Fixed Income Quiz 1

The provisions 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 make-whole call provision c. An original issue discount provision

a. A put provision

Relative to domestic and foreign bonds, Eurobonds are most likely to be: a. Bearer bonds b. Registered bonds c. Subject to greater regulation

a. Bearer bonds

Which of the following best describes a convertible bond's conversion premium? a. Bond price minus conversion value b. Par value divided by conversion price c. Current share price multiplied by conversion ratio

a. Bond price minus conversion value

Contrary to positive bond covenant, negative covenants are most likely: a. Costlier b. Legally enforceable c. Enacted at time of issue

a. Costlier

Clauses that specify the rights of the bondholders and any actions that the issuer is obligated to perform or is prohibited from performing are: a. Covenants b. Collaterals c. Credit enhancements

a. Covenants

Relative to an otherwise similar option-free bond, a: a. Putable bond will trade at a higher price b. Callable bond will trade at a higher price c. Convertible bond will trade at a lower price

a. Putable bond will trade at a higher price

A 10-year bond was issued four years. The bond is denominated in US dollars, offers a coupon rate of 10% with interest paid semi-annually, and is currently priced at 102% of par. The bond's: a. Tenor is six years b. Nominal rate is 5% c. Redemption value is 102% of the par value

a. Tenor is six years

Which of the following is a type of external credit enhancement? a. Covenants b. A surety bond c. Overcollaterization

b. A surety bond

Which of the provisions is a benefit to the issuer? a. Put provision b. Call provision c. Conversion provision

b. Call provision

A five-year bond has the following cash flows: The bond can best be described as: (graph) a. Bullet bond b. Fully amortized bond c. Partially amortized bond

b. Fully amortized bond

The legal contract that describes the form of the bond, the obligation of the issuer, and rights of the bondholders can be best described as a bond's: a. Covenant b. Indenture c. Debenture

b. Indenture

Which of the following best describes a negative bond covenant? The issuer is: a. Required to pay taxes as they come due b. Prohibited from investing in risky projects c. Required to maintain is current lines of business

b. Prohibited from investing in risky projects

A company has issued a floating-rate note with a coupon rate equal to the three-month Libor + 65 basis points. Interest payments are made quarterly on 31 March. 30 June, 30 September, and 31 December. On 31 March and 30 June, the three-month Libor is 1.55% and 1.35%, respectively. The coupon rate for the interest rate for the payment made on 30 June is: a. 2.00% b. 2.10% c. 2.20%

c. 2.20%

If interest rates are expected to increase, the coupon payment structure most likely to benefit the issuer is a: a. Step-up coupon b. Inflation-linked coupon c. Cap in a floating-rate note

c. Cap in a floating-rate note

Investors who believe that interest rates will rise most likely prefer to invest in: a. Inverse floaters b. Fixed-rate bonds c. Floating-rate notes

c. Floating-rate notes

A bond that is characterized by a fixed periodic payment schedule that reduces the bond's outstanding principal amount to zero by the maturity date is best described as a: a. Bullet bond b. Plan vanilla bond c. Fully amortized bond

c. Fully amortized bond

Which of the following best describes a negative covenant? The requirement to: a. Insure and maintain assets b. Comply with all laws and regulations c. Maintain a minimum interest coverage ratio

c. Maintain a minimum interest coverage ratio

Which of the following bond types provides the most benefit to a bondholder when bond prices are declining? a. Callable b. Plain Vanilla c. Multiple Put

c. Multiple Put

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. A coupon rate increases to 8% b. Coupon payment is equal to 40 c. Principal amount increases to 1,020

c. Principal amount increases to 1,020

Which type of bond most likely earns interest on an implied basis? a. Floater b. Conventional Bond c. Pure discount bond

c. Pure discount bond

An investor in a country with an original issue discount tax provision purchases a 20-year zero-coupon bond at a deep discount to par value. The investor plans to hold the hold the bond until the maturity date. The investor will most likely report: a. A capital gain at maturity b. A tax deduction in the year the bond is purchased c. Taxable income from the bond every year until maturity

c. Taxable income from the bond every year until maturity