SS 15. Fixed Income Basic Concepts Flashcards Preview

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Flashcards in SS 15. Fixed Income Basic Concepts Deck (48)
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1
Q

Calculation of a bond price using spot rates to discount the bond cash flows is best described as:

A

Arbitration free valuation

2
Q

Name the coupon structure:

‘The coupon rate increases by a certain amount if
the credit rating of the issuer falls, and decreases if the credit rating of the issuer improves.’

A

Credit-linked coupon bond

3
Q

If the issuer of a bond is in default, the bond will be trading:

A

flat

4
Q

Current Yield =

A

Annual cash coupon payment
/
Current bond price

5
Q

Given an increase in interest rate volatility, what will be the most likely effect on the price of a putable bond?

A

Increase

6
Q

Notes have a maturity of:

A

Between 1 and 10 years

7
Q

Bills have a maturity of:

A

Under 1 year

8
Q

Name the coupon structure:

‘Regular coupon payments do not begin
until a period of time after issuance.’

A

Deferred coupon (split coupon) bonds

9
Q

Name the coupon structure:

‘The issuer may make coupon payments by increasing
the principal amount, essentially paying bond interest with more bonds.’

A

Payment-in-kind bond

10
Q

Sovereign bonds whose coupon payments and/or principal payments are adjusted by a consumer price index (CPI) are known as:

A

Inflation-linked bonds or

Linkers

11
Q

On-the-run issue =

A

The most recently auctioned issue of that maturity

12
Q

When computing the yield to maturity, it is assumed that the interest payments are reinvested at what rate?

A

yield to maturity at the time of the investment

13
Q

‘An insurance company agrees to make a

payment if a third party fails to perform under the terms of a contract’ defines a:

A

Surety bond

14
Q

Assuming all other factors remain unchanged, during the lockout period on a credit card asset-backed security:

A

The investor receives coupon interest but no principal.

15
Q

A ______ ____ _______ provides for the periodic retirement of a portion of the
bonds issued over the life of the issue. In general, bonds with a sinking fund
provision have less credit risk but greater reinvestment risk.

A

sinking fund provision

16
Q

A South African company issues bonds denominated in pound sterling that are sold to investors in the United Kingdom. These bonds are:

A

Foreign bonds

Bonds sold in a country and denominated in that country’s currency by an entity from another country are referred to as foreign bonds.

17
Q

Pure-discount bonds and other bonds sold at significant discounts to par when
issued are termed:

A

original issue discount (OID) bonds

18
Q

A repurchase agreement is most comparable to a:

A

collateralized loan

19
Q

The legal contract that describes the form of the bond, the obligations of the issuer, and the rights of the bondholders is called the:

A

indenture

20
Q

A ______ bond pays for losses resulting from employee theft or misconduct.

A

fidelity

21
Q

‘A debt obligation backed by a segregated pool of assets’ is called a:

A

Cover bond

22
Q

Name the coupon structure:

‘The coupon rate increases over time according to a
predetermined schedule. These bonds are typically callable’

A

Step-up coupon bond

23
Q

Bonds that are denominated in a currency other than that of the country in which they are issued are called:

A

Eurobonds

24
Q

Describe a convertible bond’s conversion premium:

A

Bond price minus conversion value

25
Q

‘A method estimating bond YTMs using the YTMs of traded bonds that have credit quality very close to that of the non-traded or infrequently traded
bonds of similar maturity and coupon’ describes:

A

Matrix pricing

26
Q

The Public Securities Administration (PSA) prepayment benchmark is expressed as:

A

A monthly series of conditional prepayment rates (CPRs)

27
Q

If interest rates are expected to increase, the coupon payment structure that will benefit the issuer is a:

A

Capped Floating Rate Note (Capped FRN)

28
Q

A capital market security has a maturity of:

A

longer than one year

29
Q

The full price is otherwise known as:

A

The dirty price

The invoice price

30
Q

Bonds with a bid ask spread of _____ are considered liquid

A

10 to 12 bps

31
Q

Bonds have a maturity of:

A

Between 10 and 30 years

32
Q

Settlement period for a government bond:

A

T + 1

33
Q

Which type of bond earns interest on an implied basis?

A

Pure discount bond

34
Q

Spreads between bonds with different maturities describe:

A

Intra-market spreads

35
Q

________ are often issued as bearer bonds (rather than registered bonds)

A

Eurobonds

36
Q

Wholesale funds available for banks include (3):

A

central bank funds

interbank funds

negotiable certificates of deposit

37
Q

The collateral for credit card receivable-backed securities is:

A

A pool of non-amortizing loans

38
Q

‘The risk that when interest rates rise, mortgage holders will make fewer prepayments, thereby increasing the maturity of the bond’ describes:

A

Extension risk

39
Q

For a callable bond, a yield-to-call can be calculated for each possible call date and price. The lowest of yield-to-maturity and the various yields-to-call is termed the:

A

Yield-to-worst

40
Q

Relative to negative bond covenants, positive covenants are:

A

cheaper for the issuer

41
Q

Bond dealers usually quote the:

A

flat price

42
Q

The collateral for an auto loan ABS is:

A

A pool of amortizing loans

43
Q

When an investor’s investment horizon is less than the Macaulay duration of the bond owned, the duration gap is:

A

Positive

44
Q

Accrued interest formula:

A

(Days since last coupon / days between the coupon) * coupon payment

45
Q

‘A monthly measure of prepayment for the mortgage pool’ describes the:

A

Single Monthly Mortality rate (SMM)

46
Q

Corporate bonds vs. Treasury bonds spreads describe:

A

inter-market spreads

47
Q

The flat price is otherwise known as:

A

The clean price

The quoted price

48
Q

A U.S. dollar-denominated bond sold to investors outside the United States is called a:

A

Eurodollar bond