unit 13

A client has a TIPS with a coupon of 4.5% inflation rate is & for the last year. what is inflation adjusted return?

4.5% - TIPs adjust every 6 months for inflation so real rate of return will always be the coupon

category of loans with relatively high interest rates and fees that are offered to borrowers with less-than-ideal credit. usually because you can't qualify for a conventional loan

Subprime loans

Which of the following types of life insurance has premiums that increase each time the policy is renewed, and no cash value buildup?

A term policy provides life insurance only with no savings element. Upon renewal, the rates are higher as you age.

Which of the following is not a type of life insurance policy?

A) Universal life policy B) Variable annuity policy* C) Term to 65 policy D) Endowment policy

A special type of Treasury issue that helps protect investors against purchasing power risk

Treasury Inflation Protection Securities (TIPS)

The longest initial maturity for U.S. T-bills is:

As money market instruments, the longest initial maturity of Treasury Bills is 52 weeks. Those bills are auctioned once per month. T-bills of shorter maturities are auctioned weekly. The shortest initial maturity is 4 weeks.

Exchange-traded notes (ETNs) are

Exchange-traded notes are unsecured debt securities issued by financial institutions, such as banks. Their prices can be impacted by changes in the credit rating of the issuer, and they are not insured by the FDIC.

A money market mutual fund would be least likely to invest in which of the following assets?

Newly issued ​U.S. Treasury notes - A money market mutual fund typically invests in money market instruments, those with a maturity date not exceeding 397 days. Treasury notes are issued with maturity dates of 2-10 years.

BFJ Corp's 5% convertible bond is trading at 120. The bond is convertible at $50. An investor buying the bond now and immediately converting into common stock, would receive

The conversion ratio always uses the par value ($1,000), never the current market price. With a par value of $1,000 and a conversion price of $50 per share, this bond is convertible into 20 shares ($1,000 / $50). Remember, the number of shares in a conversion never changes. When the market price changes, the parity price changes, but that isn't relevant to this question.

Which of the following factors has a direct relationship to a bond's duration?

Time to maturity

Which of the following debt instruments does not make periodic interest payments?

Treasury bills are always issued at a discount from their face value. At maturity, the investor receives the face value. The other choices pay interest semiannually. ( T-notes, T-bonds, TIPS) What makes TIPS different from the others is that the principal adjusts for inflation every six months. That means the fixed interest rate is paid on a varying principal.

When Treasury bills are issued, they are quoted at

a discount from principal with no coupons attached

Secured debt securities

are backed by various kinds of assets of the issuing corporation

unsecured debt securities

are backed only by the reputation, credit record, and financial stability of the corporation

debenture

debt obligation of the corporation backed only by its word and general creditworthiness

GNMA securities

interest is subject to federal income tax they are backed by residential mortgages

For mortgage back securities - prepayment risk is what kind of risk what are benefits?

they are among the most complicated instruments and are, therefore, difficult to understand; prepayment risk due to mortgages being refinanced when rates drop; default risk, particularly if the mortgages are subprime; reinvestment risk; and liquidity risk. benefits are that they usually pay a higher rate of return

If your customer wants to set aside $40,000 for when his child starts college, but does not want to endanger the principal, you should recommend

zero-coupon bonds backed by the U.S. Treasury

U.S Treasury Bonds

· Pay semiannual interest · Long term maturities 10-30 years · Mature at par

U.S Treasury Notes

· Pay semiannual interest · intermediate maturities (2, 3, 5, 7, and 10 years) · mature at par value · They are noncallable ( cant be paid off earlier than maturity)

Treasury Bills

· always issued and traded at adiscount · only Treasury security issued without a stated interest rate · highly liquid - 13-week (also referred to as 91-day) Risk Free rate