Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What do bonds represent when quoted in terms of price?

1. Interest rate

2. Bond's yield

3. Market demand

4. Principal value

The correct answer is: Bond's yield

Bonds, when quoted in terms of price, primarily represent the bond's yield. The yield reflects the return an investor can expect to earn if they hold the bond until maturity, considering the bond's price relative to its interest payments and face value. When the price of a bond decreases, the yield increases, and conversely, when the price of a bond increases, the yield decreases. This relationship helps investors assess the potential returns from a bond relative to its current market price. It's essential for making investment decisions and comparing different bonds in the market. Understanding the yield as the price indicator is crucial for investors, as it highlights overall market conditions, such as fluctuations in interest rates and investor sentiment regarding different issuers.