INV3702 INVESTMENTS FIXED INCOME
ANALYSIS EXAM ACTUAL TEST PAPER 2026
QUESTIONS WITH ANSWERS GRADED A+
◉ What are collateralized mortgage obligations. Answer: are bond
classes created by redirecting the interest and principal from a pool
of mortgage pass through securities or whole loans
◉ What is corporate debt?. Answer: Companies raise debt as a part
of their overall capital structure, both to fund short term spending
needs (working capital) as well as long term capital investments
◉ Sources of debt. Answer: -bilateral and syndicated loans
-commercial paper
-corporate bonds
◉ What are bank loans. Answer: bilateral loan: from a single lender
to a single borrower
-bank loans are the primary source of debt for small and medium
size companies, as well as large companies in countries where bond
markets are less developed
,syndicated loan: from a group of lenders, called the "syndicate" to a
single borrower
-syndicated loans are primarily originated by banks and the loans
are extended to companies, governments and government related
entities
◉ What is commercial paper. Answer: short term unsecured
promissory note issued in the public market or via private
placement that represents a debt obligation of the issuer
◉ What are the features of corporate bonds. Answer: -classified by
the type of issuer
-essential features of the bond are straightforward
-failure to pay either the principal or interest when due constitutes
legal default, and investors can go to court to enforce the contract
◉ Corporate bond provisions. Answer: -most corporate issues have a
call provision allowing the issuer an option prior to the stated
maturity date
-the premium plus the principal at which the issue is called is
referred to as the make-whole redemption price
-when less than the entire issue is called, the specific bonds to be
called are selected randomly or on a pro rata basis
, ◉ Corporate bond analysis/ratings. Answer: -professional money
managers use various techniques to analyze information on
companies and bond issues in order to estimate the ability of the
issuer to live up to its future contractual obligations
◉ High yield corporate bonds. Answer: -issues with quality ratings
below BBB
-bond issues in this sector of the market may have been downgraded
to non investment-grade, or they may have been rated non
investment grade at issuance
◉ Leverage buyouts/recaps. Answer: the heavy interest payment
burden that the corporation assumes places severe cash flow
constraints on the firm
-to reduce this burden, firms have issued bonds with deferred
coupon structures that permit the issuer to avoid using cash to make
interest payments for a period of 3-7 years
◉ deferred-interest bonds. Answer: sell at a deep discount and do
not pay interest for an initial period, typically from 3-7 years
◉ step up bonds. Answer: do pay coupon interest but the coupon
rate is low for an initial period then increases
ANALYSIS EXAM ACTUAL TEST PAPER 2026
QUESTIONS WITH ANSWERS GRADED A+
◉ What are collateralized mortgage obligations. Answer: are bond
classes created by redirecting the interest and principal from a pool
of mortgage pass through securities or whole loans
◉ What is corporate debt?. Answer: Companies raise debt as a part
of their overall capital structure, both to fund short term spending
needs (working capital) as well as long term capital investments
◉ Sources of debt. Answer: -bilateral and syndicated loans
-commercial paper
-corporate bonds
◉ What are bank loans. Answer: bilateral loan: from a single lender
to a single borrower
-bank loans are the primary source of debt for small and medium
size companies, as well as large companies in countries where bond
markets are less developed
,syndicated loan: from a group of lenders, called the "syndicate" to a
single borrower
-syndicated loans are primarily originated by banks and the loans
are extended to companies, governments and government related
entities
◉ What is commercial paper. Answer: short term unsecured
promissory note issued in the public market or via private
placement that represents a debt obligation of the issuer
◉ What are the features of corporate bonds. Answer: -classified by
the type of issuer
-essential features of the bond are straightforward
-failure to pay either the principal or interest when due constitutes
legal default, and investors can go to court to enforce the contract
◉ Corporate bond provisions. Answer: -most corporate issues have a
call provision allowing the issuer an option prior to the stated
maturity date
-the premium plus the principal at which the issue is called is
referred to as the make-whole redemption price
-when less than the entire issue is called, the specific bonds to be
called are selected randomly or on a pro rata basis
, ◉ Corporate bond analysis/ratings. Answer: -professional money
managers use various techniques to analyze information on
companies and bond issues in order to estimate the ability of the
issuer to live up to its future contractual obligations
◉ High yield corporate bonds. Answer: -issues with quality ratings
below BBB
-bond issues in this sector of the market may have been downgraded
to non investment-grade, or they may have been rated non
investment grade at issuance
◉ Leverage buyouts/recaps. Answer: the heavy interest payment
burden that the corporation assumes places severe cash flow
constraints on the firm
-to reduce this burden, firms have issued bonds with deferred
coupon structures that permit the issuer to avoid using cash to make
interest payments for a period of 3-7 years
◉ deferred-interest bonds. Answer: sell at a deep discount and do
not pay interest for an initial period, typically from 3-7 years
◉ step up bonds. Answer: do pay coupon interest but the coupon
rate is low for an initial period then increases
