Fixed Income HW and Test Banks (Answered)
Complete Solution
These are legally enforceable rules that borrowers and lenders agree on at the
time of a new bond issue. What are these rules called?
a.
Collateral
b.
Covenants
c.
Seniority ranking
d.
Credit enhancement
b. Covenants
The provision that provides bondholders the right to sell the bond back to the
issuer at a predetermined price prior to the bond's maturity date is referred to as:
a.
a put provision
b.
a call provision
c.
a conversion provision
d.
a negative covenant
a.
a put provision
Which provision in the bond indenture reduces credit risk?
a.
Step-up coupon bonds
b.
Sinking fund arrangement
c.
Deferred coupon bonds
d.
Payment-in-kind (PIK) coupon bonds
b.
Sinking fund arrangement
What is false about fixed income securities?
a.
Examples of negative covenants include restrictions on debt, restrictions on
distributions to shareholders, restrictions on asset disposals, restrictions on
investments, and restrictions on mergers and acquisitions.
,b.
The sources of bond returns are generally capital gains and coupons.
c.
A callable bond has all the principal repaid at the maturity date if it is called.
d.
Unlike stocks, fixed income securities have asymmetric returns.
c.
A callable bond has all the principal repaid at the maturity date if it is called.
Relative to an otherwise similar option-free bond, a:
a.
convertible bond will trade at a higher price.
b.
callable bond will trade at a lower yield.
c.
callable bond will trade at a higher price.
d.
putable bond will trade at a higher price.
a.
convertible bond will trade at a higher price.
Which is NOT included in the bond indenture?
a.
Current bond price
b.
Maturity
c.
Par value
d.
Coupon rate
a.
Current bond price
What is the lowest long-term investment-grade credit rating of S&P? Write down
the rating symbol.
BBB-
Which coupon payment structure does not affect credit risk?
a.
Floating-rate notes
b.
Deferred coupon bonds
c.
Step-up coupon bonds
d.
Payment-in-kind (PIK) coupon bonds
, a.
Floating-rate notes
This is a hybrid security with both debt and equity features. The bondholder has
the right to exchange the bond for a specified number of common shares in the
issuing company. What is the name of this security?
a.
Preferred stock
b.
Index-linked bond
c.
Callable bond
d.
Convertible bond
d.
Convertible bond
What are not coupon-bearing securities (what are amortizing bonds)?
a.
Corporate bonds
b.
Treasury notes
c.
Municipal bonds
d.
Mortgage-backed securities
d.
Mortgage-backed securities
How do you measure the liquidity risk of the bonds?
a.
bid-ask spread
b.
bond rating
c.
yield to maturity
d.
bond price
a.
bid-ask spread
0.05% is equal to what basis points (bp)?
a.
0.05 bp
b.
0.5 bp
c.
Complete Solution
These are legally enforceable rules that borrowers and lenders agree on at the
time of a new bond issue. What are these rules called?
a.
Collateral
b.
Covenants
c.
Seniority ranking
d.
Credit enhancement
b. Covenants
The provision that provides bondholders the right to sell the bond back to the
issuer at a predetermined price prior to the bond's maturity date is referred to as:
a.
a put provision
b.
a call provision
c.
a conversion provision
d.
a negative covenant
a.
a put provision
Which provision in the bond indenture reduces credit risk?
a.
Step-up coupon bonds
b.
Sinking fund arrangement
c.
Deferred coupon bonds
d.
Payment-in-kind (PIK) coupon bonds
b.
Sinking fund arrangement
What is false about fixed income securities?
a.
Examples of negative covenants include restrictions on debt, restrictions on
distributions to shareholders, restrictions on asset disposals, restrictions on
investments, and restrictions on mergers and acquisitions.
,b.
The sources of bond returns are generally capital gains and coupons.
c.
A callable bond has all the principal repaid at the maturity date if it is called.
d.
Unlike stocks, fixed income securities have asymmetric returns.
c.
A callable bond has all the principal repaid at the maturity date if it is called.
Relative to an otherwise similar option-free bond, a:
a.
convertible bond will trade at a higher price.
b.
callable bond will trade at a lower yield.
c.
callable bond will trade at a higher price.
d.
putable bond will trade at a higher price.
a.
convertible bond will trade at a higher price.
Which is NOT included in the bond indenture?
a.
Current bond price
b.
Maturity
c.
Par value
d.
Coupon rate
a.
Current bond price
What is the lowest long-term investment-grade credit rating of S&P? Write down
the rating symbol.
BBB-
Which coupon payment structure does not affect credit risk?
a.
Floating-rate notes
b.
Deferred coupon bonds
c.
Step-up coupon bonds
d.
Payment-in-kind (PIK) coupon bonds
, a.
Floating-rate notes
This is a hybrid security with both debt and equity features. The bondholder has
the right to exchange the bond for a specified number of common shares in the
issuing company. What is the name of this security?
a.
Preferred stock
b.
Index-linked bond
c.
Callable bond
d.
Convertible bond
d.
Convertible bond
What are not coupon-bearing securities (what are amortizing bonds)?
a.
Corporate bonds
b.
Treasury notes
c.
Municipal bonds
d.
Mortgage-backed securities
d.
Mortgage-backed securities
How do you measure the liquidity risk of the bonds?
a.
bid-ask spread
b.
bond rating
c.
yield to maturity
d.
bond price
a.
bid-ask spread
0.05% is equal to what basis points (bp)?
a.
0.05 bp
b.
0.5 bp
c.
