinguishes a convertible corporate bond from a straight corporate bond?

Convertible bonds include a conversion feature tied to the issuer's common stock. They still carry debt risks, but the conversion feature can add equity participation.

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Public debt drill

Series 7 Debt Securities Practice Questions

Use these public sample questions to rehearse bond price-yield movement, premiums and discounts, current yield, call risk, credit ratings, accrued interest, and suitability. These are educational examples, not actual FINRA exam questions.

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Topic summary

Debt securities questions usually combine math with risk. Start with issuer type, coupon, market yield, maturity, call features, credit quality, and customer objective before choosing the answer.

Every question, answer choice, correct answer, and explanation on this page is public sample content. The private PassSeries7 mapped bank remains protected inside the paid product.

Common traps

Reversing the inverse relationship between bond prices and market yields.
Confusing current yield with yield to maturity or yield to call.
Ignoring call risk on premium bonds.
Treating high yield as suitable without checking credit risk and customer objective.

Public debt securities sample questions

0 of 10 answered

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Question 1 / 10
Debt securities
A customer owns a 5% corporate bond. New comparable bonds are issued at 7%. What generally happens to the customer's bond price?
Answer choices for question 1
Show answer and explanation
Correct answer: It falls below par
Explanation: Bond prices and market yields move inversely. If new comparable yields are higher than the existing coupon, the older lower-coupon bond usually trades at a discount.
Related: Price-yield relationship
Question 2 / 10
Debt securities
A bond has a $60 annual coupon and trades at $1,200. What is its current yield?
Answer choices for question 2
Show answer and explanation
Correct answer: 5%
Explanation: Current yield equals annual interest divided by market price. $60 / $1,200 = 5%. Do not divide by par when the question asks for current yield.
Related: Current yield
Question 3 / 10
Debt securities
A bond purchased at a premium and held to maturity will generally have a yield to maturity that is what compared with its coupon rate?
Answer choices for question 3
Show answer and explanation
Correct answer: Lower than the coupon
Explanation: A premium bond costs more than par but matures at par. That premium loss pulls yield to maturity below the stated coupon rate.
Related: Premium bonds
Question 4 / 10
Debt securities
Which bondholder is most exposed to call risk?
Answer choices for question 4
Show answer and explanation
Correct answer: Owner of a premium callable bond when rates fall
Explanation: When rates fall, issuers are more likely to call higher-coupon debt. A premium bondholder can lose the above-par premium sooner than expected and must reinvest at lower rates.
Related: Call risk
Question 5 / 10
Debt securities
A zero-coupon bond is issued at a deep discount. How does the investor generally receive the return?
Answer choices for question 5
Show answer and explanation
Correct answer: Through appreciation toward par at maturity
Explanation: Zero-coupon bonds do not make periodic coupon payments. The investor buys at a discount and receives par at maturity if the issuer pays as promised.
Related: Zero-coupon bonds
Question 6 / 10
Debt securities
A bond rating is downgraded from investment grade to below investment grade. Which risk has most directly increased?
Answer choices for question 6
Show answer and explanation
Correct answer: Credit risk
Explanation: A downgrade signals weaker credit quality and higher default risk. Higher yield may compensate investors, but it does not remove credit risk.
Related: Risk and suitability
Question 7 / 10
Debt securities
In a secondary-market bond trade between coupon dates, who usually pays accrued interest to whom?
Answer choices for question 7
Show answer and explanation
Correct answer: Buyer pays seller
Explanation: The buyer compensates the seller for interest earned from the last coupon date through settlement. The buyer then receives the full next coupon from the issuer.
Related: Accrued interest
Question 8 / 10
Debt securities
All else equal, which bond is usually more sensitive to interest-rate changes?
Answer choices for question 8
Show answer and explanation
Correct answer: Longer maturity bond
Explanation: Longer maturities generally carry more interest-rate risk because cash flows are received farther in the future and price moves more when rates change.
Related: Interest-rate risk
Question 9 / 10
Debt securities
A retired income investor wants predictable payments and low default risk. Which feature should be weighed most heavily?
Answer choices for question 9
Show answer and explanation
Correct answer: Credit quality and income stability
Explanation: Income needs do not justify ignoring default risk. For a conservative income investor, credit quality, maturity, call features, and payment stability matter more than headline yield.
Related: Income suitability
Question 10 / 10
Debt securities
What feature distinguishes a convertible corporate bond from a straight corporate bond?
Answer choices for question 10
Show answer and explanation
Correct answer: It may be exchanged for common stock under stated terms
Explanation: Convertible bonds include a conversion feature tied to the issuer's common stock. They still carry debt risks, but the conversion feature can add equity participation.
Related: Equity-linked features

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Topic summary

Debt securities questions usually combine math with risk. Start with issuer type, coupon, market yield, maturity, call features, credit quality, and customer objective before choosing the answer.

Every question, answer choice, correct answer, and explanation on this page is public sample content. The private PassSeries7 mapped bank remains protected inside the paid product.

Related Series 7 resources