FISD Financial Information Associate (FIA) Module 1 Practice Test

Perpetual bonds are defined as

Bonds with no maturity date Bonds with a fixed maturity date Bonds that pay no coupons Bonds issued by central banks

Correct Answer:

Bonds with no maturity date

Explanation:

Perpetual bonds are defined by having no maturity date. They promise to pay a fixed stream of coupons forever and never repay the principal, so there is no finite end to the bond’s life. That’s why the description fits bonds with no maturity date—the payments continue indefinitely. From a pricing perspective, you value an endless series of cash flows. If the bond pays a constant coupon C each period and investors require a yield r, its price is roughly C divided by r, reflecting the ongoing, never-ending payments. The other descriptions don’t fit perpetual bonds: a bond with a fixed maturity ends at some date, a bond that pays no coupons has no ongoing income, and bonds issued by central banks aren’t what defines a perpetual bond.

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