This is the boss fight. Five lessons turned a bond from a black box into a machine you can read — what a bond actually is, the price-yield seesaw, the yield curve, duration, and convexity. Now you find out whether the dials stuck. No charts to lean on, no hints, no take-backs: just you, the arithmetic, and a stack of answer choices where the wrong ones are the exact traps that lose real money. Read every option twice.
How this exam works
This is a graded exam. Questions come one at a time. Once you submit an answer it is final — there is no going back, no second try, and a wrong answer simply fails that question. Your score stays hidden until the end, where you need 70% to pass. Read every option twice before you commit.
You buy a corporate bond. What is your relationship to the company?
Select an answer to continue.
Course Recap
One last chunking of the whole topic — five ideas that turn a bond from a black box into a machine whose every dial you can read.
Big picture
Bonds & Rates — the whole topic
- Reading a bond
- What a bond is
- A loan, not ownership — you are a lender
- Face value repaid at maturity
- Coupon = fixed % of face, cash never changes
- Price-yield seesaw
- Price and yield move opposite ways
- Current yield = annual coupon / price
- YTM is the all-in internal rate of return
- Yield curve
- Snapshot: one issuer, many maturities
- Normal = upward; inverted = short above long
- Inversion precedes recessions — a warning, not a verdict
- Duration
- %ΔPrice ≈ −D × Δy (percent per 1% yield)
- Lower coupon / longer maturity → longer duration
- Measures interest-rate risk
- Convexity
- The curve duration misses: +½ C (Δy)²
- Always positive — gains bigger, losses smaller
- Matters most for large yield moves
- What a bond is
Key Takeaways
What to carry out of this topic
- A bond is a loan, not a share. You’re a lender owed fixed coupons plus the face value back at maturity. The coupon is a fixed percent of face value, so its cash never changes when the price moves — and you have no ownership upside or vote.
- Price and yield move opposite ways (the seesaw). Current yield . When rates rise, existing bonds’ prices fall. Coupon rate equals yield only at par, and the all-in yardstick is yield to maturity.
- The yield curve is a snapshot of one issuer’s bonds across maturities at a single moment — not one bond over time. Normal slopes up; inverted (short above long) is a leading indicator that has preceded recessions but guarantees none.
- Duration is rate sensitivity: , a percent move per 1% yield change (not dollars). Lower coupons and longer maturities mean longer duration — more interest-rate risk.
- Convexity is the curve duration’s straight line misses: . The square makes it always positive — gains bigger, losses smaller — and it matters most for large yield moves. Duration alone is not exact for big swings.