65 - Unit 13
Treasury bills are
issued in book entry form
A money market instrument is
a high-quality, short-term debt security with maturity of 1 year or less
The relationship between the time to maturity (length) and duration is
a linear one
The call feature available on some bonds
allows the issuer the option to escape high interest rates if market rates decline.
GNMA securities
are considered to be the safest of the agency issues -backed by the full faith and credit of the U.S. government
Yankee bonds
are issued by non-U.S. entities in marketplaces inside the United States
Municipal bonds generally
carry lower coupon rates than corporate bonds of the same quality
Parity price is only relevant to
convertible bonds.
Municipal bonds are often called tax-exempts. This refers to the exemption of their income from
federal income taxes
Municipal bonds are bonds issued by
governmental units at levels other than the federal.
Treasury STRIPS
have a longer duration than those paying semiannual interest -The longer the duration, the greater the interest rate risk
The owner of a convertible debt issue
is a creditor of the issuer
An investor purchasing 10 corporate bonds at a price of 102¼ each will pay
$10,225.00
All the following securities are issued at a discount
1 Treasury bills 2 commercial paper 3 zero-coupon bonds
A bond with a par value of $1,000 and a coupon rate of 6% paid semi-annually, is currently selling for $1,200. The bond is callable in 15 years at 105. In the computation of the bond's yield to call, which of these would be a factor?
Interest payments of $30
The market price of a convertible bond depends on all of the following
current interest rates the value of the underlying stock into which the bond can be converted the rating of the bond
Zero-coupon bonds are sold at a
deep discount from par value and have no coupon payments
An investor is considering the purchase of $100,000 maturity value of zero-coupon AAA-rated corporate bonds scheduled to mature in 20 years. Among the risks that this investor will be assuming are
default risk interest rate risk
Current yield is determined by
dividing the annual interest payment by the current market price of the bond
Parity means
equal
direct obligation of the U.S. government
Ginnie Maes
CDS don't have what risk?
Interest Rate
LIBOR stands for
London Interbank Offered Rate
would make a corporate bond more subject to liquidity risk
Long-term maturity and Low credit rating
discounted cash flow computation
Net present value
Which of the following debt instruments does not make periodic interest payments?
T-bills
Which two of the following investments would offer your clients the best chance of minimizing inflation risk
TIPS and Common Stock
Assume that a corporation issues a 5% Aaa/AAA-rated debenture at par. Two years later, similarly rated debt issues are being offered in the primary market at 5.5%. Which of the following statements regarding the outstanding 5% debenture are TRUE?
The current yield on the debenture will be higher than 5% and The dollar price per bond will be lower than par
Which of the following statements regarding U.S. government agency securities is TRUE?
They generally offer higher yields than direct U.S. obligations.
The most common collateral securing a Brady bond is
U.S. Treasury zero-coupon bonds with a maturity corresponding to the maturity of the individual Brady bond
Treasury note would have a maturity
of 2 to 10 years and therefore would not be a money market instrument.
Municipal bonds are generally considered second
only to treasury instruments in relative safety.
Some analysts use the discounted cash flow to determine the theoretical value of a debt security. Under DCF, the bond price can be summarized as the sum of the
present value of the par value repaid at maturity plus the present value of the coupon payments
antidilutive clauses
provide for an adjustment in the number of shares based on stock splits or stock dividends
Zero-coupon bonds eliminate what risk
reinvestment rate risk.
A bond with a basis, or yield to maturity, greater than its coupon
is trading at a discount, or below par.
The interest on municipal bonds
is usually not subject to federal income tax.
Treasury STRIPS are
zero-coupon bonds -Interest Rate Risk
Treasury notes are quoted in
32nds where each 32nd equals $.3125. The 102 in the quote equals $1,020 and the 21/32 is an additional $6.56 bringing the total to $1,026.56.
One popular method of determining the value of certain securities is discounted cash flow. Using the DCF with the current discount rate at 3%, which of the following would be expected to have the highest market value?
ABC Corporation debenture maturing in 25 years with a 5% coupon
The term "eurodollars" refers to
American dollars held by banks in other countries, especially in Europe
CDs are
interest-bearing debt instruments issued by banks at their face value
The best time for an investor seeking returns to purchase long-term, fixed-interest-rate bonds is when
long-term interest rates are high and beginning to decline
One would look at the average maturities when doing a cash flow analysis for
mortgage-backed pass-through securities
An investor expecting an increase in interest rates should
sell more volatile bonds and purchase less volatile bonds
When current interest rates are at 6%, you would expect a bond with a nominal yield of 4% to be
selling at a discount
Money market investments can fulfill a number of roles within a client's portfolio, including:
short-term allocation for cash balances; serving as an alternative to bonds and equities in a multiasset class portfolio to lower the overall volatility of the portfolio; and serving as part of the asset allocation strategy to get higher returns than they would receive on cash.
When an investor divides the coupon rate of a municipal bond by the reciprocal of her tax rate, she is computing the bond's
tax-equivalent yield.
The yield to maturity is
the annualized return of a bond if it is held to maturity
Annual interest payment divided by current dollar price of a bond is
the current yield
the bond with the greatest time to maturity (longest duration) will experience
the greatest fall in a rising interest rate market.
The higher the coupon
the shorter the duration.
All of the following factors have an inverse relationship to a bond's duration
yield to maturity current yield coupon rate
