CSC- EXAM 1 with Complete Solutions
Bond - Correct Answers-long-term, fixed obligation debt security that's secured by
physical assets (can be seized if you don't pay)
Debenture - Correct Answers-bond promises repayment of regular interest and
repayment of principal at maturity, secured by something other than physical asset or a
claim on issuer's credit rating
Coupon Rate - Correct Answers-rate of interest that appears on the certificate of bond
Liquid Bonds - Correct Answers-bonds trade in significant volumes for which it's
possible to make med and large trades quickly w/o making significant sacrifice on price
Face/ Par Value - Correct Answers-stated value of bond and amount issuer will pay at
maturity
Marketable Bonds - Correct Answers-Ready market bonds.
Specific maturity date and interest rate.
Transferrable (can be traded in mkt)
Extendible Bonds - Correct Answers-bond or debenture issued with short term maturity
but with an option for investor to exchange debt for identical amount of longer term debt
at same or higher rate of interest.
Retractable Bonds - Correct Answers-A bond or deb usually issued with a long term to
maturity but gives investors right to redeem bond at par several years sooner
Convertible bonds and debentures - Correct Answers-combines certain advantages of
bond with option of exchanging bond for common shares. This type of security allows
investor to lock in specific price for common shares of company
Treasury Bills - Correct Answers-Short-term gov obligations offered in denominations
from $1000-1mil
No interest
Issued at discount to par and mature at full par
At maturity, holder gets diff between issue price and par and return is in form of interest
income, no cap gain
Canada Savings Bond - Correct Answers-non-transferrable
cashable by owner at any time at full par plus accrued interest for each full MONTH
available thru Payroll
,Canada Premium Bonds - Correct Answers-higher IR than CSBs
cashable by owner at any time at full par plus accrued interest earned up to last
anniversary date of issue at time of redemption
- can purchase thru financial institutions
Real Return Bonds - Correct Answers--pay interest throughout life of bond and repay
original principal amount at maturity
-coupon payments and principal repayments are adjusted for inflation based on CPI
- good if inflation is expected to increase (inflation protection)
Provincial Bonds - Correct Answers-issue fixed income securities for same reason as
fed, to finance program spending and to fund deficits
debs, promises to pay and their value depends on province's ability to pay interest and
repay principal.
coupon payments backed by provincial tax revenues
Municipal Debentures - Correct Answers-installment debentures or serial bonds to raise
money from capital markets
municipal securities are non-callable, and part of the bond matures each year of the
term of the bond
Corporate Bonds - Correct Answers-to finance growth, expand operations, buy another
company.
risk reflected in credit rating given the issue, which takes into account not just company
reputation, but also the way bonds secured.
Mortgage Bonds - Correct Answers-lender secures property if borrower fails to repay
First Mortgage Bonds - Correct Answers-senior securities of company b/c constitute 1st
charge on company's assets, earnings, and undertakings before unsecured current
liabilities are paid.
Collateral Trust Bonds - Correct Answers-Secured by pledge of real property, as in a
mortgage bond, but a pledge of securities.
Usually issued by company w/o a lot of fixed assets
Equipment Trust Certificates - Correct Answers-pledge equipment as security instead of
real property
Subordinated Debentures - Correct Answers-junior to other securities issued by
company or debts assumed by company.
Corporate Notes - Correct Answers-unsecured promises made by borrowers to pay
interest and repay funds borrowed at specific date or dates.
lowest rank
, Domestic Bonds - Correct Answers-issued in currency and country of issuer
Foreign Bonds - Correct Answers-issue in currency/country other than issuer's, allows
issuer access to sources of capital in many other countries
Foreign Pay Bonds - Correct Answers-offer investors a choice of interest payments in
either of 2 currencies or may pay interest in one currency and principal in another
Eurobonds - Correct Answers-issued and sold outside domestic market and typically
denominated in currency other than that of domestic market
Preferred Securities - Correct Answers-very long term, subordinated debentures
term to maturity 25-99 years
securities trade on exchange
rank ahead of preferred shares
Floating-rate securities - Correct Answers-popular during periods of volatile interest
rates
bonds auto adjust to changing interest rates, allows them to be issued w longer terms
Higher-yield bonds - Correct Answers-speculative grade bonds that have a higher risk
of default.
to compensate investors for increased risk, issuers pay higher yields than investment
grade bonds
Banker's Acceptance - Correct Answers-commercial drafts drawn by borrower for
payment on specific date
BA guaranteed at maturity by borrower's bank
Sold at discount and mature at face value, difference is return and taxable income
Commercial Paper - Correct Answers-unsecured promissory note issued by a corp or
asset-backed security backed by a pool of underlying financial assets
Less than 3 mos to 1 year
Sold at discount and mature at face value, difference is return and taxable income
Term Deposits - Correct Answers-offer guaranteed rate for a short-term deposit (up to 1
year)
Penalty for withdrawing funds before certain period
Guaranteed Investment Certificates (GICs) - Correct Answers-offer fixed rates of
interest for specific term (longer than with term dep)
Both principal and interest is guaranteed
Non-redeemable GICs can't be cashed before maturity, expect in the event of
depositor's death/ extreme financial hardship
Bond - Correct Answers-long-term, fixed obligation debt security that's secured by
physical assets (can be seized if you don't pay)
Debenture - Correct Answers-bond promises repayment of regular interest and
repayment of principal at maturity, secured by something other than physical asset or a
claim on issuer's credit rating
Coupon Rate - Correct Answers-rate of interest that appears on the certificate of bond
Liquid Bonds - Correct Answers-bonds trade in significant volumes for which it's
possible to make med and large trades quickly w/o making significant sacrifice on price
Face/ Par Value - Correct Answers-stated value of bond and amount issuer will pay at
maturity
Marketable Bonds - Correct Answers-Ready market bonds.
