Fixed Income Review Questions and Answers (Graded A+)
Structured financial instruments - Answers Securities designed to change the risk profile of an
underlying debt security, often by combining a debt security with a derivative
Price yield relation convex - Answers Cùng 1 lượng change YTM, lỗ < lãi (P down < P up)
Constant-yield price trajectory - Answers A graph that illustrates the change in the price of a fixed-
income bond over time assuming no change in yield-to-maturity. The trajectory shows the "pull to par"
effect on the price of a bond trading at a premium or a discount to par value.
spot rate yield curve is also called - Answers zero curve, strip curve
non recourse loan vs recourse loan - Answers lender have no claim on borrower's assets other than
collat vs have claim
A 10-year, capital-indexed bond linked to the Consumer Price Index (CPI) is issued with a coupon rate of
6% and a par value of 1,000. The bond pays interest semi-annually. During the first six months after the
bond's issuance, the CPI increases by 2%. On the first coupon payment date, the bond's:
A. coupon rate increases to 8%.
B. coupon payment is equal to 40.
C. principal amount increases to 1,020. - Answers C (Capital-indexed bond VS Int indexed)
Types of Secured Bonds - Answers 1. MBS
2. Collateral trust Bonds (Collat is fin asset)
3. Equipment trust certificates (Collat is equipment)
Covered Bonds - Answers tuong tu SPE - bankruptcy remote but still on B/S, protect clause for covered
pool asset, make firm replace nonperforming assets in pool
Plain vanilla bond - Answers conventional bond
Bond that makes periodic, fixed coupon payments during the bond's life and a lump-sum payment of
principal at maturity.
sinking fund provision - Answers a provision in a bond contract that requires the issuer to retire a
portion of the bond issue each year
sinking fund - Answers a fund containing money set aside or saved to pay off a debt or bond. A company
that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the
hardship of a large outlay of revenue.
, A sinking fund helps companies that have floated debt in the form bonds gradually save money and
avoid a large lump-sum payment at maturity. Some bonds are issued with the attachment of a sinking
fund feature.
prospectus - Answers document issued to possible buyers of a stocks and bonds outlining the financial
condition of the company issuing those securities
The prospectus includes all the details and facts investors require to make a well-informed decision
about the offered security. In the U.S., a prospectus must be filed with the SEC.
Make Whole Call (Provision) - Answers -allows the issuer to call the bonds providing that the issuer
makes a lump sum payment to investors that not only includes payment for the bond but also the
present value of any future interest payments investors will miss because of the call.
Eurobond market - Answers outside any one country, with
bonds denominated in currencies other than those
of countries in which bonds are sold.
corporations and governments typically issue bonds denominated in dollars and sell them to investors
located outside the United States.
Global bonds - Answers trade in both a national bond market
and the eurobond market.
bonds that are generally denominated in US dollars and marketed globally
Underwritten offering: - Answers Investment banks buy entire bonds
issued, sell to public. Bank has to keep all the bonds it cant sell
>< Best effort offering
Best efforts offering - Answers Investment banks act as brokers.
Fix rate mortgage - Answers unchange over lifetime
Adjustable Rate Mortgage (ARM) - Answers mortgate rate change
Other: index ref mortgage: int based on libor/ t-bill
hybrid mortgage - Answers fixed to ARM
Rollover/renegotiable mortgage - Answers (fixed to fixed) interest rate changes to a different fixed rate
after initial fixed-rate period
Convertible mortgage - Answers ARM to fixed
Structured financial instruments - Answers Securities designed to change the risk profile of an
underlying debt security, often by combining a debt security with a derivative
Price yield relation convex - Answers Cùng 1 lượng change YTM, lỗ < lãi (P down < P up)
Constant-yield price trajectory - Answers A graph that illustrates the change in the price of a fixed-
income bond over time assuming no change in yield-to-maturity. The trajectory shows the "pull to par"
effect on the price of a bond trading at a premium or a discount to par value.
spot rate yield curve is also called - Answers zero curve, strip curve
non recourse loan vs recourse loan - Answers lender have no claim on borrower's assets other than
collat vs have claim
A 10-year, capital-indexed bond linked to the Consumer Price Index (CPI) is issued with a coupon rate of
6% and a par value of 1,000. The bond pays interest semi-annually. During the first six months after the
bond's issuance, the CPI increases by 2%. On the first coupon payment date, the bond's:
A. coupon rate increases to 8%.
B. coupon payment is equal to 40.
C. principal amount increases to 1,020. - Answers C (Capital-indexed bond VS Int indexed)
Types of Secured Bonds - Answers 1. MBS
2. Collateral trust Bonds (Collat is fin asset)
3. Equipment trust certificates (Collat is equipment)
Covered Bonds - Answers tuong tu SPE - bankruptcy remote but still on B/S, protect clause for covered
pool asset, make firm replace nonperforming assets in pool
Plain vanilla bond - Answers conventional bond
Bond that makes periodic, fixed coupon payments during the bond's life and a lump-sum payment of
principal at maturity.
sinking fund provision - Answers a provision in a bond contract that requires the issuer to retire a
portion of the bond issue each year
sinking fund - Answers a fund containing money set aside or saved to pay off a debt or bond. A company
that issues debt will need to pay that debt off in the future, and the sinking fund helps to soften the
hardship of a large outlay of revenue.
, A sinking fund helps companies that have floated debt in the form bonds gradually save money and
avoid a large lump-sum payment at maturity. Some bonds are issued with the attachment of a sinking
fund feature.
prospectus - Answers document issued to possible buyers of a stocks and bonds outlining the financial
condition of the company issuing those securities
The prospectus includes all the details and facts investors require to make a well-informed decision
about the offered security. In the U.S., a prospectus must be filed with the SEC.
Make Whole Call (Provision) - Answers -allows the issuer to call the bonds providing that the issuer
makes a lump sum payment to investors that not only includes payment for the bond but also the
present value of any future interest payments investors will miss because of the call.
Eurobond market - Answers outside any one country, with
bonds denominated in currencies other than those
of countries in which bonds are sold.
corporations and governments typically issue bonds denominated in dollars and sell them to investors
located outside the United States.
Global bonds - Answers trade in both a national bond market
and the eurobond market.
bonds that are generally denominated in US dollars and marketed globally
Underwritten offering: - Answers Investment banks buy entire bonds
issued, sell to public. Bank has to keep all the bonds it cant sell
>< Best effort offering
Best efforts offering - Answers Investment banks act as brokers.
Fix rate mortgage - Answers unchange over lifetime
Adjustable Rate Mortgage (ARM) - Answers mortgate rate change
Other: index ref mortgage: int based on libor/ t-bill
hybrid mortgage - Answers fixed to ARM
Rollover/renegotiable mortgage - Answers (fixed to fixed) interest rate changes to a different fixed rate
after initial fixed-rate period
Convertible mortgage - Answers ARM to fixed