Specific maturity date and interest rate.
Transferrable (can be traded in mkt)
Extendible Bonds - Correct Answers-bond or debenture issued with short term maturity
but with an option for investor to exchange debt for identical amount of longer term debt
at same or higher rate of interest.
Retractable Bonds - Correct Answers-A bond or deb usually issued with a long term to
maturity but gives investors right to redeem bond at par several years sooner
Convertible bonds and debentures - Correct Answers-combines certain advantages of
bond with option of exchanging bond for common shares. This type of security allows
investor to lock in specific price for common shares of company
Treasury Bills - Correct Answers-Short-term gov obligations offered in denominations
from $1000-1mil
No interest
Issued at discount to par and mature at full par
At maturity, holder gets diff between issue price and par and return is in form of interest
income, no cap gain
Canada Savings Bond - Correct Answers-non-transferrable
cashable by owner at any time at full par plus accrued interest for each full MONTH
available thru Payroll
,Canada Premium Bonds - Correct Answers-higher IR than CSBs
cashable by owner at any time at full par plus accrued interest earned up to last
anniversary date of issue at time of redemption
- can purchase thru financial institutions
Real Return Bonds - Correct Answers--pay interest throughout life of bond and repay
original principal amount at maturity
-coupon payments and principal repayments are adjusted for inflation based on CPI
- good if inflation is expected to increase (inflation protection)
Provincial Bonds - Correct Answers-issue fixed income securities for same reason as
fed, to finance program spending and to fund deficits
debs, promises to pay and their value depends on province's ability to pay interest and
repay principal.
coupon payments backed by provincial tax revenues
Municipal Debentures - Correct Answers-installment debentures or serial bonds to raise
money from capital markets
municipal securities are non-callable, and part of the bond matures each year of the
term of the bond
Corporate Bonds - Correct Answers-to finance growth, expand operations, buy another
company.
risk reflected in credit rating given the issue, which takes into account not just company
reputation, but also the way bonds secured.
Mortgage Bonds - Correct Answers-lender secures property if borrower fails to repay
First Mortgage Bonds - Correct Answers-senior securities of company b/c constitute 1st
charge on company's assets, earnings, and undertakings before unsecured current
liabilities are paid.
Collateral Trust Bonds - Correct Answers-Secured by pledge of real property, as in a
mortgage bond, but a pledge of securities.
Usually issued by company w/o a lot of fixed assets
Equipment Trust Certificates - Correct Answers-pledge equipment as security instead of
real property
Subordinated Debentures - Correct Answers-junior to other securities issued by
company or debts assumed by company.
Corporate Notes - Correct Answers-unsecured promises made by borrowers to pay
interest and repay funds borrowed at specific date or dates.
lowest rank
, Domestic Bonds - Correct Answers-issued in currency and country of issuer
Foreign Bonds - Correct Answers-issue in currency/country other than issuer's, allows
issuer access to sources of capital in many other countries
Foreign Pay Bonds - Correct Answers-offer investors a choice of interest payments in
either of 2 currencies or may pay interest in one currency and principal in another
Eurobonds - Correct Answers-issued and sold outside domestic market and typically
denominated in currency other than that of domestic market
Preferred Securities - Correct Answers-very long term, subordinated debentures
term to maturity 25-99 years
securities trade on exchange
rank ahead of preferred shares
Floating-rate securities - Correct Answers-popular during periods of volatile interest
rates
bonds auto adjust to changing interest rates, allows them to be issued w longer terms
Higher-yield bonds - Correct Answers-speculative grade bonds that have a higher risk
of default.
to compensate investors for increased risk, issuers pay higher yields than investment
grade bonds
Banker's Acceptance - Correct Answers-commercial drafts drawn by borrower for
payment on specific date
BA guaranteed at maturity by borrower's bank
Sold at discount and mature at face value, difference is return and taxable income
Commercial Paper - Correct Answers-unsecured promissory note issued by a corp or
asset-backed security backed by a pool of underlying financial assets
Less than 3 mos to 1 year
Sold at discount and mature at face value, difference is return and taxable income
Term Deposits - Correct Answers-offer guaranteed rate for a short-term deposit (up to 1
year)
Penalty for withdrawing funds before certain period
Guaranteed Investment Certificates (GICs) - Correct Answers-offer fixed rates of
interest for specific term (longer than with term dep)
Both principal and interest is guaranteed
Non-redeemable GICs can't be cashed before maturity, expect in the event of
depositor's death/ extreme financial hardship
